SPENDSMART NETWORKS, INC. - FORM 10-K

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EX-32 - EXHIBIT 32 - SPENDSMART NETWORKS, INC.	ie10kexhibit321.htm
EX-32 - EXHIBIT 32 - SPENDSMART NETWORKS, INC.	ie10kexhibit322.htm
EX-31 - EXHIBIT 31 - SPENDSMART NETWORKS, INC.	ie10kexhibit311.htm
EX-31 - EXHIBIT 31 - SPENDSMART NETWORKS, INC.	ie10kexhibit312.htm
EX-21 - EXHIBIT 21 - SPENDSMART NETWORKS, INC.	ie10kexhibit211.htm
EX-10 - EXHIBIT 10 - SPENDSMART NETWORKS, INC.	ie10kexhibit1032kayholdingsi.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)


[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: September 30, 2010


[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from N/A to N/A

Commission file number: 000-27145

SOCIALWISE, INC.

(Exact Name of Registrant as Specified in its Charter)


Colorado			33-0756798
(State or jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


6440 Lusk Blvd., Suite 200
San Diego California			92121
(Address and of principal executive offices)			(Zip Code)

(858) 677-0080

(Issuer’s telephone number, including area code)

Common Stock, par value $0.001 per share

(Title of class)

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

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

Indicate by check mark 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 o

Indicate by check mark if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K or any amendment to this Form 10-K. o

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

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o ⁽¹⁾

Smaller reporting company x

⁽¹⁾Do not check if a smaller reporting company

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

The aggregate market value of the voting and non-voting common equity on March 31, 2010 held by non-affiliates of the registrant (based on the average bid and asked price of such stock on such date of $0.60) was approximately $19,931,199. Shares of common stock held by each officer of the Company (or of its wholly-owned subsidiary) and director and by each person who owns 10% or more of the outstanding common stock of the registrant have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. Without acknowledging that any individual director of registrant is an affiliate, all directors have been included as affiliates with respect to shares owned by them.

At December 29, 2010, there were 64,124,170 shares outstanding of the issuer’s common stock, par value $0.001 per share.

DOCUMENTS INCORPORATED BY REFERENCE

None.

SOCIALWISE, INC.

FORM 10-K

FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2010

TABLE OF CONTENTS

PART I

Item 1 - Description of Business

Item 1A - Risk Factors

Item 2 - Description of Property

Item 3 - Legal Proceedings

Item 4 - Reserved

PART II

Item 5 - Market for Registrant’s Common Equity, Related Stockholder Matters and Issued Purchases of Equity Securities

Item 6 - Selected Consolidated Financial Data

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 7A - Quantitative and Qualitative Disclosures about Market Risk

Item 8 - Financial Statements

Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A - Controls and Procedures

Item 9B - Other Information

PART III

Item 10 - Directors, Executive Officers and Corporate Governance

Item 11 - Executive Compensation

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13 - Certain Relationships, Related Transactions and Director Independence

Item 14 - Principal Accountant Fees and Services

PART IV

Item 15 - Exhibits

Signatures

FORWARD LOOKING STATEMENTS

In addition to historical information, this Annual Report on Form 10-K may contain statements relating to future results of Socialwise, Inc. (including certain projections and business trends) that are “forward-looking statements.” Our actual results may differ materially from those projected as a result of certain risks and uncertainties. These risks and uncertainties include, but are not limited to, without limitation, statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be “forward-looking statements.” Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements. Such factors include, among others, those set forth herein and those detailed from time to time in our other Securities and Exchange Commission (“SEC”) filings. These forward-looking statements are made only as of the date hereof, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. The Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. Also, there can be no assurance that the Company will be able to raise sufficient capital to continue as a going concern.

Item 1 - Description of Business

As used in this annual report, the terms "we", "us", "our", and the "Company" means Socialwise, Inc., a Colorado corporation, its wholly-owned subsidiary Socialwise, Inc., a California corporation or their management.

History

Our Company was originally incorporated in the State of Colorado on May 14, 1990 as “Snow Eagle Investments, Inc.” and was inactive from 1990 until 1997. In April 1997, the Company acquired the assets of 1^st Net Technologies, LLC, a California limited liability company, and the Company changed its name to “1st Net Technologies, Inc.” and operated as an Internet commerce and services business. In August 2001, the Company suspended its operations. In September of 2005, the Company acquired VOS Systems, Inc. (the “VOS Subsidiary”) as its wholly owned subsidiary and the Company changed its name to “VOS International, Inc.” and traded under the symbol “VOSI.OB”. The VOS Subsidiary operated as a technology company involved in the design, development, manufacturing, and marketing of consumer electronic products. On October 16, 2007, we sold the VOS Subsidiary and acquired Socialwise, Inc. (formerly IdeaEdge, Inc., a California corporation) (“Socialwise-CA”) and changed our Company’s name to “IdeaEdge, Inc.” Through Socialwise-CA, we develop and market innovative online and traditional retail youth payment solutions. On May 1, 2009, we changed our name from IdeaEdge, Inc. to Socialwise, Inc., and our stock trades under the symbol “SCLW.OB”.

Current Business

We intend to capitalize on the opportunity to facilitate youth commerce through the offering of our online and traditional retail payment platform, BillMyParents^® (“BMP”). BMP is designed to enable parents and young people to collaborate toward the goal of responsible spending. BMP has two major components. In collaboration with online retailers, we have developed a payment method that allows retailers to make sales to young people who previously lacked a means to pay for products online. We also market a prepaid debit card with special features aimed at young consumers.

Going forward, we plan to continue to market BMP to the public as a convenient and safe youth payment system. While we are optimistic about the prospects for BMP, since this is a new product offering without material revenues to date, there can be no assurance about whether or when BMP will turn out to be a successful product that will generate sufficient revenues with adequate margins to fund our operations in the future.

Market Overview and Business Model

We believe there is a compelling opportunity available to our Company to provide needed solutions to significant impediments to online and traditional retail commerce for young people. BMP is designed to address both areas through distinctive products we offer.

Online Commerce Solution

According to the 2007 Harris Interactive Youth Pulse Market Research Report, there are in excess of $40 billion dollars in annual Internet sales that young people research online but end up either not purchasing or purchasing from other sources. The number one reason cited for this failure of young people to complete these sales transactions was their lack of a payment means. The substantial majority of online transactions are completed through the use of credit cards, while the overwhelming majority of young people do not have the ability to pay for online purchases this way. Use of parents’ credit cards is problematic due to their justified reluctance (for security reasons) to giving their children their credit card information. Also, young people and their parents are seldom in the same physical location when an online sales opportunity arises.

We believe the BMP online commerce solution will provide a unique solution in order to facilitate these previously lost sales. With one click and the young person’s provision of two email addresses and a short message, the parent receives a request for payment from the child. The parent has the option to accept, deny or request more information about the transaction. Upon acceptance, the parent provides information on a simple check screen in order to complete the transaction. BMP transactions can be processed either by Socialwise (where we process the purchase through our credit card processing company) or by the participating merchant (in which case we integrate our system with the merchant’s online payment systems). For transactions that we process, we charge a modest fee on a per transaction basis (typically paid by the consumer) and a percentage of the sale amount (paid by the merchant). We believe that our current and planned per-transaction fees are market competitive and provide consumers with superior value in that BMP allows for security and safety online. We also believe that the percentage transaction fees are competitive with the

market for other payment options available to merchants and provide them with a method to capture previously foregone youth sales opportunities.

Traditional Retail Solution

Prepaid reloadable debit cards (“BMP Cards”) are similar to debit cards, without the need of a bank account. We believe this represents another wide-open market that meshes well with our focus on youth financial solutions. BMP Cards offer significant advantages over cash and/or the use by young people of their parent’s or guardian’s credit or debit card. For a comparatively small cost, BMP Cards offer what we believe are compelling features for young people and adults alike. Included among the features of our BMP Cards is:

No credit implications from the use of the cards for either young people or adults;

No overdrafts or related fees;

Controllable transaction alerts to adults at times and frequencies determined by the adult;

Ability of the adult to instantly lock and unlock the card for transactions;

Money loaded on the card is protected if the card is lost and transferred to a new card; and

Adults have the ability to transfer money instantly to the young person’s card in an emergency.

We believe the BMP Card is an excellent option allowing young people to be exposed to the financial world at a very early age. Teaching young people how to spend within a stipulated budget, BMP Cards are accepted anywhere MasterCard ^TMis accepted. Under newly enacted legislation card holders are required to be 21 years old to be eligible for a regular credit card (if the adult does not guarantee the balance). BMP Cards allow young people 13 years and older to have the card in their own name even without credit implications for an adult. BMP Card holders have other convenient options including the reloading of cards through direct deposit if desired.

Strategy

We plan to continue to introduce new features to our product offerings that we hope will cause the public to associate BMP with responsible youth spending. We plan to make potential consumers aware of BMP through marketing with endorsements from well-known action sports personalities as well as joint promotional opportunities with providers of consumer products and services. We plan to also pursue action sports retail channel partners and advertising and promotion through popular youth focused media outlets.

We plan to follow up these activities with plans to actively court popular online retailers. We expect to be able to show the retailers the benefits that BMP will bring to their sites in the form of increased purchases from youth consumers, a highly sought-after customer. By including BMP as a payment option in both online and traditional retail situations, we believe merchants will be able to realize youth sales that are currently lost for reasons previously discussed.

