Crailar (CRLRF) 10-Q 2005 Q3 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

(Mark One)

(X)

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

For the quarterly period ended September 30, 2005.

( )

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-50367

Hemptown Clothing Inc. (Name of small business issuer in its charter)
British Columbia, Canada (State or other jurisdiction of incorporation or organization)	98-0359306 (I.R.S. Employer Identification No.)
1307 Venables Street, Vancouver, British Columbia, Canada, V5L 2G1 (Address of principal executive offices)
(604) 255-5005 (Issuer’s telephone number)

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

Yes

     X

No _____

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

Yes _____   No __X___  

Applicable only to issuers involved in bankruptcy proceedings during the preceding five years

N/A

Check whether the Registrant filed all documents required to be filed by Section 12, 13 and 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court

N/A

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the most practicable date:

Page 2

Class

Outstanding as of November 10, 2005

Common Stock, no par value

13,685,635

Transitional Small Business Disclosure Format (check one):

Yes

No __X__

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Hemptown Clothing Inc.

Table of Contents

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

HEMPTOWN CLOTHING INC.

Interim Consolidated Financial Statements

(unaudited)

September 30, 2005

Index

Consolidated Balance Sheets

Interim Consolidated Statements of Operations and Deficit

Interim Consolidated Statements of Cash Flows

Notes to Interim Consolidated Financial Statements

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HEMPTOWN CLOTHING INC. Consolidated Balance Sheets September 30, 2005
			September 30,		December 31,
			2005		2004
			(unaudited)
ASSETS
Current
	Cash and cash equivalents	$	1,639,671	$	13,632
	Accounts receivable		136,312		219,626
	Inventory		274,075		318,605
	Prepaid expenses and other		59,736		79,646
	Deferred financing costs (Note 4)		-		10,815
			2,109,794		642,324
Property and equipment(Note 8)			20,043		23,442
		$	2,129,837	$	665,766
LIABILITIES
Current
	Bank loan (Note 6)	$	-	$	100,545
	Accounts payable and accrued liabilities		368,248		387,804
	Due to related parties (Note 7)		193,364		126,606
	Note payable, current portion (Note 4)		100,000		-
	Capital lease obligation, current portion		2,099		7,781
	Short term debt (Note 5)		21,202		400,000
			684,913		1,022,736
Note payable (Note 4)			300,000
Long term debt (Note 9)			27,832		26,922
Capital lease obligation			10,814		7,896
			1,023,559		1,057,554
Non-Controlling Interest (Note 3)			287,101		-
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital Stock (Note 10)
	Authorized:  100,000,000 common shares without par value
	Issued and outstanding :  14,205,635 common shares
	(December 31, 2004 - 13,270,035)		1,607,599		1,359,448
	Subscription proceeds received		400,000		-
Additional paid-in capital			97,857		41,368
Accumulated comprehensive income			13,563		8,328
Deficit			(1,299,842)		(1,800,931)
			819,177		(391,788)
		$	2,129,837	$	665,766
Commitments(Note 11)
Subsequent Events(Note 17)
The accompanying notes are an integral part of these interim consolidated financial statements.

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HEMPTOWN CLOTHING INC. Interim Consolidated Statements of Operations and Deficit (unaudited)
			Three months ended September 30,				Nine months ended September 30,
			2005		2004		2005		2004
Sales		$	323,939	$	158,447	$	806,256	$	703,908
Cost of sales			255,619		105,288		585,802		491,091
Gross margin			68,320		53,159		220,454		212,817
Expenses
	Advertising and promotion		57,776		56,638		126,506		130,820
	Consulting fees		25,590		-		33,614		-
	Consulting fees - stock-based compensation		7,041		23,857		44,755		23,857
	Contract labour		56,382		67,231		189,797		124,807
	Contract labour - stock based compensation		15,000		-		15,000		-
	Depreciation		3,597		2,532		8,754		6,910
	Insurance		3,273		4,030		9,157		17,056
	Interest		27,665		13,973		59,444		29,001
	Legal and accounting		13,459		7,982		69,684		55,781
	Office and general		21,728		34,965		86,202		74,078
	Rent		11,547		10,456		33,818		30,580
	Research and development		26,987		15,003		78,982		25,187
	Salaries & benefits		77,605		63,554		180,048		173,854
	Government grant, net of fees (Note 16)		1,067		-		(201,100)		-
			348,717		300,221		734,661		691,931
Loss from operations			(280,397)		(247,062)		(514,207)		(479,114)
Gain resulting from change in ownership of subsidiary (Note 3)			975,469		-		975,469		-
Non Controlling Interest			39,827		-		39,827		-
Net income (loss) for the period			734,899		(247,062)		501,089		(479,114)
Deficit, beginning of period			(2,034,741)		(1,135,929)		(1,800,931)		(903,877)
Deficit, end of period		$	(1,299,842)	$	(1,382,991)	$	(1,299,842)	$	(1,382,991)
Earnings (Loss) per share (basic)		$	0.05	$	(0.02)	$	0.04	$	(0.04)
Earnings (Loss) per share (diluted)		$	0.04	$	(0.02)	$	0.03	$	(0.04)
Weighted average number of shares outstanding (basic)			13,807,809		13,270,035		13,648,110		13,085,975
Weighted average number of shares outstanding (diluted)			18,867,838		13,270,035		18,708,140		13,085,975
The accompanying notes are an integral part of these interim consolidated financial statements

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HEMPTOWN CLOTHING INC. Interim Consolidated Statements of Cash Flows (unaudited)
		For the nine month period ended
		2005		2004
Cash flows from (used in) operating activities
Net income (loss) for the period	$	501,089	$	(479,115)
Adjustments to reconcile net loss to net cash from operating activities
Depreciation		8,754		6,910
Stock based compensation		59,755		23,857
Gain resulting from change of ownership in subsidiary		(975,469)		-
Non-controlling interest		(39,827)		-
Non-cash deferred financing costs		10,815		(13,739)
Changes in working capital assets and liabilities
Decrease (increase) in accounts receivable		83,314		(234,310)
Decrease (increase) in inventory		44,530		182,547
Decrease (increase) in prepaid expenses		19,910		(40,616)
(Decrease) increase in accounts payable and accrued liabilities		4,827		(164,305)
(Decrease) increase in capital lease obligation		-		1,607
		(282,302)		(717,164)
Cash flows from (used in) investing activities
Purchase of fixed assets		(5,355)		(5,530)
		(5,355)		(5,530)
Cash flows from (used in) financing activities
Issuance of capital stock for cash		145,000		254,300
Stock subscriptions received		400,000		-
Proceeds from sale of subsidiary shares		1,300,000		-
Capital lease obligation (repayment)		(2,764)		-
Bank loan (repayments) proceeds		(100,545)		142,750
Issuance of notes payable		-		400,000
Short term loans		21,202		-
Related party advances		145,568		4,745
		1,908,461		801,795
Effect of exchange rate changes on cash and cash equivalents		5,235		(55,779)
Increase in cash and cash equivalents		1,626,039		23,322
Cash and cash equivalents, beginning of period		13,632		46,555
Cash and cash equivalents, end of period	$	1,639,671	$	69,877
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest	$	38,582	$	9,692
Cash paid for income taxes	$	-	$	-
Capital stock issued in settlement of accounts payable	$	9,330	$	200,000
Capital stock issued in settlement of related party debt	$	78,810	$	-
The accompanying notes are an integral part of these interim consolidated financial statements.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

1.

Nature of Operations and Basis of Presentation

Hemptown Clothing Inc. (the “Company” or “Hemptown”) was incorporated in the Province of British Columbia, Canada, on October 6, 1998, and is in the business of clothing manufacturing and sales.

The Company’s consolidated financial statements are prepared using generally accepted accounting principles (“GAAP”) in the United States of America applicable to a going concern, which contemplates the realization of assets and payment of liabilities in the normal course of business.  The Company has incurred losses since inception of $1,299,842, and further losses are anticipated in the development of its business and there can be no assurance that the Company will be able to achieve or maintain profitability.  Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.

The continued operations of the Company and the recoverability of the carrying value of assets is dependent upon the ability of the Company to obtain necessary financing to fund its working capital requirements, and upon future profitable operations.  The accompanying financial statements do not include any adjustments relative to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.  

