2012-06-30 - 2012 Q2 FS

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					SPOT COFFEE (CANADA) LTD.

UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011

(In Canadian Dollars)
SPOT COFFEE (CANADA) LTD.




TABLE OF CONTENTS



UNAUDITED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

  Notice to Reader                                                            1
  Consolidated Interim Statements of Financial Position                       2
  Consolidated Interim Statements of Operations and Comprehensive Loss        3
  Consolidated Interim Statements of Changes in Equity                        4
  Consolidated Interim Statements of Cash Flows                               5
  Notes to Consolidated Interim Financial Statements                     6 - 26
                                                                                                           1



NOTICE TO READER


The accompanying unaudited interim consolidated financial statements have been prepared by the Company's
management and the Company's independent auditors have not performed a review of these consolidated financial
statements.


Toronto, Canada

August 13, 2012
SPOT COFFEE (CANADA) LTD.

CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION
(In Canadian Dollars)                                                                                              2


                                                                                      June 30,        December 31,
                                                                                         2012                2011
                                                                        $                         $
 Assets
 Current
  Cash                                                                                195,292              749,922
  Accounts and other receivable (Note 16)                                             253,871              200,518
  Inventories (Note 4)                                                                 65,481               91,796
  Prepaids and sundry                                                                 429,017              119,684
  Loans receivable (Note 5)                                                           385,073              384,657
                                                                                    1,328,734            1,546,577

 Property and equipment (Note 6)                                                    2,800,106            2,474,062
 Goodwill (Note 7)                                                                    923,557              922,559
                                                                                    5,052,397            4,943,198

 Liabilities
 Current
  Bank indebtedness (Note 8)                                                                -               26,034
  Accounts payable and accrued liabilities (Note 16)                                  660,078              563,491
  Deferred revenue                                                                     29,068               39,179
  Current portion of long-term debt (Note 9)                                           31,832               22,744
                                                                                      720,978              651,448

 Advances from shareholders (Note 10)                                                 553,271              552,673
 Long-term debt (Note 9)                                                              841,329              628,373
 Deferred lease inducement                                                            133,232              143,086
                                                                                    2,248,810            1,975,580

 Shareholders' Equity
 Equity attributable to owners of the parent
 Share capital (Note 11)                                                            7,742,340            7,704,862
 Shares to be issued (Note 11)                                                        260,000                    -
 Equity reserves
    Warrants (Note 13)                                                                 815,810              773,288
    Contributed surplus (Note 14)                                                      864,965              694,898
 Accumulated other comprehensive income                                                (11,823)             (15,378)
 Deficit                                                                           (7,099,188)          (6,433,691)
                                                                                     2,572,104            2,723,979
 Non-controlling interests                                                             231,483              243,639
                                                                                     2,803,587            2,967,618
                                                                                     5,052,397            4,943,198

Commitments and contingencies (Note 17)


ON BEHALF OF THE BOARD

Signed “Anton Ayoub” , Director                   Signed “Alex Gress” , Director
SPOT COFFEE (CANADA) LTD.

CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Canadian Dollars)                                                                                                         3

                                                                     Three months ended                Six months ended
                                                                           June 30,                         June 30,
                                                                   2012              2011           2012              2011
                                                                $                 $              $                 $
Revenue                                                           1,752,947         1,406,198      3,365,310         2,558,733
Cost of sales                                                       615,021           488,741      1,147,959           795,542
Gross profit                                                      1,137,926           917,457      2,217,351         1,763,191

Expenses
   Salaries and wages (Note 16)                                      766,994          516,865       1,552,583          985,997
   Stock-based compensation (Note 16)                                 16,065                -         173,121                -
   Occupancy costs                                                   221,193          156,179         433,100          396,225
   Office and general                                                116,740           97,387         238,974          163,283
   Professional fees                                                  69,338           29,176          88,860           64,782
   Interest and bank charges                                          44,732           23,058          74,793           41,638
   Travel                                                             28,973           21,361          56,298           51,479
   Consulting (Note 16)                                               15,967           25,742          21,971           55,451
   Depreciation                                                      130,537           59,047         243,087          137,509
                                                                   1,410,539          928,815       2,882,787        1,896,364

Loss before income taxes                                           (272,613)         (11,358)       (665,436)        (133,173)
Income taxes                                                               -                -               -                -
Net loss for the period                                            (272,613)         (11,358)       (665,436)        (133,173)

Net loss attributable to:
    Owners of the parent                                           (276,288)         (16,494)       (665,497)        (141,957)
    Non-controlling interests                                          3,675            5,136              61            8,784
Net loss for the period                                            (272,613)         (11,358)       (665,436)        (133,173)

Loss per share attributable to owners of the parent (Note 15)
– basic and diluted                                                   (0.004)          (0.000)         (0.010)          (0.002)
Weighted average number of shares outstanding                     68,277,866       59,759,353      68,248,553       59,322,221


Consolidated Statements of Comprehensive Loss
Net loss for the period                                            (272,613)         (11,358)       (665,436)        (133,173)
Other comprehensive income (loss)
 - foreign currency translation                                      64,697          (28,594)          3,555          (67,573)
Comprehensive loss for the period                                  (207,916)         (39,952)       (661,881)        (200,746)
 SPOT COFFEE (CANADA) LTD.

 CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
 (In Canadian Dollars)
                                                                                                                                                                      4



                                                                       Equity Attributable to Owners of the Parent                              Non-
                                                     Share       Shares to       Equity                                                      controlling        Total
                                                     Capital     be issued      Reserve         AOCI          Deficit            Total        interest          Equity
                                                 $               $               $              $               $                            $              $

Balance - December 31, 2010                      6,189,655            183,800        381,143         (57,699)   (5,452,665)     1,244,234         18,951        1,263,185

Net loss and comprehensive loss                                                                                     (141,957)   (141,957)          8,784        (133,173)

Private placement                                1,650,000           (183,800)                                                  1,466,200                       1,466,200

Value of warrants granted on private placement        (41,689)                        41,689                                             -                                -

Share issuance costs                                 (126,880)                                                                  (126,880)                       (126,880)

Other comprehensive income                                                                           (67,573)                    (67,573)                        (67,573)

Balance – June 30, 2011                          7,671,086                   -       422,832        (125,272)   (5,594,622)     2,374,024         27,735        2,401,759




Balance - December 31, 2011                      7,704,862                   -   1,468,186           (15,378)   (6,433,691)     2,723,979        243,639        2,967,618

Net loss and comprehensive loss                                                                                     (665,497)   (665,497)             61        (665,436)

Private placement                                                     300,000                                                    300,000                         300,000

Share issuance costs                                                  (40,000)                                                   (40,000)                        (40,000)

Valuation of detachable warrants                                                      53,000                                      53,000                          53,000

Warrants exercised                                     27,000                                                                     27,000                          27,000

Valuation allocation of warrants exercised             10,478                        (10,478)                                            -                                -

Share-based payments                                                                 173,121                                     173,121                         173,121

Return of capital to non-controlling interest                                         (3,054)                                     (3,054)        (12,217)        (15,272)

Other comprehensive income                                                                             3,555                       3,555                           3,555

Balance – June 30, 2012                          7,742,340            260,000    1,680,775           (11,823)   (7,099,188)     2,572,104        231,483        2,803,587
SPOT COFFEE (CANADA) LTD.

CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(In Canadian Dollars)                                                                                                        5

                                                                    Three months ended                Six months ended
                                                                         June 30,                          June 30,
                                                                  2012              2011           2012              2011
                                                              $                 $              $                  $
Operating activities
   Net loss for the period                                        (272,613)         (11,358)       (665,436)        (133,173)
   Adjustments for:
      Depreciation                                                  130,537          59,047          243,087         137,509
      Rent inducement                                                (3,468)         (5,520)          (9,854)        (31,837)
      Share-based payments                                           16,065                -         173,121                -
                                                                  (129,479)          42,169        (259,082)         (27,501)
   Changes in non-cash working capital items
      Accounts and other receivable                                (46,105)           47,239        (53,353)         (64,262)
      Inventories                                                    23,654          (5,710)          26,315            (729)
      Prepaids and sundry                                         (217,808)         (20,837)       (309,333)         (13,568)
      Accounts payable and accrued liabilities                      121,598        (171,542)          96,587        (395,947)
      Deferred revenue                                                5,171         (94,176)        (10,111)         (33,558)
                                                                  (113,490)        (245,026)       (249,895)        (508,064)

   Total cash inflows (outflows) from operating activities        (242,969)        (202,857)       (508,977)        (535,565)

Investing activities
    Purchase of property and equipment                            (447,586)        (109,348)       (569,131)        (174,370)
    Loan receivables                                                (7,791)         (99,226)           (416)        (141,108)
    Total cash inflows (outflows) from investing activities       (455,377)        (208,574)       (569,547)        (315,478)

Financing activities
    Change in bank indebtedness                                           -          (7,544)        (26,034)          (52,380)
    Advances from shareholders                                            -                -               -        (267,339)
    Return of capital to non-controlling interest                  (12,217)                -        (12,217)                 -
    Long-term debt                                                 223,080           (6,926)        241,759           (11,937)
    Issuance of capital stock                                      260,000          500,000         287,000         1,466,200
    Share issue costs                                                     -         (34,800)               -        (126,880)
    Total cash inflows (outflows) from financing activities        470,863          450,730         490,507         1,007,664

Effect of exchange rate changes on cash                             81,579          (28,594)         33,387          (67,573)

Change in cash during the period                                  (145,904)          10,705        (554,630)           89,048

Cash, beginning of the period                                      341,196          107,399         749,922            28,976

Cash, end of the period                                            195,292          118,104         195,292          118,024
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                        6

1. NATURE AND BASIS OF OPERATIONS

  Spot Coffee (Canada) Ltd. (“SPoT” or the “Company”) designs, builds and operates community-oriented cafés that
  provide its customers from every lifestyle and culture with the highest quality service, signature light meals and in-house
  roasted gourmet coffee. SPoT has been successfully operating company-owned cafés in Canada and the United States
  since 2004.

  Each SPoT café is a popular, warm, friendly and home-like place that directly reflects the culture and history of its
  community. SPoT currently operates seven cafés that range in size from 2,000 to in excess of 4,000 square feet, with
  locations in Buffalo (three), Williamsville and Rochester in New York State, Delray Beach, Florida and Toronto, Canada.
  Additionally, the Company has three new cafés under development, SPoT Park Place located in Toronto, and SPoT
  Transit Road and SPoT Saratoga Springs in New York State.

  The Company is incorporated under the Business Corporations Act (Ontario). The Company’s shares are listed on the
  Toronto Venture Stock Exchange under the Symbol “SPP”. The head office, principal address and records office of the
  Company are located at 141 Adelaide Street West, Suite 110, Toronto, Ontario, M5H 3L5.

2. SIGNIFICANT ACCOUNTING POLICIES

   (a) Statement of Compliance

   These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as
   issued by the International Accounting Standards Board (the IASB). These financial statements have been authorized for
   issue by the Board of Directors on August 13, 2012.

   (b) Basis of Presentation

   These financial statements were prepared under the historical cost basis.

   The reporting currency of the Company is the Canadian dollar. The Company has operations where the functional
   currency is the Canadian dollar. The functional currency of the foreign operations is US dollar; the translation of the
   financial statements is straightforward using the current rate method.

   (c) Basis of Consolidation

   The consolidated financial statements comprise the financial statements of the Company and its subsidiaries.
   Intercompany transactions and balances are eliminated on consolidation.

   Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are included in the
   consolidated financial statements from the date that control commences until the date that control ceases.

   The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling shareholders’
   proportion of the net fair value of the identifiable assets, liabilities and contingent liabilities recognized.

   Joint venture arrangements that involve a separate entity in which venturers have joint control over the economic
   activity of the entity are referred to as a jointly controlled entity. Joint control exists when the strategic financial and
   operating policies relating to the activities of the joint venture arrangement require the unanimous consent of the
   parties in the joint venture.

   Jointly controlled entities are included in the consolidated financial statements using proportionate consolidation. The
   share of each of the jointly controlled entity’s assets, liabilities, income and expenses are combined on a line-by-line
   basis with those of the Company.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                    7

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Intra-group balances and transactions, and any unrealized income and expense arising from intra-group transactions,
   are eliminated against the asset or liability of the jointly controlled entity arising on the transaction.

   (d) Critical Accounting Estimates and Judgments

   The preparation of financial statements in compliance with IFRS requires management to make certain critical
   accounting estimates. It also requires management to exercise judgement in applying the Company’s accounting
   policies. The Company makes certain estimates and assumptions regarding the future. Estimates and judgments are
   continually evaluated based on historical experience and other factors, including expectations of future events that are
   believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates
   and assumptions.

   The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are
   significant to the financial statement are disclosed below.

   Cash-Generating Unit (CGU) Determination

   Identification of an asset’s cash-generating unit under IAS 36 involves judgement. If the recoverable amount cannot be
   determined for an individual asset, management identifies the lowest aggregation of assets that generate largely
   independent cash inflows. Management has determined that there are three CGUs for impairment testing purposes.
   Details are provided in Note 7.

   Impairment

   An impairment loss is recognized for the amount by which an asset’s or cash-generating unit’s carrying amount exceeds
   its recoverable amount. To determine the recoverable amount, management estimates expected future cash flows from
   each asset or cash-generating unit and determines a suitable interest rate in order to calculate the present value of
   those cash flows. In the process of measuring expected future cash flows management makes assumptions about future
   operating results. The assumptions relate to future events and circumstances. The actual results may vary, and may
   cause significant adjustments to the Company’s assets within the next financial year.

   In most cases, determining the applicable discount rate involves estimating the appropriate adjustment to market risk
   and the appropriate adjustment to asset-specific risk factors.

   Useful Lives of Depreciable Assets

   Management reviews the useful lives of depreciable assets including property and equipment at each reporting date
   based on the expected utility of the assets to the Company. Actual results, however, may vary due to technical
   obsolescence. Details of Property and Equipment useful lives are provided in Note 2 (e).

   Fair Value of Financial Instruments

   The Company determines the fair value of financial instruments that are not quoted, using valuation techniques. Those
   techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash
   flows. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent
   markets and, in many cases, may not be capable of being realized immediately.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                         8

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Share-based Payments
   The Company measures the cost of equity-settled transactions with directors, officers and employees by reference to
   the fair value of the equity instruments at the date at which they are granted. Estimating fair value for share-based
   payment transactions requires determining the most appropriate valuation model, which is dependent on the terms
   and conditions of the grant. This estimate also requires determining the most appropriate inputs to the valuation model
   including the expected life of the share option, volatility and dividend yield. The assumptions and models used for
   estimating fair value for stock based compensation transactions are disclosed in Note 12.