Financial Model

Revenues from BMP are expected to be derived from fees primarily from card holders and secondarily (in the future) from merchants. The direct costs incurred by us in connection with BMP will include discounts and per transaction fees from credit card companies and amounts paid to our processing partner for debit card issuance and transaction costs.

We continue to extensively employ outside consultants for the build out and ongoing maintenance of the platform and payment system, as well as for marketing, design, business development and other general and administrative functions of our Company. While we intend to restrict the number of new employees we add to our Company’s workforce, we believe that new personnel will be necessary in the future in the areas of project management, software programming, operations, accounting and administration.

Barriers to Entry

Our company has applied for a patent in connection with BMP (in addition to a patent application under review in connection with Socialwise™ Group Gifting Platform (“SGGP”)). We believe that the business processes in connection with BMP are original to our Company; however we may discover that others have patent claims of which we are currently unaware. Should we be successful in obtaining the grant of the patent under application and should we be successful in countering any challenges to its validity that might emerge, the lifetime of the granted patents would be twenty years. Should the patent application in question be approved, it

could give us a cost advantage from the license fees that future potential competitors would be required to pay as well as revenues from said license fees. There can be no assurance however that we will be successful in receiving such a patent.

Competitive Business Conditions

The market for alternate payment systems for Internet purchases is large, growing, and highly competitive. We define alternate payment systems as payment systems for Internet purchases that do not involve a consumer’s use of his own credit card. We have identified a number of providers of alternate payment systems.

PayPal^TM is a pioneer provider of alternatives to credit card use for Internet purchases. PayPal^TMfacilitates transactions between online buyers and sellers and first became popular for commerce interactions over online auction sites such as eBay (eBay purchased PayPal^TMin 2002). Users of PayPal^TMestablish accounts that are funded by the customer, either through the customer’s credit card or a bank account. Upon establishment of the account, a customer can designate that online payments be charged against his PayPal^TMaccount balance. PayPal^TMhas announced its intention to service the youth payment market through initiatives that would allow owners of PayPal^TMaccounts to establish allowance accounts for others (e.g. children) that the parents can fund as desired. PayPal^TMcould potentially present a strong challenge to the BMP program given its substantial name recognition and financial strength.

American Express ^TM is a world-wide leader in the credit card and financial services industry whose credit cards account for 24% of total volume of credit card transactions in the United States. American Express^TM recently issued PASS, a prepaid reloadable card that “parents give to teens.” PASS has many of the features we plan to offer with our BMP Card and American Express^TM has devoted substantial resources to publicize this youth oriented payment option. While we believe that PASS has drawbacks not found in BMP Cards (e.g. the adult is required to have an American Express^TM card), nevertheless American Express^TMis a world recognized brand with substantial marketing capabilities that is likely to be formidable competition for our Company.

We are also aware of other debit card providers that have products that seek to facilitate online commerce through added features aimed at both merchants and consumers. There are several debit card providers that specifically target youth in their product offerings (e.g. MYPLASH, PAYjr and Facecard). Similar to the BMP Card, these debit cards represent a way for parents to control youth spending online and provides an attractive option for many online purchases.

There are many reward systems established which allow under-age consumers to purchase primarily services online. Potential purchasers are given credits toward purchases in exchange for taking surveys, providing referrals, and engaging in other online activities desired by merchants. These reward systems can pose significant competition to BMP in our targeted market due to their capability for overcoming an identified obstacle for higher youth online spending: lack of access to a method of payment.

There are many mobile phone providers that have adopted services allowing a subscriber to make online purchases through his mobile phone account. Online merchants must agree to accept payments in this form and a relationship between the merchant and the phone company is required. Once established however, this method of payment has proven popular with a number of merchants’ online product offerings. For reasons of convenience and breadth of their user communities, mobile phone providers could represent significant competition to BMP in our targeted market.

In summary, while we face potential future competition from other providers of alternate payment solutions, we currently believe our products offer distinct features that target markets not well served by the potential competitors mentioned above. However, many of these firms have longer operating histories, greater name recognition, and greater financial, technical, and marketing resources than we. Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customer demand and market share to support the cost of our operations.

Item 1A – Risk Factors

Investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with all of the other information included in this herein before making an investment decision. If any of the following risks actually occur, our business, financial condition or results of operations could suffer. In that case, the market price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

We have a very limited operating history overall and have only recently embarked on our current corporate focus of providing online payment solutions. We completed our acquisition of Socialwise-CA on October 16, 2007. Socialwise-CA was formed in April 2007 to pursue opportunities in the gift card industry. We have since refocused our efforts on facilitating commerce for young consumers. We do not currently have significant operating revenues and have a very limited operating history. We do not have any historical financial data upon which to base planned operations. Because we have no operating history, our historical financial information is not a reliable indicator of future performance. Therefore, it is difficult to evaluate the business and prospects of our Company. Furthermore, we only recently embarked on a revised business focus centered on BMP. We have no experience as to whether BMP will be popular programs with consumers. Failure to correctly evaluate our Company’s prospects could result in an investor’s loss of a significant portion or all of his investment in our Company.

Our failure to obtain additional adequate financing would materially and adversely affect our business. We do not currently have sufficient revenues and gross margin to cover our operating expenses and have never been profitable. We cannot be certain that our Company will ever generate sufficient revenues and gross margin to achieve profitability in the future. Our failure to significantly increase revenues or to raise additional adequate and necessary financing would seriously harm our business and operating results. We have incurred significant costs in building, launching and marketing BMP. If we fail to achieve sufficient revenues and gross margin with BMP, or our revenues grow more slowly than anticipated, or if our operating or capital expenses increase more than is expected or cannot be reduced in the event of lower revenues, our business will be materially and adversely affected and an investor could suffer the loss of a significant portion or all of his investment in our Company.

We face competition from other online payment systems. We will face competition from other companies with similar product offerings. Many of these companies have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than us. Many of these companies also have more extensive customer bases, broader customer relationships and broader industry alliances than us, including relationships with many of our potential customers. Increased competition from any of these sources could result in our failure to achieve and maintain an adequate level of customers and market share to support the cost of our operations.

We have limited resources to develop our product offerings. We face a challenging capital market at the same time that our Company has required funding for the development and marketing of our product offerings. This has caused and will likely continue to cause us to restrict funding of the development of our products and to favor the development of one product offering over the other based on their relative estimated potentials for commercial success as evaluated by our management. Our current focus is on BMP. The failure of BMP to be commercially successful would substantially harm our business and results of operations. Furthermore, in the future we may determine that it is in the best interest of our Company to severely curtail, license, jointly develop with a third party or sell one of our product offerings, which may be on terms which limit the revenue potential of the product offering to the Company.

We rely on third-party suppliers and distributors that are specific to our business and distribution channels such as processors, programmers, social networks and security advisors. We will be dependent on other companies to provide necessary products and services in connection with key elements of our business. Any interruption in our ability to obtain these services, or comparable quality replacements would severely harm our business and results of operations. Our current business model includes our plan to incorporate BMP within existing social networks. We will be dependent on these social networks to allow our product offerings to run within their proprietary Internet websites. Permission for our applications to run on social networks is revocable at any time at the discretion of the social networks. Should any of these adverse contingencies result, they could substantially harm our business and results of operations and an investor could suffer the loss of a significant portion or all of his investment in our Company.

Our ability to protect our intellectual property and proprietary technology surrounding BMP is uncertain. Our future success may depend significantly on our ability to protect our proprietary rights to the intellectual property upon which our products and services will be based. Our pending U.S. patent application, which includes claims to material aspects of our products and services that are not currently protected by issued patents, may not be issued as patents in a form that will be advantageous to us. Any patents we obtain in the future may be challenged by re-examination or otherwise invalidated or eventually be found unenforceable. Both the patent application process and the process of managing patent disputes can be time consuming and expensive. Competitors may attempt to challenge or invalidate our patents, or may be able to design alternative techniques or devices that avoid infringement of our patents, or develop products with functionalities that are comparable to ours. In the event a competitor infringes upon our patent or other intellectual property rights, litigation to enforce our intellectual property rights or to defend our patents against challenge, even if successful, could be expensive and time consuming and could require significant time and attention from our management. We may not have sufficient resources to enforce our intellectual property rights or to defend our patents against challenges from others.

We are dependent upon consumer tastes with respect to preferred methods of online payment for the success of our products and services. Our product offerings’ acceptance by consumers and their consequent generation of revenues will depend upon a variety of unpredictable factors, including:

Public taste, which is always subject to change;

The quantity and popularity of other payment systems available to the public;

The continued use and popularity of social networking sites; and

The fact that the distribution and sales methods chosen for the products and services we market may be ineffective.

For any of these reasons, our programs may be commercially unsuccessful. If we are unable to market products which are commercially successful, we may not be able to recoup our expenses and/or generate sufficient revenues. In the event that we are unable to generate sufficient revenues, we may not be able to continue operating as a viable business and an investor could suffer the loss of a significant portion or all of his investment in our Company.

Our Company is economically sensitive to general economic conditions, including continued weakening of the economy; therefore a reduction in consumer purchases of discretionary items could consequently materially impact our Company’s future revenues from BMP for the worse. Consumer purchases are subject to cyclical variations, recessions in the general economy and the future economic outlook. Our results may be dependent on a number of factors impacting consumer spending, including general economic and business conditions; consumer confidence; wages and employment levels; the housing market; consumer debt levels; availability of consumer credit; credit and interest rates; fuel and energy costs; energy shortages; taxes; general political conditions, both domestic and abroad; and the level of customer traffic on social networking websites. Consumer purchases of discretionary items may decline during recessionary periods and at other times when disposable income is lower. A downturn or an uncertain outlook in the economy may materially adversely affect our business and the success of BMP.