Since July 1, 2005 the Company has raised $1,887,000 in capital. This financing will ensure that all ongoing working capital requirements are met and for the continued development of the Crailar enzyme process.  However, there can be no assurance that capital will continue to be available as necessary to meet the Company’s ongoing working capital requirements or, if the capital is available, that it will be on terms acceptable to the Company.  

Unaudited Interim Consolidated Financial Statements  

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States for interim financial information and with the instructions to Form 10-QSB of Regulation S-B.  They do not include all information and footnotes required by United States generally accepted accounting principles for complete financial statements.  However, except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements for the year ended December 31, 2004 included in the Company’s Annual Report on Form 10-KSB filed with the Securities and Exchange Commission.  The interim unaudited consolidated financial statements should be read in conjunction with those financial statements included in the Form 10-KSB.  In the opinion of Management, all adjustments considered necessary for a fai r presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the nine months ended September 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

2.

Significant Accounting Policies

a)

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and (a) its wholly-owned subsidiaries, Hemptown USA, Inc., a Nevada incorporated company and 0697872 B.C. Ltd., a British Columbia incorporated company with extra-provincial registration; and (b) its 75% ownership in Crailar Fiber Technologies Inc., a British Columbia incorporated company with extra-provincial registration.  0697872 B.C. Ltd. was incorporated to hold ownership of a proposed fibre processing plant in Saskatchewan (see Note 15).  Hemptown USA, Inc. was incorporated in order to enable the Company to factor its U.S. sales invoices as required by Spectrum Financial Corporation (“Spectrum”) (see Note 5(a)). Hemptown USA Inc. and 0697872 B.C. Ltd. were incorporated by the Company during 2004. Crailar Fiber Technolgies Inc was incorporated during 2005 and a 25% interest was sold during the period ended September 30, 2005 (Re fer to Note 3). All significant inter-company transactions and account balances have been eliminated upon consolidation.

b)

Use of Estimates

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results may differ from those estimates.

c)

Revenue Recognition

Revenue is derived from the sale of textile products sold directly to retailers or indirectly through distributors. The Company follows the provisions of Staff Accounting Bulletin No. 104; “Revenue Recognition in Financial Statements”. Revenue from the sale of products is only recognized upon shipment of the goods to customers, when persuasive evidence of an arrangement exists, the price is fixed or determinable and collection is probable. If collection is not considered probable, revenue will be recognized when it is collected. Until the Company can establish a history of returns, recognition of revenue will be deferred on sales to distributors having right of return privileges until the return period expires. Once a reliable return history is established, such returns will be estimated using historical return rates.

In accordance with Emerging Issues Task Force (“EITF”) No. 00-10, “Accounting for Shipping and HandlingFees and Costs”, freight and handling charges billed to customers are recorded as revenue while the corresponding freight and handling costs are recorded as cost of sales.

d)

Inventory

Inventory of clothing is valued at the lower of cost and net realizable value. Cost includes all direct materials, labour and freight costs incurred during the manufacturing process.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

e)

Property and equipment

Property and equipment are stated at cost and are depreciated as follows:

Computer equipment

30% declining balance

Equipment

30% declining balance

Furniture and fixtures

20% declining balance

Leasehold improvements

30% declining balance

Computer Equipment under Capital Lease

30% declining balance

Equipment under Capital Lease

30% declining balance

Website

5 year straight-line

f)

Deferred Financing Costs

Financing costs incurred in connection with the note payable were initially deferred and are amortized over the term of the loan on a straight-line basis.   

g)

Foreign Currency Translation

The Company’s functional currency is Canadian dollars.  The Company translates its functional currency to the reporting currency in U.S. dollars using the following method:

Assets and liabilities are translated into U.S. dollars at the exchange rate in effect at the period-end.  Revenues and expenses are translated throughout the period at the weighted average exchange rate.  Exchange gains or losses from such translations are included in comprehensive income, as a separate component of stockholders’ equity.

Foreign currency transaction gains and losses are included in net losses.

h)

Income Taxes

The Company utilizes the liability method of accounting for income taxes as set forth in SFAS No. 109, “Accounting for Income Taxes”.  Under the liability method, future taxes are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates. A valuation allowance is recorded when it is more likely than not that some of the future tax assets will not be realized.

i)

Comprehensive Income

The Company has adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), “Reporting Comprehensive Income”, which establishes standards for reporting comprehensive income, its components and accumulated balances.  The Company presents comprehensive income in its Statement of Changes in Stockholders’ Equity.  Total comprehensive income includes, in addition to net loss, changes in equity that are excluded from the Statements of Operations and are recorded directly into the separate section of stockholders’ equity on the Balance Sheets.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

j)

Stock-based Compensation

In December 2002, the Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standard No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS No. 148”), an amendment of Financial Accounting Standard No. 123 “Accounting for Stock-Based Compensation” (“SFAS No. 123”).  The purpose of SFAS No. 148 is to: (1) provide alternative methods of transition for an entity that voluntarily changes to the fair value based method of accounting for stock-based employee compensation, (2) amend the disclosure provisions to require prominent disclosure about the effects on reported net income of an entity’s accounting policy decisions with respect to stock-based employee compensation, and (3) to require disclosure of those effects in interim financial information.  The disclosure provisions of SFAS No. 1 48 were effective for the Company commencing December 31, 2003 and the required disclosures have been made below.

The Company has elected to account for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, (“APB No. 25”) and comply with the disclosure provisions of SFAS No. 123 as amended by SFAS No. 148 as described above.  In addition, in accordance with SFAS No. 123 the Company applies the fair value method using the Black-Scholes option-pricing model in accounting for options granted to consultants. Under APB No. 25, compensation expense is recognized based on the difference, if any, on the date of grant between the estimated fair value of the Company’s stock and the amount an employee must pay to acquire the stock.  Compensation expense is recognized immediately for past services and pro-rata for future services over the option-vesting period.

The following table illustrates the pro forma effect on net income (loss) and net income (loss) per share as if the Company had accounted for its stock-based employee compensation using the fair value provisions of SFAS No. 123 using the assumptions as described in Note 10:

		Nine month period ended September 30, 2005	Nine month period ended September 30, 2004
Net income (loss) for the period	As reported	$   501,089	$   (479,114)
SFAS 123 compensation expense	Pro-forma	(525,760)	(255,097)
Net loss for the period	Pro-forma	$   (24,671)	$       (734,211)
Pro-forma basic net loss per share	Pro-forma	$        (0.00)	$   (0.06)
Pro-forma diluted net loss per share	Pro-forma	$        (0.00)	$   (0.06)

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with SFAS No. 123 and the conclusions reached by the Emerging Issues Task Force in Issue No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring or in Conjunction with Selling Goods or Services” (“EITF 96-18”).  Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable.  The value of equity instruments issued for consideration other than employee services is determined on the earlier of a performance commitment or completion of performance by the provider of goods or services as defined by EITF 96-18.

The Company has also adopted the provisions of the FASB Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation – An Interpretation of APB Opinion No. 25” (“FIN 44”), which provides guidance as to certain applications of APB 25.  Stock-based Compensation.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

k)

Cash and Cash Equivalents

Cash equivalents usually consist of highly liquid investments that are readily convertible into cash with maturity of three months or less when purchased.  As at September 30, 2005, cash and cash equivalents consist of bank deposits.

l)

Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share is computed using the weighted average number of shares outstanding during the period. The Company has adopted SFAS No. 128, “Earnings Per Share”.

m)

Long-Lived Asset Impairment

Long-lived assets of the Company are reviewed when changes in circumstances suggest their carrying value has become impaired. Management considers assets to be impaired if the carrying value exceeds the estimated undiscounted future projected cash flows to result from the use of the asset and its eventual disposition. If impairment is deemed to exist, the assets will be written down to fair value. Fair value is generally determined using a discounted cash flow analysis.

n)

Risk management

Currency risk.   Although the Company conducts its business principally in Canada, the majority of its purchases are made in U.S. currency.  Additionally, the majority of the Company’s debt is denominated in U.S. currency.  The Company does not currently hedge its foreign currency exposure and accordingly is at risk for foreign currency exchange fluctuations. 

Credit risk.  Credit risk is managed by dealing with customers whose credit standing meet internally approved policies, and by ongoing monitoring of credit risk. 