   Income Taxes
   Significant judgment is required in determining the provision for income taxes. There are many transactions and
   calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain.
   The Company recognizes liabilities and contingencies for anticipated tax audit issues based on the Company’s current
   understanding of the tax law. For matters where it is probable that an adjustment will be made, the Company records
   its best estimate of the tax liability including the related interest and penalties in the current tax provision. Management
   believes they have adequately provided for the probable outcome of these matters; however, the final outcome may
   result in a materially different outcome than the amount included in the tax liabilities.
   In addition, the Company recognizes deferred tax assets relating to tax losses carried forward to the extent that it is
   probable that taxable profit will be available against which a deductible temporary difference can be utilized. This is
   deemed to be the case when there are sufficient taxable temporary differences relating to the same taxation authority
   and the same taxable entity which are expected to reverse in the same year as the expected reversal of the deductible
   temporary difference, or in years into which a tax loss arising from the deferred tax asset can be carried back or
   forward. However, utilization of the tax losses also depends on the ability of the taxable entity to satisfy certain tests at
   the time the losses are recouped.

  (e) Other Significant Accounting Policies

   Inventories

   Inventories are valued initially at cost and subsequently at the lower of cost and net realizable value. Cost comprises all
   cost of purchase and other costs incurred in bringing the inventories to their present location and condition.

   Property and Equipment

   Property and equipment is initially recorded at cost being the purchase price and directly attributable cost of acquisition
   required to bring the asset to the location and condition necessary to be capable of operating in the manner intended
   by the Company, including appropriate borrowing costs.

   Property and equipment is subsequently measured at cost less accumulated depreciation, less any accumulated
   impairment losses.

   Where an item of property and equipment comprises significant components with different useful lives, the
   components are accounted for as separate items of equipment.

   Subsequent Costs

   The cost of replacing part of an item of property and equipment is recognized in the carrying amount of the item if it is
   probable that the future economic benefits embodied within the part will flow to the Company and its cost can be
   measured reliably. The carrying amount of the replaced part is derecognized. The cost of the day-to-day servicing of
   property, plant and equipment are recognized in profit or loss as incurred.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                       9

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Major Maintenance and Repairs

   Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only
   when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the
   item can be measured reliably. All other repairs and maintenance are charged to profit or loss during the financial year
   in which they are incurred.

   Gains and Losses

   Gains and losses on disposal of an item or property and equipment are determined by comparing the proceeds from
   disposal with the carrying amount, and are recognized net within gain or loss from disposal of equipment in profit or
   loss.

   Depreciation

   Depreciation is recognized in net income and begins when the asset is available for use, when it is in the location and
   condition necessary for it to be capable of operating in the manner intended by management. Depreciation is provided
   on a straight line basis over the estimated useful life of the assets as follows:

   Computer equipment and software           -   5 years
   Furniture and fixtures                    -   5 to 7 years
   Machinery and equipment                   -   5 to 7 years
   Leasehold improvements                    -   5 to 10 years
   Vehicle                                   -   5 years

   Depreciation methods, useful lives and residual values are reviewed annually and adjusted if necessary.

   Goodwill

  Goodwill represents the excess of the cost of a business combination over, in the case of business combinations
  completed prior to 1 January 2010, the Company‘s interest in the fair value of identifiable assets and liabilities acquired
  and, in the case of business combinations completed on or after 1 January 2010, the total acquisition date fair value of
  the identifiable assets, liabilities and contingent liabilities acquired.

  For business combinations completed prior to 1 January 2010, cost comprised the fair value of assets given, liabilities
  assumed and equity instruments issued, plus any direct costs of acquisition. Changes in the estimated value of
  contingent consideration arising on business combinations completed by this date were treated as an adjustment to
  cost and, in consequence, resulted in a change in the carrying value of goodwill.

  For business combinations completed on or after 1 January 2010 and going forward, cost comprises the fair value of
  assets given, liabilities assumed and equity instruments issued, plus the amount of any non-controlling interests in the
  acquiree plus, if the business combination is achieved in stages, the fair value of the existing equity interest in the
  acquiree.

  Contingent consideration is included in cost at its acquisition date fair value and, in the case of contingent consideration
  classified as a financial liability, remeasured subsequently through profit or loss. Any direct costs of acquisition are
  recognized immediately as an expense.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                           10

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

  Goodwill is capitalized with any impairment in carrying value being charged to the Consolidated Statement of
  Comprehensive Income. Where the fair value of identifiable assets, liabilities and contingent liabilities exceed the fair
  value of consideration paid, the excess is credited in full to the Consolidated Statement of Comprehensive Income on
  the acquisition date

  Impairment of Non-Financial Assets (excluding inventory)

  Impairment tests on goodwill are undertaken annually at the financial year end. Other non-financial assets including
  property, plant and equipment and intangible assets are subject to impairment tests whenever events or changes in
  circumstances indicate that their carrying amount may not be recoverable. Where the carrying value of an asset exceeds
  its recoverable amount (i.e. the higher of value in use and fair value less costs to sell), the asset is written down
  accordingly.

  Where it is not possible to estimate the recoverable amount of an individual asset, the impairment test is carried out on
  the asset's cash-generating unit (CGU), which is the lowest group of assets in which the asset belongs for which there
  are separately identifiable cash flows. The Company has three CGUs for which impairment testing is performed.

  Goodwill is allocated on initial recognition to those CGUs that are expected to benefit from synergies of the related
  business combination and represent the lowest level within the Company at which management monitors goodwill.
  CGUs to which goodwill has been allocated are tested for impairment at least annually.

  Impairment losses for CGUs reduce first the carrying amount of any goodwill allocated to that cash-generating unit. Any
  remaining impairment loss is charged pro rata to the other assets in the CGUs. With the exception of goodwill, all assets
  are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist. An
  impairment charge is reversed if the CGU‘s recoverable amount exceeds its carrying amount.

  Impairment charges are included in the Consolidated Statement of Comprehensive Income in general and administrative
  expenses.

   Financial Instruments

   Financial assets and financial liabilities are recognized when the Company becomes a party to the contractual provisions
   of the financial instrument.

   Financial assets and financial liabilities are measured initially at fair value plus directly attributable transaction costs,
   except for financial assets and financial liabilities carried at fair value through profit or loss, which are measured initially
   at fair value.

   Financial assets and financial liabilities are measured subsequently depending on their classification as discussed below.

   Financial Assets

   The Company’s financial assets include cash and cash equivalents, accounts receivable, subscriptions receivable and
   loan receivable. Loans and receivables are initially recognized at the fair value and subsequently carried at amortized
   cost using the effective interest rate method, less provision for impairment.

   The Company does not have any financial assets classified as Fair Value Through Profit or Loss, Held to Maturity or
   Available-for-Sale.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                      11

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Financial Liabilities

   The Company’s financial liabilities include bank indebtedness, accounts payable and accrued liabilities, advances from
   shareholders and long-term debt. They are measured at fair value on initial recognition, net of transactions costs and
   subsequently at amortized cost using the effective interest rate method.

   The Company does not have any financial liabilities classified as Fair Value Through Profit or Loss.

   Provisions

   Provisions are recognized for liabilities of uncertain timing or amount that have arisen as a result of past transactions,
   including legal or constructive obligations. The provision is measured at the best estimate of the expenditure required
   to settle the obligation at the reporting date.

   Income Taxes

   Income tax expense comprises of current and deferred tax. Current tax and deferred tax are recognized in net income
   except to the extent that it relates to a business combination or items recognized directly in equity or in other
   comprehensive loss/income.

   Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for
   the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are
   determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

   Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax
   base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences
   arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the
   time of the transaction affects neither accounting nor taxable profit or loss.

   Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted
   to those instances where it is probable that future taxable profit will be available against which the deferred tax asset
   can be utilized. At the end of each reporting period the Company reassesses unrecognized deferred tax assets. The
   Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future
   taxable profit will allow the deferred tax asset to be recovered.

   Share Capital

   Share capital represents shares that have been issued by the Company measured at the proceeds received, net of direct
   issue costs. The proceeds related to common share warrants are estimated based on the grant date estimated fair value
   of the warrants as determined using the Black-Scholes option pricing model with assumptions including expected
   dividend yield, expected volatility, risk free interest rate and expected life.

   Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the
   definition of a financial liability or financial asset. The Company’s ordinary shares are classified as equity instruments.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                       12

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

   Share-based Payments

   As part of its remuneration, the Company grants stock options to buy common shares of the Company to its employees.
   The fair values of employees' services are determined indirectly by reference to the fair value of the equity instruments
   granted. This fair value is measured at the grant date, using the Black-Scholes option pricing model, and is recognized
   over the vesting period, based on the best available estimate of the number of share options expected to vest.
   Estimates are subsequently revised, if there is any indication that the number of share options expected to vest differs
   from previous estimates.

   All share-based remuneration is ultimately recognized as an expense in The Consolidated Statements of Operations and
   Comprehensive Loss with a corresponding credit to contributed surplus. Upon exercise of share options, the proceeds
   received net of any directly attributable transaction costs and the amount originally credit to contributed surplus are
   allocated to share capital.

   Revenue Recognition

   Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the
   revenue can be reliably measured. Revenue is measured at the fair value of the consideration received, excluding
   discounts, rebates, and sales taxes or duty.

   Borrowing Costs

   Borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset are capitalized
   during the period of time that is necessary to complete and prepare the asset for its intended use or sale. Financing
   costs are capitalized at interest rates relating to loans specifically raised for that purpose, or at the weighted average
   borrowing rate where the general pool of Company borrowings is utilized. Capitalization of borrowing costs ceases
   when the asset is substantially complete.

   Foreign Currency Translation

   In preparing the financial statements of the individual entities, transactions in currencies other than the entity‘s
   functional currency (foreign currencies) are recorded at the rates of exchange prevailing at the dates of the transactions.
   All assets and liabilities are translated at the current rate; all revenues and expenses are translated at the average rate.
   Common stock is translated at the historic rate and retained earnings is the cumulative amount of net loss. Any
   adjustments on the translation of net assets are included as part of shareholder’s equity in “Accumulated Other
   Comprehensive Income” which is part of Other Comprehensive Income.

   Operating Segments

   An operating segment is a component of an entity that engages in business activities from which it may earn revenues
   and incur expenses (including revenues and expenses relating to transactions with other components of the same
   entity), whose operating results are regularly reviewed by the entity’s chief operating decision maker to make decisions
   about resources to be allocated to the segment and assess its performance, and for which discrete financial information
   is available.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                    13

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

  Standards, Amendments and Interpretations Not Yet Effective

  Certain pronouncements were issued by the IASB or the IFRS Interpretations Committee that are mandatory for
  accounting years beginning after January 1, 2011 or later years. None of these is expected to have a significant effect on
  the consolidated financial statements, except for the following:

       The Company has early adopted amendments to IFRS 1 which replaces references to a fixed date of ‘1 January
       2004’ with ‘the date of transition to IFRSs’. This eliminates the need for the Company to restate derecognition
       transactions that occurred before the date of transition to IFRSs. The amendment is effective for year-ends
       beginning on or after July 1, 2011; however, the Company has early adopted the amendment. The impact of the
       amendment and early adoption is that the Company only applies IAS 39 derecognition requirements to
       transactions that occurred after the date of transition i.e. January 1, 2010.

  The following standards and interpretations have been issued but are not yet effective:

       IFRS 9 Financial Instruments is part of the IASB's wider project to replace IAS 39 Financial Instruments: Recognition
       and Measurement. IFRS 9 retains but simplifies the mixed measurement model and establishes two primary
       measurement categories for financial assets: amortized cost and fair value. The basis of classification depends on
       the entity's business model and the contractual cash flow characteristics of the financial asset. The standard is
       effective for annual periods beginning on or after January 1, 2015. The Company is in the process of evaluating the
       impact of the new standard.

       IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an
       entity should be included within the consolidated financial statements of the parent company. The standard
       provides additional guidance to assist in the determination of control where this is difficult to assess. The Company
       is yet to assess the full impact of IFRS 10 and intends to adopt the standard no later than the accounting period
       beginning on January 1, 2013.

       IFRS 11 describes the accounting for arrangements in which there is joint control. A party to joint arrangement
       accounts for its rights and obligations that arise from the arrangement. IFRS 11 replaces IAS 31 Interests in Joint
       Ventures and SIC 13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers. The Company is yet
       to assess the full impact of IFRS 11 and intends to adopt the standard no later than the accounting period
       beginning on January 1, 2013.

       IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint
       arrangements, associates, special purpose vehicles and other off balance sheet vehicles. The Company is yet to
       assess the full impact of IFRS 12 and intends to adopt the standard no later than the accounting period beginning
       on January 1, 2013.

       IFRS 13 aims to improve consistency and reduce complexity by providing a precise definition of fair value and a
       single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements,
       which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide
       guidance on how it should be applied where its use is already required or permitted by other standards within
       IFRSs or US GAAP. The Company is yet to assess the full impact of IFRS 13 and intends to adopt the standard no
       later than the accounting period beginning on January 1, 2013.

  There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material
  impact on the Company.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                           14

3. SUBSIDIARIES AND JOINTLY CONTROLLED ENTITIES

   Subsidiary/ Joint Venture Name          % Ownership               Functional currency                    Location
   Hot Spot Concord Place Inc.                   100%                  Canadian Dollars             Toronto, Ontario
   Williamsville Spot Inc.                       100%                     US Dollars                Williamsville, New York State
   Spot Coffee Buffalo Inc.                      95%                      US Dollars                Buffalo, New York State
   Spot Coffee Hertel Inc.                       60%                      US Dollars                Buffalo, New York State
   Valshire Spot Inc.                            49%                      US Dollars                Rochester, New York State
   Florida Spot Inc.                             49%                      US Dollars                Delray Beach, Florida

  Jointly Controlled Entities

  The Company accounts for the investments in Valshire Spot Inc. and Florida Spot Inc. using the proportionate
  consolidation method of accounting in which the Company records its proportionate ownership of these entities on a
  line-by-line basis. For the three and six months ended June 30, 2012, the Company’s share of loss were $31,686 and
  $56,424 respectively.

  Outlined below is the Company’s proportionate share of relevant financial data of these jointly controlled entities:

    Statement of Financial Position                               June 30, 2012
    Current assets                                      $               53,849
    Property and equipment                              $              507,692
    Current liabilities                                 $               38,831
    Advances from shareholders                          $              553,271


                                                 For the three months ended                For the six months ended
    Statement of Operations and Deficit                        June 30, 2012                           June 30, 2012
    Revenues                                           $            229,216                  $              462,037
    Expenses                                           $            174,304                  $              350,992
    Gross Margin                                                         63%                                     64%
    Net Loss                                           $            (31,686)                 $              (56,424)



4. INVENTORIES

  Inventories consist primarily of raw materials such as coffee beans and finished goods such as restaurant food items.
  The costs of inventories expensed in the six months ended June 30, 2012 were $804,486 which was included in the cost
  of sales in the consolidated statements of operations and comprehensive loss.