Financial Risks

Our financial statements have been prepared assuming that the Company will continue as a going concern. The factors described herein raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from this uncertainty. The report of our independent registered public accounting firm included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern in their audit report for the fiscal years ended September 30, 2010 and 2009. If we cannot generate the required revenues and gross margin to achieve profitability or obtain additional capital on acceptable terms, we will need to substantially revise our business plan or cease operations and an investor could suffer the loss of a significant portion or all of his investment in our Company. The financial statements do not include any adjustments that might result from the outcome from this uncertainty.

Additionally, since beginning in the fall of 2008 there has been significant deterioration in the global credit and equity markets that has not fully recovered as of the date of this Annual Report. Continuing recessionary conditions in the global economy threaten to cause further tightening of the credit and equity markets and more stringent lending and investing standards. The persistence of these conditions could have a material adverse effect on our access to further debt or equity capital. In addition, further deterioration in the economy could adversely affect our corporate results, which could adversely affect our financial condition and operations.

We do not expect to pay dividends for the foreseeable future, and we may never pay dividends and, consequently, the only opportunity for investors to achieve a return on their investment is if a trading market develops and investors are able to sell their shares for a profit or if our business is sold at a price that enables investors to recognize a profit. We currently intend to retain any future earnings to support the development and expansion of our business and do not anticipate paying cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our Board of Directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. In addition, our ability to pay dividends on our common stock may be limited by state law. Accordingly, we cannot assure investors any return on their investment, other than in connection with a sale of their shares or a sale of our business. At the present time there is a limited trading market for our shares. Therefore, holders of our securities may be unable to sell them. We cannot assure investors that an active trading market will develop or that any third party will offer to purchase our business on acceptable terms and at a price that would enable our investors to recognize a profit.

Newly effective accounting rules will continue to cause an unfavorable change to the accounting for our financial position. Beginning with our fiscal year ended September 30, 2010, we were required to account for certain of our issued warrants as derivative liabilities. This accounting was occasioned due to the anti-dilution provisions of the securities which would reduce their

future exercise or conversion price in the event our Company in the future either issues equity shares for a price that is lower than the exercise price of those instruments or issues new warrants or convertible instruments that have a lower exercise or conversion price (such an actual reduction of certain of our warrants outstanding and their strike price occurred in October 2009 and August 2010). In the future, our preferred stock and certain of our warrants outstanding will be marked to market at each future reporting period until such time (if ever) that they are converted, cancelled, expire or are exercised for shares of our common stock. Additionally, since not all of our outstanding securities have these anti-dilution provisions, holders of such securities lacking anti-dilution provisions could be disadvantaged vis-à-vis securities outstanding with such features, in the event of a future issuance by our Company of securities for consideration that trigger the anti-dilution provisions. An investor could suffer the loss of a portion or the whole value of their securities in the event of a significant adjustment occasioned by such a future issuance of our Company’s securities.

Our net operating loss carry-forward is limited. We have recorded a valuation allowance amounting to our entire net deferred tax asset balance due to our lack of a history of earnings, possible statutory limitations on the use of tax loss carry-forwards generated in the past and the future expiration of our NOL. This gives rise to uncertainty as to whether the net deferred tax asset is realizable. Internal Revenue Code Section 382, and similar California rules, place a limitation on the amount of taxable income that can be offset by carry-forwards after a change in control (generally greater than a 50% change in ownership). As a result of these provisions, it is likely that given our acquisition of Socialwise-CA, future utilization of the NOL will be severely limited. Our inability to use our Company’s historical NOL, or the full amount of the NOL, would limit our ability to offset any future tax liabilities with its NOL.

Corporate and Other Risks

Limitations on director and officer liability and indemnification of our Company’s officers and directors by us may discourage stockholders from bringing suit against an officer or director. Our Company’s articles of incorporation and bylaws provide, with certain exceptions as permitted by governing state law, that a director or officer shall not be personally liable to us or our stockholders for breach of fiduciary duty as a director, except for acts or omissions which involve intentional misconduct, fraud or knowing violation of law, or unlawful payments of dividends. These provisions may discourage stockholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by stockholders on our behalf against a director.

We are responsible for the indemnification of our officers and directors. Should our officers and/or directors require us to contribute to their defense, we may be required to spend significant amounts of our capital. Our articles of incorporation and bylaws also provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney's fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of our Company. This indemnification policy could result in substantial expenditures, which we may be unable to recoup. If these expenditures are significant, or involve issues which result in significant liability for our key personnel, we may be unable to continue operating as a going concern.

Our executive officers, directors and insider stockholders beneficially own or control a substantial portion of our outstanding common stock, which may limit your ability and the ability of our other stockholders, whether acting alone or together, to propose or direct the management or overall direction of our Company. Additionally, this concentration of ownership could discourage or prevent a potential takeover of our Company that might otherwise result in an investor receiving a premium over the market price for his shares. A substantial portion of our outstanding shares of common stock is beneficially owned and controlled by a group of insiders, including our directors and executive officers. Accordingly, any of our existing outside principal stockholders together with our directors, executive officers and insider shareholders would have the power to control the election of our directors and the approval of actions for which the approval of our stockholders is required. If you acquire shares of our common stock, you may have no effective voice in the management of our Company. Such concentrated control of our Company may adversely affect the price of our common stock. Our principal stockholders may be able to control matters requiring approval by our stockholders, including the election of directors, mergers or other business combinations. Such concentrated control may also make it difficult for our stockholders to receive a premium for their shares of our common stock in the event we merge with a third party or enter into different transactions which require stockholder approval. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock.

We are dependent for our success on a few key executive officers, particularly our Company’s Chief Executive Officer. Our inability to retain those officers would impede our business plan and growth strategies, which would have a negative impact on our business and the value of your investment. Our success depends on the skills, experience and performance of key members of our management team. Each of those individuals may voluntarily terminate his employment with the Company at any time. Were we to lose one or more of these key executive officers, we would be forced to expend significant time and money in the pursuit of a

replacement, which would result in both a delay in the implementation of our business plan and the diversion of limited working capital. We do not maintain a key man insurance policy on any of our executive officers.

As we transition from a Company with insignificant revenues to what we hope will be a Company generating substantial revenues, we may not be able to manage our growth effectively, which could adversely affect our operations and financial performance. The ability to manage and operate our business as we execute our growth strategy will require effective planning. Significant rapid growth could strain our internal resources, leading to a lower quality of customer service, reporting problems and delays in meeting important deadlines resulting in loss of market share and other problems that could adversely affect our financial performance. Our efforts to grow could place a significant strain on our personnel, management systems, infrastructure and other resources. If we do not manage our growth effectively, our operations could be adversely affected, resulting in slower growth and a failure to achieve or sustain profitability.

Capital Market Risks

Our common stock is thinly traded, so you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares. There is limited market activity in our stock and we are too small to attract the interest of many brokerage firms and analysts. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained. While we are trading on the OTC Bulletin Board, the trading volume we will develop may be limited by the fact that many major institutional investment funds, including mutual funds, as well as individual investors follow a policy of not investing in Bulletin Board stocks and certain major brokerage firms restrict their brokers from recommending Bulletin Board stocks because they are considered speculative, volatile, thinly traded and the market price of the common stock may not accurately reflect the underlying value of our Company. The market price of our common stock could be subject to wide fluctuations in response to quarterly variations in our revenues and operating expenses, announcements of new products or services by us, significant sales of our common stock, including “short” sales, the operating and stock price performance of other companies that investors may deem comparable to us, and news reports relating to trends in our markets or general economic conditions.

The application of the “penny stock” rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. As long as the trading price of our common stock is below $5 per share, the open-market trading of our common stock will be subject to the “penny stock” rules, unless we otherwise qualify for an exemption from the “penny stock” definition. The “penny stock” rules impose additional sales practice requirements on certain broker-dealers who sell securities to persons other than established customers and accredited investors (generally those with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse). These regulations, if they apply, require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the associated risks. Under these regulations, certain brokers who recommend such securities to persons other than established customers or certain accredited investors must make a special written suitability determination regarding such a purchaser and receive such purchaser’s written agreement to a transaction prior to sale. These regulations may have the effect of limiting the trading activity of our common stock, reducing the liquidity of an investment in our common stock and increasing the transaction costs for sales and purchases of our common stock as compared to other securities. The stock market in general and the market prices for penny stock companies in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our stock, regardless of our operating performance. Stockholders should be aware that, according to Securities and Exchange Commission (“SEC”) Release No. 34-29093, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include 1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; 2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; 3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; 4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and 5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The occurrence of these patterns or practices could increase the volatility of our share price.

We may not be able to attract the attention of major brokerage firms, which could have a material adverse impact on the market value of our common stock. Security analysts of major brokerage firms may not provide coverage of our common stock since there is no incentive to brokerage firms to recommend the purchase of our common stock. The absence of such coverage limits the likelihood that an active market will develop for our common stock. It will also likely make it more difficult to attract new investors at times when we require additional capital.