Interest rate risk.  All term debt has fixed interest rates and no significant exposure to interest rate fluctuation risk.

o)

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable,  note payable, accounts payable and accrued liabilities, capital lease obligation, short term debt, long term debt, and due to related parties.  It is management’s opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments. The fair value of the Company’s financial instruments are estimated by management to approximate their carrying values due to their immediate or short-term maturity. The fair value of advances due to related parties and certain long term debt is not determinable due to the nature of their repayment terms and conditions.

3.

Non-Controlling Interest

During the third quarter of 2005, Crailar Fiber Technologies Inc. (“Crailar”)issued 1,300,000 shares from treasury at $1.00 per share for total proceeds of $1,300,000, representing 25% of the total outstanding stock.  The funds raised will be used to further develop the Crailar enzymatic process.  As at September 30, 2005 Hemptown Clothing Inc. owns the remaining 75% of Crailar.

The Company has recorded a gain of $975,469 resulting from the change in ownership of Crailar.

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

4.

Note Payable

Celestine Asset Management Loan

On April 21, 2004, the Company received $400,000 by way of a secured and subordinated loan agreement from Celestine Asset Management (“Celestine”).  The term of the loan is from April 21, 2004 to October 21, 2005, and the interest rate thereunder is 10% per annum, calculated semi-annually, with payments due semi-annually.

The security granted is by way of a fixed charge and a security interest in the Company’s existing accounts receivable insurance policy through Export Development Canada and St. Paul Guarantee Insurance Company respecting losses sustained by the Company, and a floating charge and a security interest in all assets of the Company, subject and subordinate, to any borrowing by the Company with banks and lending institutions.

A fee of $20,000 was paid in connection with arranging the funding of the loan, of which $20,000 has been expensed as of September 30, 2005.   The fee was amortized on a straight-line basis over the term of the loan (18 months).  

As of October 22, 2005, Celestine Asset Management has agreed to renew the loan until April 22, 2007 at 12% per annum, calculated semi-annually, with interest payments due semi-annually. The loan is due as follows: (a) $100,000 on July 21, 2006; and (b) $300,000 on April 22, 2007. Security remains the same as during the previous term of the loan. There was no fee paid for arranging the renewal of the loan.

5.

Short Term Debt

(a)

Spectrum    

On December 18, 2004 the Company entered into an agreement with Spectrum to factor the Company’s sales invoices. Spectrum advances monies based on approved sales invoices and will charge a commission of one and one-quarter percent (1.25%) of the invoice amount. Spectrum advances 70% of the sales invoice when the goods are shipped. The remainder of the invoice less factoring commissions and less any interest owing will be paid to the Company when the customers have paid Spectrum. Interest is charged by Spectrum on amounts advanced at the rate of one and one-half percent (1.5%) over the Wall Street Journal designated prime or base rate.

The Company has granted a subordinated security interest to Spectrum over all accounts receivable, all bank deposits and any tax refunds subject to the priority claims of the Bank loan and note payable to Celestine.

As at September 30, 2005 the Company is indebted to Spectrum in the amount of $4,002 for advances on accounts receivable.  

Minimum factoring commissions payable under this agreement will be $12,000 over each consecutive twelve month period, payable at the rate of $1,000 per month.

(b)

Promissory Note

Pursuant to the terms of a Promissory Note dated June 24, 2005 the Company received $17,200 USD, ($20,000 CDN) from a third party for a period of 110 days. The Company repaid the loan on October 12, 2005

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

6.

Bank Loan

During the year ended December 31, 2004 and the nine month period ended September 30, 2005 the Company utilized a Canadian bank line of credit with interest bearing at the bank’s prime business rate plus 5%. The loan was secured by the accounts receivable of the Company and was due on demand. During the fourth quarter of 2004 the Bank determined that the Company was in non-compliance with one of the covenants of its operating line of credit and as a result, required the Company to pay the balance outstanding of its line of credit which was paid in the second quarter of 2005.

7.

Due to Related Parties

On February 1, 2005 a Director and officer exercised 30,000 of his stock options dated November 23, 2001 at $0.50 per share to settle $15,000 of his $31,148 debt. As of September 30, 2005 this Director and officer was owed $31,837 (December 31, 2004 - $7,926).

On February 15, 2005 a Director and officer agreed to subscribe for 172,460 Units of the Company at $0.37 per share as partial settlement of outstanding debt in the amount of $63,810.  Each Unit consists of one common share in the capital stock of the Company and one non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of $0.75 per Warrant Share for the final six months of the Warrant Exercise Period.  The expiry date for the warrants is August 21, 2006. On July 8, 2005 this director advanced $35,000 directly to a supplier, on behalf of the Company. He was repaid on October 18, 2005. As of September 30, 2005 the Company owed this Director and officer $70,894 (December 31,2004 -$14,961).

On June 15, 2005 the Company received $69,365 from a Director. This amount was repaid on July 18, 2005. This same director loaned the Company $51,604 on August 30, 2005, to be repaid on December 15, 2005. The interest rate is 12% per annum and is secured by the assets of the Company.  

All other amounts due to related parties have no specific terms of repayment, are unsecured, and are non-interest bearing

As of September 30, 2005 two other directors and officers were owed a total of $39,030 (December 31, 2004 - $19,552).

8.

Property and Equipment

	Cost	Accumulated Depreciation	Net Book Value  Sept 30, 2005	Net Book Value December 31, 2004
	$	$	$	$
Land (Note 15)	1	-	1	-
Computer equipment	7,125	4,539	2,586	1,547
Equipment	3,503	3,222	281	252
Furniture and fixtures	6,727	2,539	4,188	2,216
Leasehold improvements	7,999	5,339	2,660	3,827
Website	9,470	7,147	2,323	3,429
Computer equipment under capital lease	16,613	9,951	6,662	9,353
Telephone equipment under capital lease	6,000	4,658	1,342	2,818
	57,438	37,395	20,043	23,442

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HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

9.

Long Term Debt

As of September 30, 2005 the Company has been advanced funds in the amount of $27,832 (CDN $32,360) from the Canadian Department of Foreign Affairs and International Trade under its Program for Export Market Development (“PEMD”) to be used to promote the sales of Canadian goods into foreign markets. The agreement was signed on January 7, 2004 and there is no interest charged on the outstanding amount. The loan is to be paid back each year at 4% of incremental foreign sales over the base year amount by December of the following year. The base year amount is approximately $487,000 (CDN $589,000). There was no amount payable for the year 2004 or for the nine month period ended September 30, 2005. If at the end of year five the loan is not paid back, then the outstanding balance of the loan will be forgiven.

10.

Stockholders’ Equity

During the nine month period ended September 30, 2005 the Company issued 415,600 shares of common stock as follows:

(a)

Pursuant to an Engagement Agreement with TerraChoice Environmental Marketing (“TerraChoice”) dated July 29, 2004 the Company was indebted to TerraChoice for a one-time campaign set-up fee of CDN $12,400, payable through the issuance of common stock of the Company.  On February 22, 2005 the Company issued 13,140 Units of the Company at $0.71 per Unit.  Each Unit consists of one common share in the capital stock of the Company and one-half of one non-transferable share purchase warrant at an exercise price of $0.75 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of U.S. $1.00 per Warrant Share for the final six months of the Warrant Exercise Period.

(b)

On February 15, 2005 a Director and officer agreed to subscribe for 172,460 Units of the Company at $0.37 per share as a $63,810 partial settlement of outstanding debt.  Each Unit consists of one common share in the capital stock of the Company and one non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of $0.75 per Warrant Share for the final six months of the Warrant Exercise Period.  The expiry date for the warrants is August 21, 2006.

(c)

As of December 31, 2004 the Company was indebted to a Director and officer in the amount of $31,148.  On February 1, 2005 this individual exercised 30,000 of his stock options dated November 23, 2001 at $0.50 per share in exchange for settlement of $15,000 of his debt.  

(d)

Issued 200,000 shares of common stock of the Company through a private placement of units for total proceeds of $40,000.  Each Unit consists of one common share in the capital stock of the Company and one-half non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of $1.00 per Warrant Share for the final six months of the Warrant Exercise Period.  The expiry date for the warrants is August 23, 2006.

(e)

Issued 400,000 shares of common stock of the Company through a private placement of units for total proceeds of $100,000. Each Unit consists of one common share in the capital stock of the Company and one non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share. The expiry date for the warrants is September 9, 2007.