                                 June 30, 2012                December 31, 2011
   Raw Materials             $           7,453              $           20,416
   Finished Goods                       58,028                          71,380
                             $         65,481               $           91,796


5. LOANS RECEIVABLE

  The Company has a receivable from its jointly controlled entity of $755,045 (2011 - $754,229) of which $385,073 (2011 -
  $384,657) represents the net amount owed from the Company’s joint venture partner. These balances are non-interest
  bearing, unsecured and have no fixed repayment terms.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                                       15

6. PROPERTY AND EQUIPMENT
                                       Computer
                                     equipment and   Furniture and       Machinery and     Leasehold
                                        software        fixtures          equipment      Improvements           Vehicle             Total
                                     $               $                   $               $                  $                   $
   Cost

   Balance as of December 31, 2010          95,569         228,047             632,144       1,845,943              36,321          2,838,024
   Additions                                44,582          93,591             142,027        804,072                       -       1,084,272
   Disposals                                     -                   -               -                  -                   -               -
   Impact on Foreign Exchange                2,152           3,796              10,862          29,490                    818          47,118

   Balance as of December 31, 2011         142,303         325,434             785,033       2,679,505              37,139          3,969,414
   Additions                                58,084          47,508              76,125        397,842                       -         579,559
   Disposals                                     -                   -               -                  -                   -               -
   Impact on Foreign Exchange                 152              278                 683           2,248                     40           3,401

   Balance as of June 30, 2012             200,539         373,220             861,841       3,079,595              37,179          4,552,374


   Accumulated depreciation and impairment losses

   Balance as of December 31, 2010          54,985         148,433             362,439        520,627               28,831          1,115,315
   Depreciation for the year                13,692          29,040              93,248        218,402                2,482            356,864
   Impairment (losses)                           -                   -               -                  -                   -               -
   Disposals                                     -                   -               -                  -                   -               -
   Impact on Foreign Exchange                1,945           3,772               6,316          10,419                    721          23,173
   Balance as of December 31, 2011          70,622         181,245             462,003        749,448               32,034          1,495,352
   Depreciation for the year                14,749          19,288              56,456        151,332                1,262            243,087
   Impairment (losses)                           -                   -               -                  -                   -               -
   Disposals                                     -                   -               -                  -                   -               -
   Impact on Foreign Exchange                 243            3,835               4,825           4,876                     50          13,828

   Balance as of June 30, 2012              85,614         204,368             523,284        905,656               33,346          1,752,268


   Net Book Value

   At December 31, 2010                     40,584          79,614             269,705       1,325,316               7,490          1,722,709
   At December 31, 2011                     71,681         144,189             323,030       1,930,057               5,105          2,474,062
   At June 30, 2012                        114,925         168,852             338,557       2,173,939               3,833          2,800,106

  Certain property and equipment are pledged as security for the Secured Subordinated Note (see Note 9).
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                   16

7. GOODWILL

  Goodwill is allocated to the following three cash-generating units (CGUs): Delaware Café, Elmwood Café and Rochester
  Café.
                                             Net Book Value of Goodwill at:
                                   June 30, 2012                   December 31, 2011
   Delaware café             $           370,999                 $          370,599
   Elmwood Café              $          552,557                $          551,960
   Rochester Café            $               -                 $               -
                             $          923,557                $          922,559

  The Company tested all of its cash-generating units for impairment at June 30, 2012 and December 31, 2011 by
  comparing their carrying amounts to their recoverable amount. It determined each cash-generating unit‘s recoverable
  amount based on its value in use, calculated using cash flow projections derived from a financial budget approved by
  management for a period of five years extrapolated beyond this period using an assumed annual growth rate of 2% for
  each segment. The Company discounted these estimates of future cash flows to their present value using pre-tax
  discount rates between 20.4% and 22.3%.

  The growth rates reflect the long-term average growth rates for the product lines and industries of the CGUs. Operating
  margins have been based on past experience and future expectations in light of anticipated economic and market
  conditions. Discount rates are based on management's assessment of specific risks related to the cash generating unit.

  The Company did not make any changes to the valuation methodology used to assess goodwill impairment since the last
  annual impairment test.

  The Company did not identify any impairment loss for any of its cash-generating units at any of the dates disclosed and
  there is no accumulated impairment loss on goodwill. At the end of the reporting period, management does not believe
  that a reasonably possible change in any of the other key assumptions would cause the carrying amount of any of the
  cash generating units to exceed their recoverable amount.

8. BANK INDEBTEDNESS

  The Company had a demand line of credit, with a maximum borrowing capacity of US$50,000. The line bears interest at
  the prime rate plus 1.25% and was collateralized by a security interest in all equipment owned by a U.S. subsidiary. As
  at June 30, 2012, bank indebtedness is $Nil (US $25,599 – December 31, 2011) drawn under this facility.

9. LONG-TERM DEBT

                                                                                        June 30, 2012   December 31, 2011
  First Niagara Loan of US $71,172, bearing interest at 7.5% annually,
         payable in blended interest and principal monthly payments of
         US$2,116, due in February 2014 (Note i)                                    $         40,255       $       51,340
  First Niagara Loan of US $25,135, bearing interest at 6% annually,
         payable in blended interest and principal monthly payments of
         US$765, due in February 2015 (Note i)                                                22,968                    -
  Secured Subordinated Note, $750,000 (Note ii)                                              611,725             599,777
  Secured Subordinated Note, $250,000 (Note iii)                                             198,213                    -
                                                                                             873,161             651,117
  Current portion                                                                            (31,832)            (22,744)
  Long-term portion                                                                 $        841,329        $    628,373
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                    17

9. LONG-TERM DEBT (Continued)

  (i)    In the six months ended June 30, 2012, included in interest and bank charges is $2,253 (2011 - $4,702) of interest
         that the Company paid on the First Niagara loan.
                                                                                    June 30, 2012
         Combined future minimum payments are as follows:
         2012                                                                      $      17,603
         2013                                                                             35,205
         2014                                                                             13,517
         2015                                                                               1,525
                                                                                          67,850
         Less amounts representing interest                                               (4,627)
                                                                                    $     63,223

  (ii)   On July 29, 2011, the Company closed a $750,000 financing in the form of Secured Subordinated Note (“Note”)
         with 1,500,000 detachable 5-year common share purchase warrants at an exercise price of $0.18 per share. The
         Note has a 5-year term and semi-annual coupon equivalent to 9% annualized interest on the principal amount.
         There is no prepayment option in year 1. In year 2, a prepayment of the balance can be made subject to a
         prepayment penalty of 10% of the prepayment amount. During year 3 the prepayment penalty is 5% of the
         prepayment amount. There is no prepayment penalty after year 3. The fair value of the note was determined at
         the time of issue as the difference between the principal value of the note and the discounted cash flows assuming
         a 15.7% rate. The valuation allocation of the warrants amounted to $160,000.

  (iii) On April 20, 2012, the Company closed a $250,000 financing in the form of Secured Subordinated Note (“Note”)
        with 500,000 detachable 5-year common share purchase warrants at an exercise price of $0.25 per share. The
        Note has a 5-year term and semi-annual coupon equivalent to 9% annualized interest on the principal amount. The
        fair value of the note was determined at the time of issue as the difference between the principal value of the note
        and the discounted cash flows assuming a 15.7% rate. The valuation allocation of the warrants amounted to
        $53,000. See also Note 20.