We may be unable to list our common stock on NASDAQ or on any securities exchange. Although we may apply to list our common stock on NASDAQ or the American Stock Exchange in the future, we cannot assure you that we will be able to meet the initial listing standards, including the minimum per share price and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock on either of those or any other trading venue. Until such time as we qualify for listing on NASDAQ, the American Stock Exchange or another trading venue, our common stock will continue to trade on the OTC Bulletin Board or another over-the-counter quotation system, or on the ‘‘pink sheets,’’ where an investor may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, rules promulgated by the SEC impose various practice requirements on broker-dealers who sell securities that fail to meet certain criteria set forth in those rules to persons other than established customers and accredited investors. Consequently, these rules may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. It would also make it more difficult for us to raise additional capital.

Future sales of our equity securities could put downward selling pressure on our securities, and adversely affect the stock price. There is a risk that this downward pressure may make it impossible for an investor to sell his or her securities at any reasonable price, if at all. Future sales of substantial amounts of our equity securities in the public market, or the perception that such sales could occur, could put downward selling pressure on our securities, and adversely affect the market price of our common stock.

Item 2 – Description of Property

Our corporate offices are located at 6440 Lusk Blvd., Suite 200, San Diego California 92121, where we lease approximately 1,932 square feet of office space. This lease is on a month-to-month basis. The monthly rental payment for the facility is approximately $2,600. We believe this facility is in good condition and adequate to meet our current and anticipated requirements.

Item 3 – Legal Proceedings

From time to time and in the course of business, we may become involved in various legal proceedings seeking monetary damages and other relief. The amount of any ultimate liability from such claims cannot be determined. However, there are no legal claims currently pending or threatened against us that in the opinion of our management would be likely to have a material adverse effect on our financial position, results of operations or cash flows.

Item 4 – Reserved

Part II

Item 5 – Market for Registrant’s Common Equity, Related Stockholder Matters and Issued Purchases of Equity Securities

Our common stock trades publicly on the OTC Bulletin Board under the symbol "SCLW.OB." The OTC Bulletin Board is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTC Bulletin Board securities are traded by a community of market makers that enter quotes and trade reports. This market is extremely limited and any prices quoted may not be a reliable indication of the value of our common stock. The following table sets forth the high and low bid prices per share of our common stock by the OTC Bulletin Board for the periods indicated as reported on the OTC Bulletin Board.


For the year ended September 30, 2010	High	Low
Fourth Quarter	$0.60	$0.44
Third Quarter	0.75	0.45
Second Quarter	0.62	0.43
First Quarter	0.61	0.41

For the year ended September 30, 2009
Fourth Quarter	$0.80	$0.49
Third Quarter	1.01	0.30
Second Quarter	0.84	0.35
First Quarter	2.34	0.83

Our stock began trading on the OTC Bulletin Board under the symbol “IDED.OB” on October 18, 2007 and was later changed to “IDAE.OB” on March 12, 2008 and to “SCLW.OB” on May 13, 2009. The quotes represent inter-dealer prices, without adjustment for retail mark-up, markdown or commission and may not represent actual transactions. The trading volume of our securities fluctuates and may be limited during certain periods. As a result of these volume fluctuations, the liquidity of an investment in our securities may be adversely affected.

Holders of Record

As of December 29, 2010, 64,124,170 shares of our common stock were issued and outstanding, and held by approximately 1,500 stockholders.

Transfer Agent

Our transfer agent is TranShare Corporation, 5105 DTC Parkway, Suite 325, Greenwood Village, CO 80111, Telephone (303) 662-1112.

Dividends

We have never declared or paid any cash dividends on our common stock. For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Any future determination to pay dividends will be at the discretion of our Board of Directors.

Securities Authorized for Issuance under Equity Compensation Plans

The table below sets forth information as of September 30, 2010, with respect to compensation plans under which our common stock is authorized for issuance.

Effective October 16, 2007, our Company adopted the 2007 Equity Incentive Plan which is the only compensation plan under which our common stock is authorized for issuance, and the 2007 Equity Incentive Plan has been approved by our stockholders. The table below sets forth information as of September 30, 2010 with respect to the 2007 Equity Incentive Plan:

Number of securities to be issued upon exercise of outstanding options

Weighted-average exercise price of outstanding options

Number of securities remaining available for future issuance under equity compensation plans⁽¹⁾

4,115,000

$0.74

885,000

(1)

Subject to shareholder approval of amendment to the plan approved by our Board of Directors to increase the number of authorized shares of stock issuable under the Plan.

Recent Sales of Unregistered Securities

On December 29, 2010 in connection with the award of common stock in connection with a recently completed fund raising and in connection with the Investor Relations Agreement discussed in “Item 9B-Other Information” below, the Company agreed to issue up to 2,000,000 shares of Company common stock to Kay Holdings, Inc. (“Kay”) as compensation for prior and future services. Kay meets the accredited investor definition of Rule 501 of the Securities Act of 1933, as amended (the “Securities Act”). The issuance of Common Stock was made pursuant to an exemption under Section 4(2) of the Securities Act and/or Rule 506 of Regulation D under the Securities Act. The issuance of shares was not conducted in connection with a public offering, and no public solicitation or advertisement was made or relied upon by Kay in connection with the issuance of shares.

Item 6 – Selected Consolidated Financial Data

Disclosure not required as a result of our Company’s status as a smaller reporting company.

Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is intended as a review of significant factors affecting our financial condition and results of operations for the periods indicated. The discussion should be read in conjunction with our consolidated financial statements and the notes presented herein. In addition to historical information, the following Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements that involve risks and uncertainties. Our actual results could differ significantly from those anticipated in these forward-looking statements as a result of certain factors discussed in this prospectus. See “SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS” above.

Overview and Financial Condition

Discussions with respect to our Company’s operations included herein refer to our operating subsidiary, Socialwise-CA. Our Company purchased Socialwise-CA on October 16, 2007. We have no other operations than those of Socialwise-CA.

Results of Operations

Revenues

Our Company had insignificant revenues totaling $6,675 for the year ended September 30, 2010 (no revenues for the year ended September 30, 2009). For most of fiscal 2010, our Company’s BMP payment system was only available on several youth gaming sites, and we did not promote BMP’s use on those sites to the general public in any significant way. Although during our fiscal fourth quarter, we rolled out BMP on several retailers’ sites, we currently do not charge either merchants or consumers in connection with transactions pending further refinement of the consumer experience. BMP is targeted at enabling parents and young people to link and communicate in order to guide responsible spending. BMP has been designed with significant features that we hope consumers will find compelling. Going forward we plan to continue to market BMP (both online and in traditional retail settings) to the public as a convenient and safe youth payment system. While we are optimistic about the prospects for BMP, since this is a new product offering (and we have not recognized significant revenues to date), there can be no assurance about whether or when BMP will turn out to be a successful new focus for us or that it will generate sufficient revenues with adequate margins to fund our operations over future periods.

Cost of Revenues

Our cost of revenues for the year ended September 30, 2010 totaled $6,173 and represented primarily costs for processing credit card transactions (our gross margin for the same period was $502). Due to the low volume of revenues during the year ended September 30, 2010, we did not generate our planned percentage of gross margin. There were no cost of revenues or gross margin during the year ended September 30, 2009.

Operating Expenses

Selling and marketing expenses for the year ended September 30, 2010 totaled $2,522,978 ($840,150 for the year ended September 30, 2009). Included in these expenses for the year ended September 30, 2010 were employee compensation and related expenses of $95,617 ($202,807 for the year ended September 30, 2009), payments to consultants for business development, marketing and merchandising services totaling $137,218 ($104,267 for the year ended September 30, 2009), marketing, sales, creative services and public relations expenses of $360,324, ($159,711 for the year ended September 30, 2009) and noncash stock-based compensation expenses totaling $1,916,321 ($356,139 for the year ended September 30, 2009). The surge in stock-based compensation expenses in 2010 was due primarily to the signing of action sports athletes to endorse BMP and given the nature of the vesting of their warrants granted to purchase common stock, the total should decrease going forward. The reduction in employee compensation and related expenses of $107,190 in 2010 was due to the change in our Company’s working arrangement with its Vice President of Business Development from full-time to part-time employment.

We recognized a loss due to impairment of intangible assets of $209,119 during the year ended September 30, 2009. At September 30, 2009, our intangible assets (prior to the loss recognized) consisted primarily of costs incurred in connection with our group gifting patent application. Given the uncertainty surrounding our future exploitation of this intellectual property, we concluded that there was a substantial doubt as to our ultimate realization of the related costs capitalized and therefore recorded a charge for their

impairment. There were no similar charges during the year ended September 30, 2010 and there are no charges of this nature recorded as assets as of this date.

Operations, general and administrative expenses for the year ended September 30, 2010 totaled $3,622,003 ($4,630,926 for the year ended September 30, 2009). Included in these expenses for the year ended September 30, 2010 were operations expenses in connection with building our major IT platforms totaling $581,014 ($1,270,581 for the year ended September 30, 2009), employee compensation and related charges of $1,087,422 ($951,144 for the year ended September 30, 2009), noncash stock-based compensation of $879,159 ($1,556,587 for the year ended September 30, 2009), noncash charges in connection with grant of common stock in connection with investor relations services totaling $698,832 ($245,546 for the year ended September 30, 2009), legal fees of $35,640 ($68,928 for the year ended September 30, 2009), accounting and auditing charges of $45,255 ($62,822 for the year ended September 30, 2009), insurance of $46,299 ($46,080 for the year ended September 30, 2009) and facility related expenses of $33,202 ($33,254 for the year ended September 30, 2009).