(f)

Issued 20,000 shares of common stock of the Company through a private placement of units for total proceeds of $5,000. Each unit consists of one common share in the capital stock of the Company and one non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of $1.00 per Warrant Share for the final six months of the Warrant Exercise Period. The expiry date for the warrants is March 13, 2007.

Page 16

HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

(g)

Issued 100,000 shares as stock based compensation on July 20, 2005 at a price of $0.15 per share.

(h)

Share purchase warrants outstanding at September 30, 2005 are:

Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (yr)
$0.50 - $0.75 $0.50 - $0.75 $0.50 - $0.75 $0.75 - $1.00 $2.00 - $4.00	400,000(1)  172,460(2)    120,000(3)    6,570(4) 300,000(5)	1.45 .92 1.02 .92 0.42
Total	999,030	0.98

(1)  Each whole share purchase warrant consists of the right to purchase one common share at an exercise price of $0.50 for the 24 month warrant exercise period.

 (2)  Each whole share purchase warrant consists of the right to purchase one common share at an exercise price of $0.50 during the first 12 months of the warrant exercise period, and at an exercise price of $0.75 during the final 6 months, of the warrant exercise period.

(3)  Each whole share purchase warrant consists of the right to purchase one common share at an exercise price of $0.50 during the first 12 months of the warrant exercise period, and at an exercise price of $1.00 during the final 6 months, of the warrant exercise period.

(4)  Each whole share purchase warrant consists of the right to purchase one common share at an exercise price of $0.75 during the first 12 months of the warrant exercise period, and at an exercise price of $1.00 during the final 6 months, of the warrant exercise period.

Page 17

HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

(5)  Each warrant unit consists of the right to purchase one common share at a price of $2.00, plus one piggyback warrant, which consists of a right to purchase one common share at a price of $4.00.  The piggyback warrants expire one year from the exercise of the warrant units.

	Shares		Weighted-Average Exercise Price
Warrants outstanding, December 31, 2003	550,000	$		1.80
Warrants exercised during the year	(200,000)	$		0.25
Warrants granted during the year	202,000	$		0.75
Warrants expired during the year	-	$		0.00
Warrants outstanding, December 31, 2004	552,000	$		1.97
Warrants exercised during period	-	$		0.00
Warrants granted during period	699,030	$		0.50
Warrants expired during the period	(252,000)	$		0.75
Warrants outstanding, September 30, 2005	999,030	$		0.95

Stock Option Plan

A summary of the status of the Company’s Stock Option Plan as of September 30, 2005 is presented below:

	Shares		Weighted-Average Exercise Price
Options outstanding, December 31, 2003	1,831,500	$		0.65
Options exercised during the year	(120,000)	$		0.50
Options granted during the year	2,576,500	$		0.73
Options cancelled during the year	(352,500)	$		0.77
Options outstanding, December 31, 2004	3,935,500	$		0.70
Options exercised during period	(30,000)	$		0.50
Options granted during period	787,500	$		0.20
Options cancelled during the period	(632,000)	$		0.29
Options outstanding, September 30, 2005	4,061,000	$		0.67

September 30, 2005
Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (yr)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$0.01 - $0.50	1,354,500	2.04	$0.32	829,564	$0.40
$0.51 - $1.00	2,706,500	1.59	$0.83	2,706,500	$0.83
	4,061,000	1.74	$0.66	3,536,064	$0.73

Page 18

HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

On July 9, 2004 the Company granted 1,594,500 stock options at an exercise price of $0.90 per share, under the Company's 2004 Stock Option Plan.  The options vest at 1/12 per month beginning August 9, 2004 and expire on July 9, 2007.  Of the total number of options granted, 132,000 were granted to consultants and 1,462,500 were granted to directors and employees.  The fair value of all of the options granted was determined to be $905,000 by using the Black-Scholes option pricing model assuming an expected life of 3 years, a risk-free interest rate of 3% and an expected volatility of 100%.

As calculated, the 132,000 options granted to consultants were valued at $74,900 and will be recorded as a consulting expense and a contribution to additional paid in capital over the vesting period, of which $43,688 was expensed in the nine month period ended September 30, 2005.  

The fair value for the 1,462,500 options granted to directors and employees was calculated as $830,100 and, in accordance with the provisions of SFAS 148, will be disclosed on a pro-forma basis in Note 2, over the vesting period.  As of December 31, 2004, $336,414 had been recorded on a pro-forma basis.  During the nine month period ended September 30, 2005, $493,686 has been recorded on a pro-forma basis.

On December 9, 2004, the Company granted 300,000 options to consultants at an exercise price of $0.32 per share under the Company’s Stock Option Plan. The options vest at 1/12 per month beginning January 9, 2005 and expire December 9, 2007.These stock options have not been registered under an S-8 Registration Statement and will be subject to all applicable restrictions. The fair value of these options was $46,100 and none of these options vested prior to cancellation on January 1, 2005.

On December 10, 2004 the Company granted 300,000 stock options to consultants under the September 10, 2003 plan. The options vest over three months, beginning December 15, 2004 and 1/3 for each of the following two months. These options expire on June 15, 2005. The fair value of all of the options granted was calculated using the Black-Scholes option pricing model assuming an expected life of 1/2 year, a risk-free interest rate of 3% and an expected volatility of 100%. The fair value of these options was $16,900, of which $5,633 has been recorded as an expense as of December 31, 2004. These options were cancelled on January 1, 2005.  

On May 10, 2005 the Company granted 787,500 stock options at an exercise price of $0.20 per share, under the Company's July 2004 Stock Option Plan.   The options vest at 1/12 per month beginning June 10, 2005 and expire on May 10, 2008.  Of the total number of options granted, 25,000 were granted to consultants and 762,500 were granted to directors and employees and were registered under an S-8 Registration Statement.  The 25,000 options granted to consultants have not been registered under an S-8 Registration Statement and will be subject to all applicable restrictions.  The fair value of all of the options granted was determined to be $102,500 by using the Black-Scholes option pricing model assuming an expected life of 3 years, a risk-free interest rate of 3% and an expected volatility of 100%.

As calculated, the 25,000 options granted to consultants were valued at $3,200 and will be recorded as a consulting expense and a contribution to additional paid in capital over the vesting period, $1,067 of which has been recorded as of September 30, 2005, all of which was expensed in the current quarter.  

The fair value for the 787,500 options granted to directors and employees was calculated as $99,300 and, in accordance with the provisions of SFAS 148, will be disclosed on a pro-forma basis in Note 2, over the vesting period, $32,074 of which has been recorded as of September 30, 2005.

On July 5, 2005 the Company registered 2,024,500 common stock options exercisable at $0.21 per share under an S-8 Registration Statement.  

Page 19

HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

At the Company’s 2005 Annual General Meeting, the shareholders of the Company passed an ordinary resolution that subject to regulatory approval, the filing and form of which being at the sole and absolute discretion of the Directors of the Company, the shareholders approve and authorize the adoption by the Company of a new and proposed stock option plan (the “Stock Option Plan”) to, among other matters: (i) fix the maximum number of common shares for which options may be granted under the Stock Option Plan at a maximum of up to 13,685,635 common shares of the Company’s share capital; and (ii) specify that the options issued pursuant to the Stock Option Plan are non-transferable; and, furthermore, that the Directors of the Company are authorized, in their sole and absolute discretion, to abandon or alter any portion of the Stock Option Plan at any time without the further approval of the shareholders of the Company.

11.

Commitments

National Research Council of Canada (“NRC”) collaboration

In May 2004 the Company entered into a joint collaboration agreement with the NRC to develop a patentable enzyme technology for the processing of hemp fibres.  The agreement is for three years and expires on May 9, 2007.  

Over the term of the agreement, the Company is required to pay the NRC $242,539 (CDN $282,000) in cash.  In addition to cash payments, the Company will contribute research and development valued at approximately $476,000 (CDN $553,500).  Payments are due quarterly and the first instalment of $7,913 (CDN $9,200) was paid in July 2004.  Future payments are outlined in the agreement, and are as follows:

	US $	CDN $
2005	21,932	25,500
2006	67,028	95,500
2007	16,844	24,000
	105,804	145,000

The extent of any Intellectual Property that the Company will own is uncertain and difficult to predict, as such specific terms will be negotiated once the final Intellectual Property is developed.  However, the agreement provides for a licensing arrangement to be negotiated, which will enable the Company to commercially exploit any developments from the project.

12.