10. ADVANCES FROM SHAREHOLDERS

  The advances from shareholders are non-interest bearing, unsecured and have no fixed repayment terms. The
  shareholders will not demand payment within the next fiscal year. Certain shareholder’s advances were satisfied with
  share subscriptions for which shares were issued during 2011.

         Balance, December 31, 2010                                                 $      722,989
         Amounts received                                                                  192,384
         Amounts settled for shares (Note 11)(i)                                         (362,700)
         Balance, December 31, 2011                                                       552,673


         Foreign currency translation adjustment                                              598
         Balance, June 30, 2012                                                     $     553,271
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                              18

11. SHARE CAPITAL

  The Company is authorized to issue an unlimited number of common shares without par value. As at June 30, 2012 and
  December 31, 2011, the Company had 68,277,866 and 68,097,866 common shares issued and outstanding, respectively.
                                                                                      Common Shares
                                                                             Number                   Amount
   Issued and outstanding:                                                      #                       $
   Balance, December 31, 2010                                                   47,380,232               6,189,655
   Units issued for $0.10 private placement (i)                                 11,500,000               1,150,000
   Value of warrants for $0.10 private placement (i)                                      -              (341,138)
   Share issuance costs (i)                                                               -              (104,175)
   Units issued for $0.10 private placement (ii)                                 5,000,000                  500,000
   Value of warrants for $0.10 private placement (ii)                                     -              (150,000)
   Share issuance costs (ii)                                                              -                 (40,663)
   Option exercised (iii)                                                            90,000                    9,000
   Valuation allocation of options exercised (iii) (Note 12)                              -                  32,113
   Warrants exercised (iv) (Note 13)                                                794,300                 115,305
   Valuation allocation of warrants exercised (iv) (Note 13)                              -                  46,815
   Units issued for $0.20 private placement (v)                                  3,333,334                  500,000
   Value of warrants for $0.20 private placement (v)                                      -              (159,020)
   Share issuance costs (v)                                                               -                 (43,030)
   Balance, December 31, 2011                                                   68,097,866               7,704,862


   Warrants exercised (vi) (Note 13)                                                180,000                  27,000
   Valuation allocation of warrants exercised (vi) (Note 13)                              -                  10,478
   Balance, June 30, 2012                                                       68,277,866               7,742,340



   To Be Issued:
   Units to be issued for $0.20 private placement (vii)                          1,500,000                  300,000
   Share issuance costs (vii)                                                             -                 (40,000)
   Balance, June 30, 2012                                                        1,500,000                  260,000
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                     19

11. SHARE CAPITAL (Continued)

  (i) On March 7, 2011, the Company closed a private placement for total proceeds of $1,150,000 at a price of $0.10 per
  unit for total units of 11,500,000. Each Unit consists of one common share and one-half Warrant. Each whole warrant
  entitles the holder to acquire one additional common share at a price of $0.15 per share for a period of three years from
  closing. The proceeds related to the 5,750,000 share purchase warrants were estimated to be $341,138 using Black-
  Scholes option pricing model with the following assumptions: expected dividend yield 0%; expected volatility of 174%;
  risk free interest rate of 2.21%; and expected life of 3 years. Share issue costs of $104,175 were incurred in relation to
  this private placement. This private placement included 1,838,000 units of which proceeds were received during 2010.

  (ii) On June 14, 2011, the Company completed a private placement for 5,000,000 units at a price of $0.10 per unit for
  total gross proceeds of $500,000. Each unit consists of one common share in the capital of the Company and one-half of
  one common share purchase warrant. In addition, the Company also issued 76,800 broker warrants. Each whole warrant
  entitles the holder to acquire one additional common share of the Company at a price of $0.15 per share for a period of
  three years from closing. The value of warrants in the amount of $150,000 was estimated using the Black-Scholes option
  pricing model with the following assumptions: expected dividend yield 0%; expected volatility of 169%; risk free interest
  rate of 1.80%; and expected life of 3 years. Share issuance costs totaled $40,663.

  (iii) On July 17, 2011, 90,000 stock options were exercised at $0.10 per share for gross proceeds of $9,000 (see Note 12).

  (iv) During August, November and December 2011, 517,500 share purchase warrants issued on March 7, 2011 were
  exercised at $0.15 per share for gross proceeds of $77,625; and 276,800 share purchase warrants issued on June 14,
  2011 were exercised at $0.15 per share for gross proceeds of $37,680 (see Note 13).

  (v) On November 25, 2011, the Company completed a private placement for 3,333,334 units at a price of $0.15 per
  unit for total gross proceeds of $500,000. Each unit consists of one common share in the capital of the Company and
  one-half of one common share purchase warrant. Each whole warrant entitles the holder to acquire one additional
  common share at price of $0.20 for a period of two years from closing. The common shares and warrants issued in
  connection with the private placement will be subject to a statutory four-month hold period in accordance with
  applicable securities laws. The value of warrants in the amount of $159,020 was estimated using the Black-Scholes
  option pricing model with the following assumptions: expected dividend yield 0%; expected volatility of 160%; risk free
  interest rate of 1.40%; and expected life of 2 years. Share issuance costs totaled $43,030.

  (vi) During January, February and March 2012, 180,000 share purchase warrants issued on June 14, 2011 were
  exercised at $0.15 per share for gross proceeds of $27,000 (see Note 13).

   (vii) On May 10, 2012, the Company received subscriptions of 1,500,000 units of the Company at a price of $0.20 per
   unit for gross proceeds of $300,000 for an upcoming private placement. Each unit consists of one common share in the
   capital of the Company and one-half common share purchase warrant. Each whole warrant entitles the holder to
   acquire one additional common share of the Company at a price of $0.30 per share for a period of three years from
   closing. Share issue costs of $40,000 were incurred in relation to this private placement.

12. STOCK OPTIONS

  The Company has established a stock option plan pursuant to which options to purchase common shares may be
  granted to certain officers, directors and employees of the Company as well as persons providing ongoing services to the
  Company. The maximum number of common shares reserved for issuance upon the exercise of options is not to exceed
  ten percent of the total number of common shares outstanding immediately prior to such an issuance.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                       20

12. STOCK OPTIONS (Continued)

  Under the plan, the exercise price of each option shall equal the market price, minimum price or a discounted price of
  the Company’s stock as calculated on the date of grant. The Board of Directors has the choice of either vesting or
  allowing options issued to be exercisable upon issuance. Options are normally issued for a five-year term.

  On March 1, 2008, 540,000 stock options were granted to certain employees at an exercise price of $0.10 per common
  share, one third vesting on each of 6 months, 12 months, 18 months from the date of grant, conditional on continued
  employment, and exercisable for 2 years from the date of the Company completing a going public transaction
  (“Qualifying transaction” or “QT”). As at June 30, 2012, 265,002 stock options were forfeited (10,002 in 2009 and
  255,000 in 2008) as a result of the condition of employment not having been met prior to vesting, 184,998 vested share
  options expired following a three-month post employment termination option term, and 90,000 stock options were
  exercised by employees for aggregate amount of $9,000.

  On March 30, 2008, 3,577,500 common share options were granted to directors, officers, employees and strategic
  partners of the Company at a price of $0.1333 per common share, vesting immediately and exercisable for five years
  from date of grant. As of June 30, 2012, 300,000 common share options had been exercised by a director for aggregate
  amount of $39,990.