The reduction during 2010 of costs incurred in connection with building our IT platforms of $689,567 resulted from our limiting platform development to the BMP platform (fiscal 2009 included costs related to the development of both BMP and our group gifting platform). The increase in employee compensation and related charges of $136,278 was due primarily to the deployment of three operations related employees during the entire fiscal year 2010 versus only a portion of fiscal year 2009. Noncash stock-based compensation fell $584,539, primarily due to prior large grants of employee options completing their vesting during the first and third quarters of fiscal 2010. Noncash charges in connection with the grant of common stock in connection with investor relations services was $453,286 higher than the previous fiscal year, primarily due to the grant of shares during fiscal 2010 to Kay Holdings, Inc. (“Kay”) (no such grants were made in fiscal 2009). Reductions in legal and accounting fees totaling $50,855 were primarily the result of cost cutting efforts combined with no registration statement filed in fiscal 2010.

Operating expenses for the year ended September 30, 2010 totaled $6,144,981 ($5,680,195 for the year ended September 30, 2009). The increase in operating expenses compared to the prior year’s corresponding period is due primarily to significant charges incurred in connection with the grant of sizable grants of warrants to purchase our common stock to celebrity athlete endorsers of BMP. This was offset by our focusing of all development, implementation, marketing and sales efforts on BMP in the current year (the prior year’s expenses included substantial expenditures made in connection with our SGGP platform in addition to BMP).

Nonoperating Income and Expense

For the year ended September 30, 2010, interest income totaled $1,301 ($13,914 for the year ended September 30, 2009), while interest expense totaled $872,779 for the year ended September 30, 2010 ($210,206 for the year ended September 30, 2009). Interest expense in the current year arose from the recognition of the beneficial conversion feature in connection with notes payable issued in August 2010 ($512,500) and the amortization and accretion of financing costs and note discount along with the amortization of the related value of additional shares issued in connection with another note payable outstanding during all of fiscal 2010.

In connection with newly adopted accounting principles beginning with our fiscal year ended September 30, 2010, we recognized other income of $87,744 in connection with the change during the year in the fair value of derivative liabilities outstanding. The bulk of the changes in fair value recognized occurred during the three months ended September 30, 2010 and were primarily the result of additional warrants issued in June and August 2010 that were subject to derivative liability accounting treatment.

Net Loss and Net Loss per Share

For the year ended September 30, 2010, our net loss totaled $6,928,213 ($5,876,487 for the year ended September 30, 2009). Our basic and diluted net loss per share of $0.14 for the years ended September 30, 2010 and September 30, 2009) were identical due to the anti-dilutive effects of common stock equivalents during all the periods represented.

Liquidity and Capital Resources

We have primarily financed our operations to date through the sale of unregistered equity and with the issuance of notes payable. At September 30, 2010, our total assets were $894,374 (including prepaid interest and financing costs of $59,162), while working capital totaled a deficit of $1,512,852. Total liabilities were $2,391,109 (all of which were current) and our stockholders’ deficiency totaled $1,496,735. Included in total liabilities were notes payable and related accrued interest totaling $1,230,553. In November 2010, we repaid the note payable due to Gemini for cash totaling $358,288. The remaining convertible note payable was converted to shares of our common stock and related warrants to purchase our common stock in November 2010.

Also included in current liabilities were amounts recognized in connection with newly issued accounting standards covering derivative liabilities totaling $870,321. These liabilities arose as a result of anti-dilution provisions attached to our preferred stock and certain of our warrants outstanding that necessitate the reclassification of their fair values from stockholders’ equity to derivative liabilities. These liabilities do not represent a future claim on our Company’s cash flows as they are never required to be settled in cash by our Company. Any future settlement of these securities could result in either their conversion to our Company’s common stock or the receipt of cash by our Company of the cash proceeds of their exercise (assuming the exercise is not effected on a cashless basis allowed by some of the outstanding warrants accounted for as derivatives).

Through December 29, 2010, we entered into subscription agreements with 44 accredited investors pursuant to which we issued 8,825,875 shares of our common stock and warrants to purchase an additional 6,619,406 shares of our common stock with an exercise prices from $0.40 to $0.60 per share for periods of two to five years after their date of issuance, in exchange for gross proceeds totaling $3,530,350 ($3,138,914 net of cash commissions and related expenses totaling $391,436). We also are in the process of raising additional funding (the “Follow-on Funding”) in the form of the sale of additional common stock and warrants with gross proceeds of up to $2 million on substantially the same terms as securities sold during our first fiscal 2011 quarter ending December 31, 2010. However there can be no assurance of our ultimately consummating the Follow-on Funding.

Our cash and cash equivalents balance at September 30, 2010 totaled $730,361. The change in our financial position from the previous amounts reported at September 30, 2009 resulted from the sale of unregistered common stock and warrants to purchase common stock that resulted in additional net cash proceeds totaling $2,384,751 and the proceeds from the exercise of stock warrants totaling $60,607, offset by negative cash flows from operating activities totaling $2,559,394 and repayments of the Gemini note payable totaling $427,818 during the same period.

Our total liabilities at September 30, 2010 included $65,072 in salary deferrals from our employees. Of the $211,844 recorded as accounts payable and accrued liabilities at September 30, 2010, a total of $75,773 was due to one vendor for software programming services while an additional $42,900 was due to one individual for fund raising performed on our behalf.

Plan of Operations

We do not expect to purchase any significant property or equipment, or to have any significant change in the number of our employees for the next twelve months. We expect however to continue to incur costs in improving, maintaining and marketing BMP during fiscal 2011.

Going Concern

As noted above (and by our independent registered public accounting firm in their report on our consolidated financial statements as of and for the year ended September 30, 2010), there exists a substantial doubt about our ability to continue as a going concern through our fiscal year ended September 30, 2011. Although we currently estimate that we have sufficient funds to maintain our Company’s operations through that date even in the absence of our planned levels of revenues and gross margin, there remains uncertainty in the event of unforeseen costs or expenses that may arise. This uncertainty could have an adverse effect on our ability to continue our operations through or significantly beyond September 30, 2011. Our financial statements do not contain any adjustments related to the outcome of this uncertainty.

Critical Accounting Policies

Management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements which are prepared in accordance with accounting principles that are generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, related disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. We continually evaluate our estimates and judgments and we base our estimates and judgments on historical experience and other factors that we believe to be reasonable under the circumstances. Materially different results can occur as circumstances change and additional information becomes known.

Contractual Obligations

We have no outstanding contractual obligations at September 30, 2010 that are not cancellable at our Company’s option.

Critical Accounting Policies Involving Management Estimates and Assumptions

In preparing our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, we must make a variety of estimates that affect the reported amounts and related disclosures. We have identified the following accounting policies that we believe require application of management's most subjective judgments, often requiring the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Our significant accounting policies are described in more detail in the notes to consolidated financial statements included elsewhere in this filing. If actual results differ significantly from our estimates and projections, there could be a material effect on our financial statements.

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

Revenue Recognition. In connection with our on-going businesses, we will recognize revenue at the time the product or service is purchased or contracted for by customers, the product has been shipped or the service rendered, the selling price and our commission for the transaction is fixed, collection is reasonably assured and when both title and risk of loss transfers to the customer, provided no significant obligations remain. Cash to be received in advance of the satisfaction of the criteria for revenue recognition will be deferred until such time as the criteria are satisfied. We do not anticipate collecting sales taxes in the future in connection with our products or services.

Accounting Standards Codification (“ASC”) Topic 605 Revenue Recognition also provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. We believe that our revenue recognition policies are appropriate and in accordance with generally accepted accounting principles and Accounting Standards Codification (“ASC”) Topic 605.

Cash and Cash Equivalents. We consider all investments with an original maturity of three months or less to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.

Stock Based Compensation. We account for stock based compensation arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of options and warrants. We use historical company data among other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information, due to the lack of comparable publicly traded companies.

Derivatives. We account for certain of our outstanding warrants as derivative liabilities, in accordance with newly issued guidance effective with our fiscal year ending September 30, 2010. These securities were determined to be ineligible for equity classification due to provisions of the respective instruments that may result in an adjustment to their conversion or exercise prices. Subsequent changes to the fair value of the derivative liabilities will require adjustments to their carrying value that will be recorded as other income (in the event that their value decreases) or as other expense (in the event that their value increases). In general, we will record income when the market value of our common stock decreases and will record expense when the value of our stock increases. The fair value of these liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread.

Recent Accounting Pronouncements

In June 2009, the Financial Accounting Standards Board (“FASB”) issued additional guidance which requires an enterprise to determine whether its variable interest or interests give it a controlling financial interest in a variable interest entity. The primary beneficiary of a variable interest entity is that the enterprise that has both (1) the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity. The guidance also requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. The new guidance is effective for our Company beginning October 1, 2010. The Company is evaluating the impact of this pronouncement but does not expect the adoption to have a material impact on its financial statements.

In October 2009, the FASB issued new accounting guidance for revenue recognition with multiple deliverables. The new guidance affects the determination of when the individual deliverables included in a multiple-element arrangement may be treated as separate units of accounting. Additionally, the guidance modifies the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of revenue recognition in accounting for multiple deliverable arrangements. The guidance will be effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, and will be effective for us in the first quarter of fiscal year 2011. We are currently assessing the impact that the guidance may have on our consolidated financial statements upon adoption in fiscal year 2011.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2010 or at any time since our inception on April 3, 2007.