Income Taxes

As at September 30, 2005 the Company has estimated tax loss carry forwards for tax purposes of approximately $2,100,000 (December 31, 2004 - $1,670,000) which expire between 2005 and 2015.  This amount may be applied against future federal taxable income.  The Company evaluates its valuation allowance requirements on an annual basis based on projected future operations.  When circumstances change and this causes a change in management’s judgement about the realizability of future tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

13.

Related Party Transactions

During the nine month period ended September 30, 2005, $215,977 (2004 - $187,296) was paid as remuneration to officers and directors of the Company. Of this amount, $119,109 (2004 - $69,887) is recorded as salaries and benefits expense and $96,868 (2004 - $117,409) is recorded as contract labor expense.

Of the stock options granted on July 9, 2004 (see Note 10), 1,050,000 were granted to Directors of the Company.  As of September 30, 2005, 1,050,000 of the Directors’ stock options issued on July 9, 2004 have vested.  A pro forma expense of $347,627 has been recognized for these options, as disclosed in Note 2.

Page 20

HEMPTOWN CLOTHING INC.

NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2005

(unaudited)

Of the stock options granted on May 10, 2005 (see Note 10), 525,000 were granted to Directors of the Company. As of September 30, 2005, 175,024 of the Directors’ stock options issued on May 10, 2005 have vested. A pro forma expense of $22,081 has been recognized for these options, as disclosed in Note 2.

On February 1, 2005 a Director and officer exercised 30,000 of his stock options dated November 23, 2001 at $0.50 per share to settle $15,000 of his $31,148 debt.  

As of December 31, 2004, the Company was indebted to a Director and officer in the amount of $63,810.  On February 15, 2005 the Director agreed to subscribe for 172,460 Units of the Company at $0.37 per share as partial settlement of the outstanding debt.  Each Unit consists of one common share in the capital stock of the Company and one non-transferable common stock purchase warrant at an exercise price of $0.50 per Warrant Share during the first 12 months of the Warrant Exercise Period and at an exercise price of $0.75 per Warrant Share for the final six months of the Warrant Exercise Period.  The expiry date for the warrants is August 21, 2006.

On July 20, 2005 an officer was issued 100,000 shares as compensation at a price of $0.15 per share.

All 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.

14.

Economic Dependence

As at September 30, 2005, three suppliers account for 100% of the Company’s purchases of inventory. The largest supplier is located in China and supplies 94% of the Company’s purchases, the other two are located in Canada and supply approximately 6%.

15.

Property Transfer

On July 3, 2004 the Company received 80 acres of industrial property in Craik, Saskatchewan for the development of a hemp fibre mill.  The Company was given the property for $1 from the Town of Craik and the Rural Municipality of Craik No. 222.  Provided the Company is successful in the development of the mill, by July 1, 2007, there will be no further obligations to the Town of Craik; however, if it is not successful, the Company can either surrender the land back to Craik or retain the land with payment of $27,743. The transfer of the registration was completed on February 8, 2005.

16.

Government Grant Receivable

The Company is eligible for certain non-refundable grants from the Government of Canada under its Scientific Research and Experimental Development tax credit program (“SR&ED Program”).

On April 12, 2005 the Company received $174,893 as a reimbursement for certain research and development expenses incurred in prior years, net of a $20,375 consulting fee.

During the second quarter of 2005 the Company recorded an additional grant receivable of $27,274.

The above government grants, net of fees, have been recorded as a recovery of research and development expenses in the nine month period ended September 30, 2005.

17.

Subsequent Event

During October 2005, the Company received $147,000 as proceeds on the issuance of 588,000 shares of common stock at $0.25 per share.

Page 21

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

The following discussion and analysis of our results of operations and financial position should be read in conjunction with our unaudited financial statements and the notes thereto included elsewhere in this Interim Report. Our consolidated financial statements are prepared in accordance with U.S. GAAP. All references to dollar amounts in this section are in U.S. dollars unless expressly stated otherwise.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

The following discussion is intended to provide an analysis of our financial condition and should be read in conjunction with our unaudited financial statements and the notes thereto.  The matters discussed in this section that are not historical or current facts deal with potential future circumstances and developments.  Such forward-looking statements include, but are not limited to, the development plans for our growth, trends in the results of our development, anticipated development plans, operating expenses and our anticipated capital requirements and capital resources.  Our actual results could differ materially from the results discussed in the forward-looking statements.

GENERAL

Hemptown Clothing Inc., a corporation organized under the laws of British Columbia, Canada (“Hemptown”), is engaged in the manufacture and marketing of hemp apparel brand clothing to wholesalers, retailers and consumers. We are also involved in ongoing research and development of quality and conservation-based textile technology, working vertically to enhance its products and the benefits they provide to crop farmers, consumers and the environment. Our shares of common stock trade on the Over-the-Counter Bulletin Board under the trading symbol “HPTWF”.

The following discussion and analysis of our results of operations and financial position should be read in conjunction with our unaudited financial statements and the notes thereto included elsewhere in this Interim Report. Our consolidated financial statements are prepared in accordance with U.S. GAAP. All references to dollar amounts in this section are in U.S. dollars unless expressly stated otherwise.

RESULTS OF OPERATIONS

	Three months ended September 30,			Nine months ended September 30,
	2005	2004	% Change	2005	2004	% Change
Revenues	$ 323,939	$ 158,447	+105%	$   806,256	$  703,908	+15%
Gross Margin	$   68,320	$   53,159	+28%	$   220,454	$   212,817	+4%
Loss from Operations	$ (280,397)	$ (247,062)	-14%	$ (514,207)	$ (479,114)	-7%
Basic Loss per Share	$  (0.02)	$  (0.02)		$       (0.03)	$       (0.04)

Third quarter revenues showed an increase over first quarter revenues and an increase of 105% over second quarter revenues of the same period in the previous year.

Nine-Month Period Ended September 30, 2005 Compared to Nine-Month Period Ended September 30, 2004

Our net operational losses during the nine-month period ended September 30, 2005 were ($514,202) compared to ($479,114) during the nine-month period ended September 30, 2004 (an increase of $35,088). During the nine-month period ended September 30, 2005, we generated $806,256 in gross revenues compared to $703,908 in gross revenues for the nine-month period ended September 30, 2004 (an increase of $102,348).  Cost of goods sold increased during the nine-month period ended September 30, 2005 to $585,802 from $491,091 for the same period in 2004 resulting in net sales or a gross margin of $220,454 for the nine-month period ended September 30, 2005 compared to $212,817 for the same period in 2004, as further discussed below.

Page 22

During the nine-month period ended September 30, 2005, we recorded operating expenses of approximately $734,661 compared to operating expenses of $691,931 during the nine-month period ended September 30, 2004 (an increase of $42,730). Operating expenses consisted of: (i) $180,048 (2004: $173,854) in salaries and employee benefits; (ii) $126,506 (2004: $130,820) in advertising and promotion; (iii) $189,797 (2004: $124,807) in contract labor; (iv) $69,684 (2004: $55,781) in legal and accounting; (v) $86,202 (2004: $74,078) in office and general; (vi) $33,818 (2004: $30,580) in rent; (vii) $59,444 (2004: $29,001) in interest; (viii) $9,157 (2004: $17,056) in insurance; (ix) $78,982 (2004: $25,187) in research and development; (x) $8,754 (2004: $6,910) in depreciation; (xi) $33,614 (2004: -0-) in consulting fees; and (xii) $59,755 (2004: $23,857) in stock-based compensation. Our net loss from operations during the nine-month period ended September 30, 2005 was ($514,207) or ($0.03) per share compared to a net loss of ($479,114) or ($0.04) per share for the nine-month period ended September 30, 2004. For the nine-month period ended September 30, 2005, the weighted average number of shares outstanding was 13,807,809 compared to 13,270,035 at September 30, 2004.

Our net income for the nine-month period ended September 30, 2005 was $501,089 compared to a net loss of ($479,114) for the nine-month period ended September 30, 2004. Net income for the nine-month period ended September 30, 2005 increased over the same period in 2004 due to realization of a gain of $975,469 resulting from the change in ownership of our subsidiary, Crailar Fiber Technologies, Inc., a corporation organized under the laws of the Province of British Columbia (“Crailar Fiber”), and valuation of our non-controlling interest of $39,827 in Crailar Fiber.