  On July 17, 2009, the Company completed its qualifying transaction and issued 258,650 options as replacement options
  to directors and officers of the capital pool company with an exercise price of $0.20 per common share, which vested
  immediately and expire on April 4, 2013. Of the options issued, 206,920 expired in 2010 and 51,730 expired in 2011 as a
  result of cessation of the holders position with the Company. The fair value of these options on the date of the QT was
  estimated to be $2,500 using the Black-Scholes options pricing model.

  As part of the qualifying transaction, Agent options granted by the capital pool company to purchase 133,785 common
  share of the Company, exercisable for a period of 24 months from the date of listing common shares on the Exchange
  expired on July 24, 2011.

  On August 8, 2011, the Company granted an aggregate of 2,201,931 options to certain officers, directors and employees
  of the Company with an exercise price of $0.14 per common share, which vest in twelve equal monthly installments
  beginning from the date of their grant. The options expire on the earlier of their fifth anniversary date or the time the
  optionees cease to serve as officers, directors or employees of the Company. The fair value of these options was
  estimated by using the Black-Scholes options pricing model, $60,672 was included in the stock based compensation
  expense in 2012 (2011 - $226,767).

  On December 22, 2011, the Company granted an aggregate of 963,106 options to certain directors of the Company with
  an exercise price of $0.21 per common share, which vest in twelve equal monthly installments beginning from the date
  of their grant. The options expire on the earlier of their fifth anniversary date or the time the optionees cease to serve as
  officers, directors or employees of the Company. The fair value of these options was estimated by using the Black-
  Scholes options pricing model, $112,449 was included in the stock based compensation expense in 2012 (2011 -
  $70,060).

   The expected price volatility is based on the historic volatility (based on the remaining life of the options), adjusted for
   any expected changes to future volatility due to publicly available information.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                   21

12. STOCK OPTIONS (Continued)

  As at June 30, 2012, the Company had the following outstanding and exercisable stock options:

                                  Options                    Options           Weighted Average
   Expiry Date                   Outstanding               Exercisable          Exercise Price
                                      #                         #                     $
   March 30, 2013                 3,277,500                 3,277,500                  0.1333
   August 8, 2016                 2,201,931                 1,834,943                  0.1400
   December 22, 2016                963,106                   963,106                  0.2100
   Total                          6,442,537                 6,075,549                  0.1471

  The following table summarizes the stock option activity during the six months period ended June 30, 2012 and the year
  ended December 31, 2011:

                                                                               Weighted Average
                                                     Options                    Exercise Price
                                                     #                             $
   Balance, December 31, 2010                          3,643,015                         0.1351
   Expired                                               (90,000)                        0.1000
   Expired                                               (51,730)                        0.2000
   Expired                                             (133,785)                         0.2000
   Exercised                                             (90,000)                        0.1000
   Issued                                              2,201,931                         0.1400
   Issued                                                963,106                         0.2100
   Balance, December 31, 2011                          6,442,537                         0.1471

   Balance, June 30, 2012                              6,442,537                        0.1471



13. WARRANTS

  On February 5, 2010, the Company issued 828,750 common share purchase warrants at an exercise price of $0.25 for a
  period of three years from closing. The estimated grant date fair value of these warrants were determined to be $9,945
  using Black-Scholes option pricing model with the following assumptions: expected dividend yield 0%; expected volatility
  of 29%; risk free interest rate of 1.65%; and expected life of 3 years.

  On March 7, 2011, the Company issued 5,750,000 common share purchase warrants at an exercise price of $0.15 for a
  period of three years from closing (Note 11(i)). The estimated grant date fair value of these warrants were determined
  to be $341,138 using Black-Scholes option pricing model with the following assumptions: expected dividend yield 0%;
  expected volatility of 174%; risk free interest rate of 2.21%; and expected life of 3 years. As at June 30, 2012, of the
  warrants issued, 517,500 warrants had been exercised for aggregate proceeds of $77,425 and an aggregate warrant
  valuation of $30,702.

  On June 14, 2011, the Company issued 2,500,000 common share purchase warrants at an exercise price of $0.15 for a
  period of three years from closing (Note 11(ii)). In addition, the Company also issued an aggregate of 76,800 broker
  warrants at an exercise price of $0.15 for a period of three years from closing. The estimated grant date fair value of
  these warrants were determined to be $150,000 using Black-Scholes option pricing model with the following
  assumptions: expected dividend yield 0%; expected volatility of 169%; risk free interest rate of 1.80%; and expected life
  of 3 years. As at June 30, 2012, of the warrants issued, 456,800 warrants had been exercised for aggregate proceeds of
  $68,520 and an aggregate warrant valuation of $26,591.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                         22

13. WARRANTS (Continued)

  On July 29, 2011, the Company issued 1,500,000 common share purchase warrants, along with a Secured Subordinated
  Note of $750,000, at an exercise price of $0.18 for each warrant for a period of five years from closing (Note 9). The
  estimated grant date fair value of these warrants was determined to be $160,000.

  On November 25, 2011, the Company issued 1,666,667 common share purchase warrants at an exercise price of $0.20
  for a period of two years from closing (Note 11(v)). In addition, the Company also issued an aggregate of 2,800 broker
  warrants at an exercise price of $0.15 for a period of two years from closing. The estimated grant date fair value of these
  warrants were determined to be $159,020 using Black-Scholes option pricing model with the following assumptions:
  expected dividend yield 0%; expected volatility of 160%; risk free interest rate of 1.40%; and expected life of 2 years.

  On April 20, 2012, the Company issued 500,000 common share purchase warrants, along with a Secured Subordinated
  Note of $250,000, at an exercise price of $0.25 for each warrant for a period of five years from closing (Note 9). The
  estimated grant date fair value of these warrants was determined to be $53,000.

  See also Note 20.

   Summary of outstanding warrants at June 30, 2012:

                Expiry Date                           Exercise Price    Warrants Outstanding                  Value
   February 5, 2013                               $              0.25                   828,750           $           9,945
   November 25, 2013                              $              0.20               1,666,667             $      158,753
   November 25, 2013                              $              0.15                     2,800           $            267
   March 7, 2014                                  $              0.15               5,232,500             $      310,436
   June 14, 2014                                  $              0.15               2,120,000             $      123,410
   August 24, 2016                                $              0.18               1,500,000             $      160,000
   April 20, 2017                                 $              0.25                   500,000           $       53,000
                                                                                   11,850,717             $      815,810



14. CONTRIBUTED SURPLUS

  Contributed surplus transactions during 2012 and 2011 were as follows:

   Balance, December 31, 2010                                                       $       371,198
   Stock-based compensation (options issued on 08/08/2011)                                  226,767
   Stock-based compensation (options issued on 12/22/2011)                                    70,060
   Valuation allocation of options exercised                                                (32,113)
   Contributions from non-controlling interest                                                58,986
   Balance, December 31, 2011                                                       $       694,898

   Stock-based compensation (options issued on 08/08/2011)                                   60,672
   Stock-based compensation (options issued on 12/22/2011)                                  112,449
   Return of Capital Contributions from non-controlling interest                             (3,054)
   Balance, June 30, 2012                                                           $       864,965
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                             23

15. EARNINGS PER SHARE

   Basic earnings per share (EPS) amounts are calculated by dividing the net income for the year by the weighted average
   number of ordinary shares outstanding during the year.

   The diluted earnings per share indicates what basic earnings per share would have been if the potentially dilutive
   securities outstanding at any time during the year has been converted at the later of the beginning of the year or the
   date of issue of the convertible security. As the Company had a loss for the three and six months ended June 30, 2012
   and 2011, all convertible instruments are deemed to be antidilutive.