Item 7A – Quantitative and Qualitative Disclosures about Market Risk

Our exposure to market risk due to changes in interest rates relates primarily to the return on our cash balances held. Our risk associated with fluctuating interest rates is limited to our investments in interest rate sensitive financial instruments. Under our current policies, we do not use interest rate derivative instruments to manage exposure to interest rate changes. We attempt to increase the safety and preservation of our invested principal funds by limiting default risk, market risk and reinvestment risk. We mitigate default risk by investing in investment grade securities such as US government obligations and certificates of deposit (“CDs”). We purchase CDs which are guaranteed by the Federal Deposit Insurance Corporation, and we diversify our investments among financial institutions such that we avoid exposure due to high concentrations in one financial institution. Declines in interest rates over time will reduce our interest income while increases in interest rates over time will increase our interest income.

Item 8 – Financial Statements

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at September 30, 2010 and 2009

Consolidated Statements of Operations for the years ended September 30, 2010 and 2009

Consolidated Statements of Changes in Stockholders’ Deficiency for the years ended September 30, 2010 and 2009

Consolidated Statements of Cash Flows for the years ended September 30, 2010 and 2009

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders:

Socialwise, Inc.

We have audited the accompanying consolidated balance sheets of Socialwise, Inc., as of September 30, 2010 and 2009 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Socialwise, Inc., at September 30, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has incurred net losses since inception and has an accumulated deficit and stockholders’ deficiency at September 30, 2010. These and other factors discussed therein raise a substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regard to those matters are also described in Note 1. The Company’s ability to achieve its plans with regard to those matters, which may be necessary to permit the realization of assets and satisfaction of liabilities in the ordinary course of business, is uncertain. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method for accounting for certain of its outstanding warrants as derivative liabilities in the year ended September 30, 2010 of due to the adoption of newly issued accounting guidance.

/s/ BDO USA, LLP

La Jolla, California

December 28, 2010


SOCIALWISE, INC.
Consolidated Balance Sheets
September 30, 2010 and 2009

				2010		2009

Assets
Current assets:
	Cash and cash equivalents		$	730,361	$	322,215
	Prepaid interest and financing costs			59,162		21,250
	Other current assets			88,734		9,624

		Total current assets		878,257		353,089

Property and equipment, net of accumulated depreciation of
	$31,861 ($17,553 - 2009)			11,065		25,373
Other assets				5,052		5,052

			$	894,374	$	383,514

Liabilities and Stockholders' Equity Deficiency

Current liabilities:
	Accounts payable and accrued liabilities		$	211,844	$	165,596
	Accrued interest			9,248		-
	Accrued and deferred personnel compensation			65,072		91,171
	Notes payable			1,221,305		645,206
	Derivative liabilities			870,321		-
	Other current liabilities			13,319		13,694

		Total current liabilities		2,391,109		915,667

Commitments and contingencies

Stockholders’ deficiency:
	Series A convertible preferred stock; $0.001 par value; 10,000,000
		shares authorized; 8,120 shares issued and outstanding
		(8,600 - 2009); liquidation preference of $812,000 ($860,000 - 2009)		8		9
	Common stock; $0.001 par value; 120,000,000 shares authorized; 52,756,295
		shares issued and outstanding (44,723,197 - 2009)		52,756		44,723
	Additional paid-in capital			17,731,817		11,776,218
	Accumulated deficit			(19,281,316)		(12,353,103)

		Total stockholders' (deficiency)		(1,496,735)		(532,153)

			$	894,374	$	383,514
	See accompanying notes.


SOCIALWISE, INC.
Consolidated Statements of Operations
For the years ended September 30, 2010 and 2009

				2010		2009

Revenues			$	6,675	$	-
Cost of revenues				6,173		-

Gross margin				502		-

Operating expenses:
	Selling and marketing			2,522,978		840,150
	Loss due to impairment of intangible assets			-		209,119
	Operations, general and administrative			3,622,003		4,630,926

		Total operating expenses		6,144,981		5,680,195

Loss from operations				(6,144,479)		(5,680,195)

Nonoperating income (expense):
	Interest expense			(872,779)		(210,206)
	Interest income			1,301		13,914
	Change in fair value of derivative liabilities			87,744		-

				(783,734)		(196,292)

Net loss and comprehensive net loss			$	(6,928,213)	$	(5,876,487)

Basic and diluted net loss per share			$	(0.14)	$	(0.14)

Basic and diluted weighted average common shares
	outstanding used in computing net loss per share			49,241,192		42,509,683

	See accompanying notes.


SOCIALWISE, INC.
Consolidated Statements of Changes in Stockholders' Deficiency
For the years ended September 30, 2010 and 2009

										Additional				Total
			Preferred Stock			Common Stock				Paid-In		Accumulated		Stockholders'
			Shares		Par Value	Shares		Par Value		Capital		Deficit		Deficiency

Balance at September 30, 2008			12,000	$	12	39,766,580	$	39,767	$	7,716,515	$	(6,476,616)	$	1,279,678
	Conversions of preferred stock to common stock		(3,400)		(3)	1,030,304		1,030		(1,027)		-		-
	Issuance of common stock and warrants for cash, less issuance costs		-		-	2,769,375		2,769		1,835,481		-		1,838,250
	Issuance of common stock for consulting and programming services		-		-	254,000		254		134,926		-		135,180
	Issuance of common stock in payment of fund raising commissions		-		-	452,938		453		(453)		-		-
	Issuance of common stock in connection with notes payable issuance		-		-	400,000		400		159,600		-		160,000
	Exercise of warrants to purchase common stock		-		-	50,000		50		18,450		-		18,500
	Stock based compensation from stock options and warrants		-		-	-		-		1,912,726		-		1,912,726
	Net loss		-		-	-		-		-		(5,876,487)		(5,876,487)

Balance at September 30, 2009			8,600		9	44,723,197		44,723		11,776,218		(12,353,103)		(532,153)
	Cumulative effect of change in accounting principle		-		-	-		-		(688,399)		-		(688,399)
	Conversions of preferred stock to common stock		(480)		(1)	145,453		145		(144)		-		-
	Issuance of common stock and warrants for cash, less issuance costs		-		-	6,522,075		6,522		2,378,229		-		2,384,751
	Exercise of warrants to purchase common stock		-		-	151,515		152		60,455		-		60,607
	Retirement of common stock		-		-	(875,000)		(875)		875		-		-
	Issuance of common stock for consulting and programming services		-		-	1,864,055		1,864		832,968		-		834,832
	Stock based compensation from stock options and warrants		-		-	-		-		2,696,090		-		2,696,090
	Issuance of common stock in connection with notes payable		-		-	225,000		225		163,025		-		163,250
	Beneficial conversion feature in connection with notes payable issued		-		-	-		-		512,500		-		512,500
	Net loss		-		-	-		-		-		(6,928,213)		(6,928,213)

Balance at September 30, 2010			8,120	$	8	52,756,295	$	52,756	$	17,731,817	$	(19,281,316)	$	(1,496,735)
		See accompanying notes.


SOCIALWISE, INC.
Consolidated Statements of Cash Flows
For the years ended September 30, 2010 and 2009

					2010		2009

Cash flows from operating activities:
	Net loss			$	(6,928,213)	$	(5,876,487)
	Adjustments to reconcile net loss to cash flows from operating activities:
		Depreciation expense			14,308		14,309
		Stock based compensation			2,795,479		1,912,726
		Interest expense recognized in connection with beneficial conversion
			feature of note payable		512,500		-
		Consulting and programming services rendered in exchange for common stock and warrants			834,832		245,546
		Change in fair value of derivative liabilities			(87,744)		-
		Loss due to impairment of intangible assets			-		209,119
		Amortization and accretion of interest expense			299,532		210,206
		Changes in operating assets and liabilities:
			Other assets		(29,110)		(1,121)
			Accounts payable and accrued liabilities		46,248		(174,768)
			Accrued interest		9,248		-
			Accrued and deferred personnel compensation		(26,099)		26,099
			Other liabilities		(375)		188

		Cash flows from operating activities			(2,559,394)		(3,434,183)

Cash flows from investing activities:
	Purchases of property and equipment				-		(31,208)
	Additions to intangible assets				-		(22,176)

		Cash flows from investing activities			-		(53,384)

Cash flows from financing activities:
	Proceeds from issuance of common stock and warrants				2,384,751		1,838,250
	Net proceeds from issuances of notes payable				950,000		573,750
	Repayments of note payable				(427,818)		-
	Proceeds from exercise of warrants				60,607		18,500

		Cash flows from financing activities			2,967,540		2,430,500

Change in cash and cash equivalents during period					408,146		(1,057,067)

Cash and cash equivalents, beginning of period					322,215		1,379,282

Cash and cash equivalents, end of period				$	730,361	$	322,215

Supplemental disclosure of cash flow information:
	Cash paid during the period for:
		Interest		$	1,500	$	-

Noncash investing and financing transactions:
	Warrants issued in connection with notes payable			$	170,277	$	-
	Common stock issued in connection with note payable			$	163,250	$	160,000

	See accompanying notes.

Socialwise, Inc.

Notes to Consolidated Financial Statements

Basis of Presentation

Socialwise, Inc. (hereinafter referred to as “we” or “the/our Company”) is a Colorado corporation. Through our subsidiary incorporated in the state of California, Socialwise, Inc. (“Socialwise-CA”), we seek to facilitate online and traditional retail commerce through payment systems for young people. We are a publicly traded company trading on the OTC Bulletin Board under the symbol “SCLW.” The accompanying consolidated financial statements include the accounts of our Company and Socialwise-CA as of and through September 30, 2010. All intercompany amounts have been eliminated in consolidation.