Revenue and Gross Margins.Revenues for the nine-month period ended September 30, 2005 were $806,256, an increase of 15% over revenues of $703,908 for the same nine-month period in 2004. The revenues in the three-month period ended September 30, 2005 were $323,939, an increase of 105% over revenues of $158,447 for the same three-month period ending September 30, 2004. Gross margins increased to $220,454 for the nine-month period ended September 30, 2005 from $212,817 for the same period ended 2004.

Operating Expenses. Total operating expenses for the nine month period ended September 30, 2005 were $734,661 compared with total operating expenses of $691,931 for the same period in 2004. The operating expenses for the nine month period ended September 30, 2005 were reduced by $201,101 in government grants received/receivable under the Government of Canada’s Scientific Research and Experimental Development tax credit program (“SR&ED Program”).   

For the nine-month period ending September 30, 2005, advertising and promotion expenditures totaled $126,506 compared with $130,820 for the same period in 2004. Salaries and benefits for the first nine months of 2005 were $180,048 compared with $173,854 in 2004. Contract labour increased to $189,797 for the period ending September 30, 2005 compared with $124,807 for the same period in 2004 largely because of preparation for the development of the CRAILAR technology.  Stock based compensation for consulting fees increased to $44,755 for the period ending September 30, 2005 from $23,857 for the same period in 2004 due to the number of stock options granted in July 2004 and May 2005. Accounting and legal expenses increased to $69,684 from $55,781 compared for the same period in 2004 as a result of increased auditing fees.

Research and development costs of $78,982 incurred during the nine-month period ended September 30, 2005 were primarily related to the fees associated with the collaboration with the National Research Council of Canada to develop a patentable enzyme technology to improve the efficiency of hemp fiber processing, which should reduce the costs of hemp fiber and make it more cost competitive with cotton.  

Interest costs incurred during the nine-month period ended September 30, 2005 were $59,444 compared with $29,001 for the same nine month period of 2004.  The increase in interest costs relate to the $400,000 loan from Celestine Asset Management and the costs of factoring the accounts receivable.  

Net Income.  The net income for the nine-month period ending September 30, 2005 was $501,089 compared to a net loss of ($479,114) for the same period in 2004. Basic income per share was $0.04 for the nine-month period ended September 30, 2005 compared to a basic loss of ($0.04) per share for nine-month period ended September 30, 2004.

Three-Month Period Ended September 30, 2005 Compared To Three-Month Period Ended September 30, 2004.

Our net operational losses during the three-month period ended September 30, 2005 were ($280,397) compared to ($247,062) during the three-month period ended September 30, 2004 (an increase of $33,335). During the three-month period ended September 30, 2005, we generated $323,939 in gross revenues compared to $158,447 in gross revenues

Page 23

for the three-month period ended September 30, 2004 (an increase of $165,492). Cost of goods sold increased during the three-month period ended September 30, 2005 to $255,619 from $105,288 for the same period in 2004 resulting in net sales or a gross margin of $66,320 for the three-month period ended September 30, 2005 compared to $53,159 for the same period in 2004.

During the three-month period ended September 30, 2005, we recorded operating expenses of approximately $348,717 compared to operating expenses of $300,221 during the three-month period ended September 30, 2004 (an increase of $48,496). Operating expenses consisted of: (i) $77,605 (2004: $63,554) in salaries and employee benefits; (ii) $57,776 (2004: $56,638) in advertising and promotion; (iii) $56,382 (2004: $67,231) in contract labor; (iv) $13,459 (2004: $7,982) in legal and accounting; (v) $21,728 (2004: $34,965) in office and general; (vi) $11,547 (2004: $10,456) in rent; (vii) $27,665 (2004: $13,973) in interest; (viii) $3,273 (2004: $4,030) in insurance; (ix) $26,987 (2004: $15,003) in research and development; (x) $3,597 (2004: $2,532) in depreciation; (xi) $25,590 (2004: -0-) in consulting fees; and (xii) $22,041 (2004: $23,857) in stock-based compensation. Our net loss from operations during the three-month period ended September 30, 2 005 was ($280,397) or ($0.02) per share compared to a net loss of ($247,062) or ($0.02) per share for the three-month period ended September 30, 2004. For the three-month period ended September 30, 2005, the weighted average number of shares outstanding was 13,807,809 compared to 13,270,035 at September 30, 2004.

Our net income for the three-month period ended September 30, 2005 was $734,899 compared to a net loss of ($247,062) for the nine-month period ended September 30, 2004. Net income for the three-month period ended September 30, 2005 increased over the same period in 2004 due to realization of a gain of $975,469 resulting from the change in ownership of our subsidiary, Crailar Fiber, and valuation of our non-controlling interest of $39,827 in Crailar Fiber.

LIQUIDITY AND CAPITAL RESOURCES

For the Nine-Month Period Ended September 30, 2005

As at September 30, 2005, our current assets were $2,109,794 and our current liabilities were $684,913 which resulted in working capital of $1,424,881. As at September 30, 2005, total assets were $2,129,837 consisting of: (i) $1,639,671 in cash; (ii) $136,312 in trade accounts receivable; (iii) $274,075 in inventory; (iv) $59,736 in prepaid expenses and other; (v) ($287,101) in non controlling interest; and (vi) $20,043 in fixed assets.

As at September 30, 2005, liabilities were comprised of: (i) $368,248 in accounts payable and accrued liabilities; (ii) $193,364 in amounts due related parties; (iii) $12,913 capital lease obligation; (iv) $21,202 short term loan; (v) $400,000 in note payable; and (vi) $27,832 in long term debt.  

Stockholders' equity/deficit increased from a stockholders’ deficit of ($391,788) at December 31, 2004 to a stockholders’ equity of $819,177 at the nine-month period ended September 30, 2005.

As of September 30, 2005, we had cash of $1,639,671 compared with $13,632 at December 31, 2004. The bank line of credit decreased from $100,545 in December 2004 to $0 in the second quarter of 2005.

The cash flows used in operations for the nine-month period ended September 30, 2005 were $277,067 compared with $717,164 for the same period in 2004.  Cash flows used in operations for the nine-month period ended September 30, 2005 consisted primarily of net income of $501,089, reduced by a $975,469 gain resulting from a change of ownership in our subsidiary, Crailar Fiber, with changes in working capital assets and liabilities of a decrease in accounts receivable to $83,314, a decrease in inventory of $44,530, and a decrease in accounts payable and accrued liabilities of $19,556.

Cash flows provided by financing activities were $1,908,461 compared to $801,795 during the same period in 2004. The increase in funds provided by financing activities in the period was largely caused by our receipt of $545,000 for the issuance of share capital compared to $254,300 during the same period in 2004 and by $1,300,000 in gross proceeds received from the sale of shares of common stock by our subsidiary, Crailar Fiber. We also reduced our bank line of credit ($100,545) and increased short term loans $21,202 and amounts due to related parties $66,758.

The effect of exchange rates on cash resulted in a gain of $5,235 for the nine month period ended September 30, 2005 compared with a $55,780 loss in the same nine month period of 2004.  These gains and losses are the result of fluctuations in the Canadian dollar versus the U.S. dollar.

Page 24

PLAN OF OPERATION

We have been, since our inception, reliant on external investment to finance ongoing operations, as we are not yet operating profitably. We plan to continue to increase efficiency in inventory control by eliminating slow turning items and adding new items from our HT Naturals™ product line. An increased focus on private label and retail sales is expected to grow sales in the future. New sources of production financing will provide continuous product availability and the capacity to provide product as ordered.

During the nine-month period ended September 30, 2005, we completed two private offerings raising in the aggregate $105,000. Simultaneously, our subsidiary, Crailar Fiber, completed a private placement offering raising in the aggregate $1,300,000 to continue development of its fiber process enzyme (CRAILAR). The development of the CRAILAR fiber process has reached the stage that we will begin testing and production at the pilot plant level during fourth quarter of 2005. See “Part II. Other Information. Item 2.  Changes in Securities and Use of Proceeds.

Our collaboration with the National Research Council is continuing on schedule and we continue to be confident of the value of this research as confirmation of the commercial viability of the Hemptown fiber process (CRAILAR™) has been received from industry. The agreement with the National Research Council allows us to assign the benefits of the agreement. The National Research Council plans to shortly apply for patents of the CRAILAR process and, upon the successful application of these patents, we will assign the agreement and patent rights to our subsidiary, Crailar Fiber.