  Basic and diluted loss per share attributable to owners of the parent:
                                                               Three months ended June 30,             Six months ended June 30,
                                                                2012               2011                2012                2011
  Numerator - Net Loss for the period                        $ (276,288)        $ (16,494)          $ (665,497)        $ (141,957)
  Denominator - Weighted average number of shares              68,277,866         59,759,353          68,248,553          59,322,221
  Basic and diluted loss per share                           $     (0.004)      $     (0.000)       $     (0.010)       $     (0.002)

16. RELATED PARTY TRANSACTIONS

  Related party transactions are in the normal course of operations and are measured at the exchange amount, which is
  the amount of consideration established and agreed to by the related parties. Balances and transactions between the
  Company and its subsidiary have been eliminated on consolidation and are not disclosed in this note. Details of the
  transactions between the Company and other related parties are disclosed below.

  The Company entered into the following compensation with key management personnel, which are defined by IAS 24,
  Related Party Disclosures, as those persons having authority and responsibility for planning, directing and controlling
  the actives of the Company, including directors and management.

                                 Three months ended June 30,                  Six months ended June 30,
                                  2012                2011                    2012                2011
                            $                      $                     $                      $
   Salaries and wages               106,605               62,474               205,698              111,662
   Consulting fee                     6,000                6,000                 12,000              12,000
   Share-based payments              11,312                     -              154,848                     -

  The Company incurred the following transactions in connection with companies with common directors and officers of
  the Company. These amounts are unsecured, non-interest bearing with no fixed terms of repayment.

                                                   June 30, 2012          December 31, 2011
                                               $                         $
   Share issue costs                                            -                    150,600
   Accounts and other receivable                          15,346                      15,330
   Accounts payables and accrued liabilities              85,690                      53,372

  Included in share issue costs are the costs related to the private placement share issuance paid to companies owned by
  directors of the Company.

  Included in accounts payables and accrued liabilities are office management and administrative costs to companies with
  common directors and officers of the Company.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                      24

17. COMMITMENTS

  The Company is committed to lease agreements for its premises. Basic rent payments of $293,008 were included in the
  Rent & Occupancy cost in the six months ended June 30, 2012. Future minimum payments under these operating leases
  approximate the following:

   2012                                   $         305,457
   2013                                             713,868
   2014                                             730,172
   2015                                             724,831
   2016 and thereafter                            3,119,820
                                          $       5,594,148

18. FINANCIAL INSTRUMENTS

   General objectives, policies, and processes

   The Board of Directors has overall responsibility for the determination of the Company's risk management objectives
   and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and
   operating processes that ensure effective implementation of the objectives and policies to the Company‘s finance
   function. The Board of Directors receives quarterly reports from the Company‘s Chief Financial Officer through which it
   reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets.

   The Company‘s financial instruments are exposed to certain financial risks, including credit risk, liquidity risk, currency
   risk, and interest rate risk. The Company‘s exposure to these risks and its methods of managing the risks remain
   consistent.

   Capital Management

   The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company,
   in order to support its general and administrative expenses, working capital and overall capital expenditures. The Board
   of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise
   of the Company's management to sustain future development of the business. The Company considers its capital to
   consist of share capital, shares to be issued, stock options, advances from shareholders, long-term debt and contributed
   surplus.

   Management reviews its capital management approach on an ongoing basis and believes that this approach, given the
   relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management
   during the six months ended June 30, 2012 and 2011. The Company is not subject to externally imposed capital
   requirements.

   Credit risk

   The Company's credit risk is primarily attributable to cash and cash equivalents, accounts receivable and loan receivable.
   Accounts receivable includes approximately $38,298 of commodity tax credits due from Revenue Canada. Management
   believes that the credit risk concentration with respect to financial instruments included in current assets is remote.

   Liquidity risk

   The Company's approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities
   when due. As at June 30, 2012, the Company had a cash and cash equivalents balance of $195,292 (December 31, 2011 -
   $749,922) and short term accounts payable and accrued liabilities of $720,978 (December 31, 2011 - $651,448).
   Accounts payable and accrued liabilities have contractual maturities of less than 30 days and are subject to normal
   trade terms.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                                          25

18. FINANCIAL INSTRUMENTS (Continued)

   Interest Rate risk

   Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of
   changes in market interest rates. The Company's current policy is to invest excess cash in investment-grade short-term
   deposit certificates issued by its banking institutions. The Company periodically monitors the investments it makes and
   is satisfied with the credit ratings of its banks. The bank indebtedness is subject to interest rate variability. Long-term
   debt bears interest at fixed interest rates. The Company monitors its exposure to interest rates annually. A 1% change in
   interest rates would results in a corresponding change in net loss by approximately $600 based on the balances subject
   to variable interests at June 30, 2012.

   Foreign Currency risk

   The Company is subject to foreign exchange risk as operations are conducted in the United States. The Company is
   therefore subject to gains and losses due to fluctuations in the US dollar relative to the Canadian dollar. A $0.05 change
   in the Canadian and US dollar exchange rate on the financial instruments would result in change in net profit or loss for
   the six months ended June 30, 2012 of approximately $37,000.

19. SEGMENTED INFORMATION

   For the six months ended June 30, 2012                       Canada                  USA                     Total
   Revenue                                                  $      439,181          $    2,926,129          $      3,365,310
   Net loss (income)                                               682,496                 (17,060)                  665,436
   Property and equipment                                          707,010               2,093,096                 2,800,106
   Goodwill                                                              -                 923,557                   923,557


   For the six months ended June 30, 2011                       Canada                  USA                     Total
   Revenue                                                  $      405,177          $    2,153,556          $      2,558,733
   Net loss (income)                                               363,836               (230,663)                   133,173
   Property and equipment                                          343,758               1,415,812                 1,759,570
   Goodwill                                                              -                 874,934                   874,934

20. SUBSEQUENT EVENTS

  a)    On July 17, 2012, the Company announced that it has closed a $280,000 debenture financing with proceeds
        available to fund the Company’s new café expansion program. The Company has offered for sale on a private
        placement basis units of the Company (“Units”) at a price of $1.00 per unit for $280,000 total units. Each Unit
        consists of a $1.00 par value note (“Note”) and two common share purchase warrants (each a “Warrant”). The
        Note has a 5-year term and 9% annualized interest on the principal amount. Each Warrant entitles the holder to
        acquire one additional common share of the Company at a price of $0.25 for a period of five years from closing.

  b)    On July 24, 2012, the Company announced that it has entered into a Memorandum of Understanding to grant a
        master license to Valshire, LLC for the exclusive development of SPoT Coffee cafés in the state of Florida. In
        addition to earning an ongoing licensing fee charged quarterly as a percentage of each café’s revenue, SPoT will
        also earn revenue based on the supply of SPoT’s award winning micro-roasted coffee, related coffee products and
        corporate branded material. Valshire LLC is a private Florida-based corporation that is controlled by Hassan
        Dahlawi, a director of the Company and the largest shareholder of the Company. This regional license will allow
        the Company to further develop and refine a broader regional licensing strategy which it can then roll out on a
        larger scale North America to drive greater system-wide café expansion.
SPOT COFFEE (CANADA) LTD.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
THREE AND SIX MONTHS ENDED JUNE 30, 2012 AND 2011
(In Canadian Dollars)                                                                                          26

20. SUBSEQUENT EVENTS (Continued)

  c)   The Company’s Annual General Meeting (AGM) of shareholders was held on August 10, 2012 and that all
       resolutions presented for consideration were approved by the shareholders, including the re-election of the
       directors of the Company.

				
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