Our consolidated financial statements have been prepared assuming that we will continue as a going concern. However, we have incurred net losses, have a net working capital deficiency, have a deficit in stockholders’ equity as of September 30, 2010 and have yet to establish profitable operations. These factors among others create a substantial doubt about our ability to continue as a going concern. Although we currently estimate that we have sufficient funds to maintain our Company’s operations through September 30, 2011 even in the absence of our planned levels of revenues and gross margin, there remains uncertainty in the event of unforeseen costs or expenses that may arise. This uncertainty could have an adverse effect on our ability to continue as a going concern through or significantly beyond September 30, 2011. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.

In response to our Company’s cash needs, subsequent to September 30, 2010 and through the date of this report, we sold additional common stock and warrants as described in our subsequent events footnote that follows. We also currently estimate (although there can be no assurance) that we will soon consummate the proposed sale of additional equity through the sale of unregistered shares of our Company’s common stock (accompanied by warrants to purchase our common stock) with similar terms to financing already completed in our first quarter of fiscal 2011. All additional amounts raised will be used for our future investing and operating cash flow needs. However there can be no assurance that we will be successful in consummating such financing.

Summary of Significant Accounting Policies

Our consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America.

Use of Estimates

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

Revenue Recognition

We recognize revenue at the time a product or service is purchased or contracted for by customers, the product has been shipped or the service rendered, the selling price and our commission for the transaction is fixed, collection is reasonably assured and when both title and risk of loss transfers to the customer, provided no significant obligations remain. Cash to be received in advance of the satisfaction of the criteria for revenue recognition will be deferred until such time as the criteria are satisfied. We do not anticipate collecting sales taxes in the future in connection with our products or services.

Accounting Standards Codification (“ASC”) Topic 605 Revenue Recognition also provides guidance on the application of generally accepted accounting principles to selected revenue recognition issues. We believe that our revenue recognition policies are appropriate and in accordance with generally accepted accounting principles and Accounting Standards Codification (“ASC”) Topic 605.

We have deferred revenues from cash received in connection with unredeemed gift cards sold prior to September 30, 2008. Deferred revenues totaled $13,319 at September 30, 2010 ($13,694 at September 30, 2009).

Socialwise, Inc.

Notes to Consolidated Financial Statements

Cash and cash equivalents

We consider all investments with an original maturity of three months or less to be cash equivalents. Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.

From time to time, we have maintained bank balances in excess of insurance limits established by the Federal Deposit Insurance Corporation. We have not experienced any losses with respect to cash. Management believes our Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

Property and Equipment

Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the related assets (generally three to five years). Costs incurred for maintenance and repairs are expensed as incurred and expenditures for major replacements and improvements are capitalized and depreciated over their estimated remaining useful lives.

Valuation of Long-Lived Assets

We record impairment losses on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amount. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amounts of the assets exceed the estimated fair value of the assets.

We perform periodic reviews of the carrying value of our long-lived assets to be held and used, including certain identifiable intangible assets, on a periodic basis or whenever evidence comes to our attention that such impairment might have occurred. During the three months ended September 30, 2009, we performed such a review of our intangible assets that consisted primarily of costs incurred in connection with a patent application related to group gifting acquired in March 2008. Our review concluded that given the uncertainty surrounding our eventual exploitation of this intellectual property, it was impracticable to reliably forecast future cash flows therefrom. Accordingly, we recorded a charge for the complete impairment of the intangible asset totaling $209,119 during the year ended September 30, 2009.

Income Tax Expense Estimates and Policies

As part of the income tax provision process of preparing our financial statements, we are required to estimate our Company’s provision for income taxes. This process involves estimating our current tax liabilities together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities. Management then assesses the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent believed that recovery is not likely, a valuation allowance is established. Further, to the extent a valuation allowance is established and changes occur to this allowance in a financial accounting period, such changes are recognized in our tax provision in our consolidated statement of operations. We use our judgment in making estimates to determine our provision for income taxes, deferred tax assets and liabilities and any valuation allowance is recorded against our net deferred tax assets.

There are various factors that may cause these tax assumptions to change in the near term, and we may have to record a future valuation allowance against our deferred tax assets. We recognize the benefit of an uncertain tax position taken or expected to be taken on our income tax returns if it is “more likely than not” that such tax position will be sustained based on its technical merits.

Stock Based Compensation

We account for stock based compensation arrangements through the measurement and recognition of compensation expense for all stock based payment awards to employees and directors based on estimated fair values. We use the Black-Scholes option valuation model to estimate the fair value of our stock options and warrants at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of options and warrants. We use historical company data among other information to estimate the expected price volatility and the expected forfeiture rate and not comparable company information, due to the lack of publicly traded companies that exist in our industry.

Socialwise, Inc.

Notes to Consolidated Financial Statements

Derivatives

We account for certain of our outstanding warrants as derivative liabilities, in accordance with newly issued guidance effective with our fiscal year ending September 30, 2010. These derivative liabilities were determined to be ineligible for equity classification due to provisions of the respective instruments that may result in an adjustment to their conversion or exercise prices. The beginning balance of our Company’s derivative liabilities outstanding were valued at $688,389 and resulted in a reclassification from stockholders’ equity to derivative liabilities during the year ended September 30, 2010. This reclassification was accounted for as a cumulative effect of a change in accounting principle and is reflected in the accompanying consolidated statement of changes in stockholders’ deficiency for the year then ended. Derivative liabilities which arose from the issuance of warrants during our fiscal year ended September 30, 2010 (less reductions in derivative liabilities outstanding and changes to the fair value of derivative liabilities) resulted in an ending balance in derivative liabilities of $870,321 (shown in the accompanying balance sheet at September 30, 2010).

We recognized a change in fair value of derivatives for the year ended September 30, 2010 totaling $87,744. Subsequent changes to the fair value of the derivative liabilities will require adjustments to their carrying value that will be recorded as other income (in the event that their value decreases) or as other expense (in the event that their value increases). In general, we will record income when the market value of our common stock decreases and will record expense when the value of our stock increases. The fair value of these liabilities is estimated using option pricing models that are based on the individual characteristics of our warrants, preferred and common stock, the derivative liability on the valuation date as well as assumptions for volatility, remaining expected life, risk-free interest rate and, in some cases, credit spread.

Net Loss per Share

We calculate basic earnings per share (“EPS”) by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common stock equivalents. Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants. Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive. Potentially dilutive securities totaling 2,535,525 and 3,887,839 shares at September 30, 2010 (3,114,861 and 4,910,858 shares at September 30, 2009) were excluded from historical basic and diluted earnings per share, respectively, due to their anti-dilutive effect.

Financial Instruments

Our financial instruments are cash and cash equivalents, accounts payable and notes payable. The recorded values of cash and cash equivalents and accounts payable approximate their fair values based on their short-term nature. The notes payable approximate fair value given their current terms and market interest rates.

Advertising

We will expense advertising costs as incurred. We have no existing arrangements under which we provide or receive advertising services from others for any consideration other than cash.

Litigation

From time to time, we may become involved in disputes, litigation and other legal actions. We estimate the range of liability related to any pending litigation where the amount and range of loss can be estimated. We record our best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated. As of the date of this quarterly report, we are currently not involved in disputes, litigation and other legal actions.

Socialwise, Inc.

Notes to Consolidated Financial Statements

Recently Issued Accounting Pronouncements

Finder Agreement and Agreements for Investor Relations Services

Finder Services

We entered into a Finder Agreement (“Finder Agreement”) effective June 1, 2008 with SPN Investments, Inc. (“SPN”). The Finder Agreement calls for SPN or its designees to be paid a finder’s fee (in cash or our Company’s equity securities) of 10% of all debt or equity funds raised by the Company where SPN acts as a Finder. The Finder Agreement (as amended and supplemented as of August 12, 2009) also called for the issuance to SPN of up to 500,000 of our Company’s restricted common shares along with five year warrants to purchase 175,000 shares of common stock with an exercise price of $1 per share as follows:

SPN received one share of common stock for each $10 of gross proceeds raised from sales of our Company’s preferred or common stock; up to a maximum of 500,000 shares of common stock (100,500 shares of the remaining total consideration of 500,000 shares were earned during the nine months ended June 30, 2010 and accounted for as an issuance cost in consideration with the shares sold).

SPN received 175,000 vested five year warrants in May 2009 with an exercise price of $1.00 per share.

Investor Relations Services

During the year ended September 30, 2010, we issued 1,209,555 shares of our common stock to Kay Holdings, Inc. (“Kay”) and its designees under agreements with Kay for the provision of investment related services. During the year ended September 30, 2010, we issued two year term warrants with exercise prices of $0.60 per share to purchase 671,250 shares of our common stock to Kay and its designees in exchange for related services it performed on our Company’s behalf. Kay and SPN have a common principal officer. Our Company recognized noncash expenses in connection with the services performed on its behalf by Kay totaling $491,432 during the year ended September 30, 2010.

On June 24, 2010, we entered into an agreement with Iroquois Capital (“Iroquois”) for the provision of financial advisory services. Under the terms of the agreement with Iroquois, they were granted warrants to purchase 450,000 shares of our common stock at a price of $0.40 (as subsequently adjusted) per share. The warrants have a term of four years and include anti-dilution provisions and a provision for cashless exercise. Our Company recognized noncash expenses in connection with the services performed on its behalf totaling $99,389 during the year ended September 30, 2010.