We have also retained the services of The Meriwether Group to assist with strategic planning, marketing and venture capital funding. The Meriwether Group has raised $500,000 in capital for us in the third quarter of 2005.

During 2005, we added a new line of clothing called HT Naturals™ to augment our growing product base. HT Naturals™ is an “eco-fabric”, which is crafted from a proprietary combination of fabric blends including organic cotton, bamboo, soy, recycled polyester, and other organic textiles.  The bamboo component has the look of rayon, feels like silk and is softer than cotton on the body.  The soy component is a by-product of soy food production, and is often termed as “vegetable cashmere”.

Mr. Mike Evans has accepted a position with us as Vice President-Finance to assist us in obtaining additional financing and to help us strengthen our exposure in the public markets. Mr. Evans is a principal of Evans & Evans Inc. a firm that specializes in financial advisory services. Through Mr. Evans, we have signed a letter of agreement with Octant Capital of New York to raise additional capital for the continued development and production of our CRAILAR fiber process and for the expansion of our sales.

Quota categories for the import of 100% cotton from China into the United States have been filled as of July 5, 2005 and will re-open on January 1, 2006.  Our core products are unaffected by this closure as they are a hemp/cotton blend and product shipment to the United States continues as normal

Mr. Gordon Mackie joined our Advisory Board in April 2005.  Mr. Mackie is a textile engineer based in Europe with expertise in the spinning and processing of natural fibers.

While we expect that we will achieve profitable operations in the future, there can be no assurance that our revenue, margins, and profitability will increase, or be sufficient to support our operations in the long term. We expect we will need to raise additional capital to meet short and long-term operating requirements.  We believe that private placements of equity capital and debt financing may be adequate to fund our long-term operating requirements.  We may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result in a requirement for additional cash.  If we raise additional funds through the issuance of equity or convertible debt securities other than to current shareholders, the percentage ownership of our current shareholders would be reduced, and such securities might have rights, preferences or privileges senior to our common stock.  Addition al financing may not be available upon acceptable terms, or at all.  If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict our business operations. We are continuing to pursue external financing alternatives to improve our working capital position and to grow the business to the greatest possible extent.

MATERIAL COMMITMENTS

A significant commitment is the principal amount of $400,000 due and owing pursuant to a secured and subordinated loan agreement with Celestine Asset Management (“CAM”).  The term of the loan was from April 21, 2004 to October

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22, 2005. As of October 22, 2005, CAM agreed to renew the loan until April 22, 2007 with an interest rate of 12% per annum, calculated semi-annually, and payments due semi-annually. In accordance with the terms and provisions of the renewed loan, payments are due as follows: (i) $100,000 is due on July 21, 2006; and (ii) $300,000 is due on April 22, 2007. The security granted to CAM is pursuant to: (i) a fixed charge and a security interest in our existing accounts receivable insurance policy obtained through Export Development Canada and St. Paul Guarantee Insurance Company respecting losses sustained us; and (ii) a floating charge and a security interest in all of our assets, subject and subordinate to any borrowing by us with banks and lending institutions.

A significant commitment for us is the principal amount of $21,932  owing in December, 2005 pursuant to a collaboration agreement with the National Research Council of Canada (the “NRC”), to develop a patentable enzyme technology for the processing of hemp fibres (the “Collaboration Agreement”).  The Collaboration Agreement is for a period of three years and expires on May 9, 2007.  Pursuant to the terms and conditions of the Collaboration Agreement, we are required to pay to NRC $105,804 in total for the remainder of 2005 and 2006, 2007. There are no payments currently due and owing as at September 30, 2005.

A significant commitment for us is the amount of $26,753 (CDN $32,360) advanced from the Canadian Department of Foreign Affairs and International Trade under its Program for Export Market Development (“PEMD”) to be used to promote the sales of Canadian goods into foreign markets. The agreement was signed on January 7, 2004. The loan is to be paid back each year at 4% of incremental foreign sales over the base year amount by December of the following year. There is no interest charged on the outstanding amount. The base year amount was approximately $486,938 (CDN $589,000). There was no amount payable for the year 2004 or at the end of September 30, 2005. If at the end of year five the loan is not paid back, then the outstanding balance of the loan will be forgiven.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably like to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.  The term “off-balance sheet arrangement” generally means any transaction, agreement or other contractual arrangement to which an entity unconsolidated with us is a party, under which we have (i) any obligation arising under a guarantee contract, derivative instrument or variable interest; or (ii) a retained or contingent interest in assets transferred to such entity or similar arrangement that serves as credit, liquidity or market risk support for such assets.  

ITEM 3. CONTROLS AND PROCEDURES

An evaluation was conducted under the supervision and with the participation of our management, including Jerry Kroll, our Chief Executive Officer, and Guy Prevost, our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as at September 30, 2005. Based on that evaluation, Mr. Kroll and Mr. Prevost concluded that our disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in Commission rules and forms. Such officers also confirm that there was no change in our internal control over financial reporting during the three-month period ended September 30, 2005 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Not applicable.

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

During the nine-month period ended September 30, 2005, we issued securities pursuant to contractual debts or financings as follows.

(i)

During the nine-month period ended September 30, 2005, we engaged in a private placement offering under Regulation D of the Securities Act of 1933, as amended (the “1933 Securities Act”), which has been terminated. Pursuant to the terms of the private placement, we offered 20,000 units in our capital (the

Page 26

“First Unit”), at a subscription price of $0.25 per First Unit, with each such First Unit being comprised of one share of restricted common stock and one non-transferable share purchase warrant (the “First Warrant”) entitling the holder thereof to purchase an additional share of common stock for the period commencing upon the date of issuance of the First Unit and ending on the day which is 18 months from the date of issuance of the First Unit at an exercise price of $0.50 per share during the first twelve month of the First Warrant and then at an exercise price of $1.00 per share during the final six months. We sold 20,000 First Units at $0.25 per First Unit, consisting of 20,000 shares of restricted common stock and 20,000 First Warrants, for aggregate gross proceeds of $5,000. We issued shares of restricted common stock to one accredited U.S. resident investor and to one non-U.S. resident investor. The investors executed a subscription agreement and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investor understood the economic risk of an investment in the securities, and that the investor had the opportunity to ask questions or and receive answers from our management concerning any and all matters related to acquisition of the securities. No underwriter was involved in the transaction and no commission was paid.

(ii)

During the nine-month period ended September 30, 2005, we engaged in a private placement offering under Regulation D of the 1933 Securities Act, which has been terminated. Pursuant to the terms of the private placement, we offered 400,000 units in our capital (the “Second Unit”), at a subscription price of $0.25 per Second Unit, with each such Second Unit being comprised of one share of restricted common stock and one non-transferable share purchase warrant (the “Second Warrant”) entitling the holder thereof to purchase an additional share of common stock for the period commencing upon the date of issuance of the Second Unit and ending on the day which is 24 months from the date of issuance of the Second Unit at an exercise price of $0.50 per share. We sold 400,000 Second Units at $0.25 per Second Unit, consisting of 400,000 shares of restricted common stock and 400,000 Second Warrants, for aggregate gross proceeds of $100,000. We issued shares of restricted common stock to one accredited U.S. resident investor and to one non-U.S. resident investor. The investors executed a subscription agreement and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investor understood the economic risk of an investment in the securities, and that the investor had the opportunity to ask questions or and receive answers from our management concerning any and all matters related to acquisition of the securities. No underwriter was involved in the transaction and no commission was paid.

(iii)

During the nine-month period ended September 30, 2005, we engaged in a private placement offering under Regulation S and Rule 506 of Regulation D of the 1933 Securities Act, which has been terminated. Pursuant to the terms of the private placement, we offered 200,000 units in our capital (the “Third Unit”), at a subscription price of $0.20 per Third Unit, with each such Third Unit being comprised of one share of restricted common stock and one-half of one 18-month non-transferable share purchase warrant (the “Third Warrant”). Each such whole Third Warrant entitles the holder thereof to purchase one additional share of restricted common stock at an exercise price of $0.50 per Third Warrant during the first 12-months or at an exercise price of $1.00 per Third Warrant during the final 6-months of the exercise period of the Third Warrant. We sold 200,000 Third Units at $0.20 per Third Unit, consisting of 200,0 00 shares of restricted common stock and 100,000 Third Warrants, for aggregate gross proceeds of $40,000. We issued shares of restricted common stock to one non-U.S. resident investor. The investor executed a subscription agreement and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investor understood the economic risk of an investment in the securities, and that the investor had the opportunity to ask questions or and receive answers from our management concerning any and all matters related to acquisition of the securities. No underwriter was involved in the transaction and no commission was paid.

As of the date of this Quarterly Report, no Warrants have been exercised.

(iv)

During the nine-month period ended September 30, 2005, our subsidiary, Crailar Fiber, engaged in a private placement offering under Regulation S and Rule 506 of Regulation D of the 1933 Securities Act, which has been terminated. Pursuant to the terms of the private placement, Crailar offered 1,300,000 shares of its no par value common stock at a subscription price of $1.00 per share of common stock. Crailar sold 1,300,000 shares of its common stock for aggregate gross proceeds of $1,300,000. Crailar issued 1,300,000 shares of its restricted common stock to two accredited U.S. resident investors and two non-U.S. investors. The investors executed a subscription agreement and acknowledged that the securities to be issued have not been registered under the 1933 Securities Act, that the investor understood the economic risk of an investment in the securities, and that the investor had the opportunity to ask questions

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or and receive answers from our management concerning any and all matters related to acquisition of the securities. No underwriter was involved in the transaction and no commission was paid.

(v)

As at December 31, 2004, we were indebted to a creditor for a one-time campaign set-up fee of CDN $12,400 payable in our restricted common stock. During the six-month period ended June 30, 2005, we issued 13,140 Units to the credit at $0.71 per Unit. Each Unit consists of one common share and one-half of one non-transferable share purchase warrant at an exercise price of $0.75 per warrant during the first 12 months of the warrant exercise period and at an exercise price of $1.00 per warrant for the final six months of the warrant exercise price. The Units were issued under the exemption from registration pursuant to Section 4(2) of the 1933 Securities Act.

As of the date of this Quarterly Report, no Warrants have been exercised.

(vi)

During the nine-month period ended September 30, 2005, we issued 172,460 Units at $0.37 per share to one of our directors as a $63,810 partial settlement of outstanding debt due and owing as at December 31, 2004. Each Unit consists of one common share and one non-transferable common stock purchase warrant at an exercise price of $0.50 per warrant during the first 12 months of the exercise period and at an exercise price of $0.75 per warrant for the final six months of the warrant exercise period. The Units were issued under the exemption from registration pursuant to Section 4(2) of the 1933 Securities Act.

As of the date of this Quarterly Report, no Warrants have been exercised.

(vii)

On July 5, 2005, our Board of Directors authorized and directed the filing of an S-8 Registration Statement under the 1933 Securities Act to register 2,024,500 stock options exercisable into shares of common stock at $0.21 per share under the 2005 Stock Option Plan.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On June 18, 2005, an annual meeting of shareholders (the “Meeting”) was held for the following purposes: (i) to ratify and approve the prior actions of the Board of Directors; (ii) to approve and ratify the appointment of Dale Matheson Carr-Hilton LaBonte, Chartered Accountants, as our independent public accountant and auditor; (iii)  to elect the following nominees to the Board of Directors: Jerry Kroll, Jason Finnis, Larisa Harrison, Robert Edmunds and Guy Carpenter; (iv) to approve a proposed 2005 stock option plan for our key personnel (the “2005 Stock Option Plan”); and (v) to approve a proposed amendment to our Articles of Incorporation, as amended, to effectuate a proposed name change to such name as may be approved by our Board of Directors in its sole and absolute discretion (the “Name Change”).

Only shareholders of record at the close of business on April 18, 2005 (the “Record Date”) were entitled to notice or and to vote the shares of common stock held by them on such date at the Meeting or any and all adjournments thereof. As of the Record Date, an aggregate 13,685,635 shares of common stock were outstanding. There was no other class of voting securities outstanding at that date.

Each share of common stock held by a shareholder entitled such shareholder to one vote on each matter that was voted at the Meeting. The presence, in person or by proxy, of the holders of a majority of the outstanding share of common stock was necessary to constitute a quorum at the Meeting. Assuming that a quorum was present, the affirmative vote of the holders of a majority of the shares of common stock outstanding was required to approve the matters presented for approval at the Meeting.

On June 18, 2005, the Meeting of shareholders was held with the resulting votes cast either in person or proxy as below.

1.

Approval and ratification of the acts of our Board of Directors.

For 6,255,462

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Against	0
Abstain	705,998
Broker non-vote	0

2.

Approval and ratification of the appointment of Dale Matheson Carr-Hilton LaBonte, Chartered Accountants, as our independent public accountants.  

For	6,257,462
Against	0
Abstain	703,998
Broker non-vote	0

3.

Approval of the election of directors to our Board of Directors.

	Number of Shares
	For	Withheld
Jerry Kroll	6,278,462	682,998
Jason Finnis	6,961,460	0
Larisa Harrison	6,278,462	682,998
Robert Edmunds	6,691,460	0
Guy Carpenter	6,278,462	682,998

4.

Approval of proposed 2005 Stock Option Plan.

For	6,222,262
Against	739,198
Abstain	0
Broker non-vote	0

5.

Approval of proposed Name Change.

For	6,958,460
Against	3,000

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Abstain	0
Broker non-vote	0

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

The following exhibits are included in this report: See “Exhibit Index” immediately following the following the signature page of this Form 10-QSB.

(b) 

Reports on Form 8-K

A Form 8-K, dated April 8, 2005, was filed announcing the confirmation of $223,118.00 from the Government of Canada’s Scientific Research and Experimental Development program in recognition of our 2002 and 2003 business operations in the development of environmentally friendly fabrics and garments.

A Form 8-K, dated May 2, 2005, was filed announcing the acceptance of the resignation of Robert Edmunds as our Chief Financial Officer effective April 27, 2005. Mr. Edmunds will remain as a director on our Board of Directors. The 8-K also announced the appointment by the board of directors of Guy Prevost as our Chief Financial Officer effective May 2, 2005.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Hemptown Clothing Inc.
Date: November 14, 2005	By: /s/ Jason Finnis
	Jason Finnis President, Director
Date: November 14, 2005	By: /s/ Jerry Kroll
	Jerry Kroll CEO, Chairman, Director
Date: November 14, 2005	By: /s/ Guy Prevost
	Guy Prevost CFO

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Exhibit Index

11.1  Statement re: computation of per share earnings.

31.1  Certificate pursuant to Rule 13a-14(a).

31.2  Certification pursuant to Rule 13a-14(a).

32.1  Certificate pursuant to 18 U.S.C. Subsection 1350.

32.2  Certificate pursuant to 18 U.S.C. Subsection 1350.

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EXHIBIT 11.1

HEMPTOWN CLOTHING INC.
SEPTEMBER 30, 2005

Statement Re: Computation Of Per Share Earnings For The Three Months Ending September 30, 2005

EARNINGS PER SHARE FOR THE THREE MONTHS ENDING SEPTEMBER 30, 2005$0.05 *
                                                  

*  All outstanding options and warrants are anti-dilutive, and consequently, fully diluted EPS is equal to Basic EPS.

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EXHIBIT 31.1

Certification Pursuant To Rule 13a-14(a)

I, Jerry Kroll, certify that:

1. I have reviewed this quarterly report of Form 10-QSB of Hemptown Clothing Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

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

a)

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

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting; and

 6.

The Company’s other certifying officer and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2005

By:

/s/ JERRY KROLL

Jerry Kroll

Chairman of the Board and

Chief Executive Officer

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EXHIBIT 31.2

Certification Pursuant To Rule 13a-14(a)

I, Guy Prevost, certify that:

1. I have reviewed this quarterly report of Form 10-QSB of Hemptown Clothing Inc.;

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

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

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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

b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;

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

a)

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

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting; and

 6.

The Company’s other certifying officer and I have indicated in this Report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2005

By:

/s/ GUY PREVOST

Guy Prevost

Chief Financial Officer

(Principal Financial Officer)

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EXHIBIT 32.1

Certificate Under Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Hemptown Clothing Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: November 14, 2005

By:

/s/ JERRY KROLL

Jerry Kroll

Chairman of the Board and

Chief Executive Officer

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EXHIBIT 32.2

Certificate Under Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Hemptown Clothing Inc. (the "Company") on Form 10-QSB for the quarter ended September 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: November 14, 2005

By:

/s/ GUY PREVOST

Guy Prevost

Chief Financial Officer

(Principal Financial Officer)