On April 28, 2010, we entered into an agreement with Maxim Group LLC (“Maxim”) to act as a non-exclusive placement agent for the sale of additional equity securities of our Company. Under the terms of the agreement with Maxim, they will receive a cash payment equaling 10% of the proceeds raised from investors introduced to the Company by Maxim and warrants to purchase between ten and twenty percent of the shares of our common stock placed by Maxim at terms similar to those sold to the investors introduced

Socialwise, Inc.

Notes to Consolidated Financial Statements

by Maxim. In a related agreement, we granted Equity Source Partners, LLC (“ESP”) warrants to purchase up to (as amended) 650,000 additional shares of our common stock at terms similar to those sold to the investors introduced by Maxim.

On August 24, 2009, we entered into a non-exclusive agreement with ESP to provide financial assistance in connection with fund raising activities. Under the agreement (as subsequently revised), we issued ESP 50,000 shares of our Company’s restricted common stock and pay them or their designees: 1) up to 8% (as amended) of the cash raised by ESP or its associates on our Company’s behalf; and 2) a five year warrant to purchase one share of common stock for each 25 shares sold at the exercise price of $0.60 per share. During the year ended September 30, 2010, ESP or its designees earned cash totaling $114,400 and warrants to purchase 143,000 shares of our common stock under the agreement.

On May 8, 2009, we entered into an agreement with an individual (the “Advisor”) to provide strategic advisory services to our Company through May 2011, unless cancelled by either the Company or the Advisor after November 2009. During the year ended September 30, 2010, the Advisor earned 140,000 shares of common stock under the agreement and warrants to purchase 140,000 shares (at $1.00 per share) of our common stock (in addition to consideration received during the year ended September 30, 2009 of 150,000 common shares and warrants to purchase 100,000 shares of common stock at $1.00 per share). Noncash charges to operations during the year ended September 30, 2010 in connection with our issuance of common shares and warrants to the Advisor totaled $57,400 and $66,640, respectively ($69,000 and $39,000, respectively during the year ended September 30, 2009).

In April 2010 and November 2008, we entered into agreements with Two Eight, Inc. (“Two Eight”) to provide investor relations services through June 30, 2010 and 2009, respectively, to our Company in exchange for 150,000 shares of our common stock (April 2010) and $100,000 in cash (November 2008). We recognized general and administrative expenses totaling $60,000 and $100,000 during the years ended September 30, 2010 and 2009, respectively.

Sales of Preferred Stock, Common Stock and Warrants

During the year ended September 30, 2010, we entered into subscription agreements with 79 accredited investors pursuant to which we issued 6,522,075 shares of our common stock and warrants to purchase an additional 4,846,556 shares of our common stock with an exercise price of $0.60 per share for a period of two years after their date of issuance, in exchange for gross proceeds totaling $2,617,830 ($2,384,751 net of expected expenses totaling $233,079). SPN, Kay and ESP assisted our Company in connection with the transactions and they and their designees earned the fees and commissions therewith.

During the year ended September 30, 2010, we issued 264,000 shares of common stock to a contractor in exchange for services performed in the current and prior fiscal years. In connection with the issuance of shares, we recognized expenses of $136,000 and $28,000 during the years ended September 30, 2010 and 2009, respectively.

From July 1, 2009 through September 30, 2009, we entered into subscription agreements with 24 accredited investors pursuant to which we issued 735,000 shares of our common stock and warrants to purchase an additional 183,750 shares of our common stock with an exercise price of $1.00 per share for a period of two years after their date of issuance, in exchange for gross proceeds totaling $367,500 ($330,750 net of cash commissions paid to two designees of SPN totaling $36,750). As further consideration for its services related to the sale of our common stock, our Company issued an additional 36,750 shares to SPN.

From November 20, 2008 through December 19, 2008, we entered into subscription agreements with nine accredited investors pursuant to which we issued 2,034,375 shares of our common stock and warrants to purchase an additional 508,594 shares of our common stock at an exercise price of $1.00 per share for a period of two years after their date of issuance, in exchange for gross proceeds totaling $1,627,500 ($1,507,500 net of cash expenses totaling $120,000). SPN acted as a Finder in connection with the transaction and directed the payment of fees earned in connection with the funds raised totaling $162,750 to three recipients who assisted in the fund raising. The fees were paid in cash ($120,000) and equity of our Company. The equity portion of the Finder fee compensation consisted of 53,438 shares of our unregistered common stock and two year warrants to purchase an additional 13,360 shares of our common stock at an exercise price of $1.00 per share. As further consideration for its services related to the sale of our common stock, our Company issued an additional 162,750 shares to SPN.

At September 30, 2010, we have 8,120 shares of Series A Cumulative Convertible Preferred Stock (the “Series A Stock”) outstanding along with warrants with an expiration date of December 12, 2013 to purchase an additional 2,121,213 shares of our common stock at an exercise price of $0.40 per share (as adjusted).

Socialwise, Inc.

Notes to Consolidated Financial Statements

The following summarizes the terms of the preferred stock and warrants outstanding:

Face Value: Each share of Series A Stock has a face and par value of $100 and $.001 per share, respectively.

Voluntary Conversion: Each share of Series A Stock is convertible at the election of the holders at any time into approximately 303 shares of our common stock, subject to increase under the anti-dilution provisions under the Certificate of Designation and the Subscription Agreement upon the occurrence of events as defined therein.

Dividends: Except in the event of default under the terms of the Subscription Agreement, the Series A Stock pays no dividends. In the event of an uncured default by the Company, the Series A Stock pays dividends of 12% per annum during the period our Company is in default as described under the Certificate of Designation.

Redemption: The Series A Stock is not required to be redeemed by our Company.

Liquidation Rights: Upon the occurrence of a liquidation event (as defined in the Certificate of Designation), the holders of Series A Stock will be repaid their full face value and cumulative accrued dividends prior to the receipt of any other class of preferred or common stock.

Forced Conversion: We have the right to force conversion of each share of Series A Stock into approximately 303 shares of common stock at any time after December 12, 2008, provided our common stock has maintained a closing price of $1.00 per share for three consecutive trading days prior to conversion.

Voting Rights: Generally, our Series A Stock has no voting rights.

Covenants: The Subscription Agreement imposes certain covenants on us, including restrictions against incurring additional indebtedness, issuing any additional equity except certain permitted issuances, creating any liens on our property, amending our certificate of incorporation or bylaws in a manner which may adversely affect the Series A Stock holders, redeeming or paying dividends on shares of our outstanding common stock, and entering into certain related party transactions.

Reset Provision: The Subscription Agreement also contains a “favored nations” provision which provides that, other than in connection with the certain excepted issuances, until the sooner to occur of (i) thirty (30) months after the closing date, or (ii) until the Series A Stock is no longer outstanding, if our Company shall agree to or issue any common stock or securities convertible into or exercisable into common stock at a price per share or conversion or exercise price per share which is less than the conversion price for the Series A Stock or warrant exercise price in effect at such time, without the consent of each Series A Stock subscriber, then our Company must issue to each subscriber for each such occasion, additional shares of common stock so that the average per share price of the shares to be received upon conversion of the Series A Stock and warrants then owned by each subscriber is equal to such other lower price per share and the conversion price and warrant exercise price shall automatically be reduced to such other lower price.

The preferred stock is convertible into our common stock at an effective price of $0.33 per share, while the warrants to purchase common stock have an exercise price of $0.40 per share (as adjusted for sales of our common stock at $0.40 per share in October 2009). Due to the embedded nature of the preferred stock conversion feature, the immediate convertibility of the preferred shares and the beneficial conversion feature that was in excess of the relative value of the preferred stock, we recorded a deemed dividend to preferred shareholders of $891,466 as of the date of the completion of the Subscription Agreement. During the years ended September 30, 2010 and 2009, the holders of preferred stock converted a total of 480 and 3,400 shares of preferred stock into 145,453 and 1,030,304 shares of common stock, respectively.

Notes payable

On August 13, 2010, we entered into a Convertible Promissory Note Agreement (the “$1M Note”) with an individual (the “Holder”), an accredited investor, payable for $1,000,000 at 5% interest, due February 13, 2011 (the “Maturity Date”). At any time prior to the maturity date, the $1M Note and any accrued but unpaid interest may be converted at the Holder’s election into shares of the Company’s restricted common stock at a price of $0.40 per share (adjusted for stock splits or similar events). On November 24, 2010, the Holder converted the $1M Note into 2,500,000 shares of Company common stock under the terms described below.

In addition the Holder was issued warrants to purchase up to 625,000 shares of the Company’s restricted common stock at a price of $0.40 per share pursuant to a Warrant Agreement (the “Warrant”) with a five year term executed concurrently between the Holder and Company; provided, however, in the event that Holder elects to convert the Note, upon conversion of the $1M Note the Holder shall be issued warrants to purchase up to an additional 1,250,000 shares of the Company’s restricted common stock at an exercise price of $0.40 per share pursuant to the terms of a warrant agreement (the “Additional Warrant”) in the same form as the Warrant.

Socialwise, Inc.

Notes to Consolidated Financial Statements

The following summarizes other terms under the $1M Note and Warrant Agreements:

Prepayment Penalty. None, upon written agreement to pre-pay from Holder.

Voting Rights under $1M Note. None.

Security Interest. The $1M Note is unsecured.

Guarantee. None.

Mandatory Early Repayment. The Holder may elect repayment to commence within twenty days after the Initial Closing of the Minimum Offering of $2,000,000 described in our Company’s Confidential Private Placement Memorandum dated August 3, 2010 (the “PPM”), at which point our Company shall make equal installment payments to Holder beginning within twenty days after date of closing and continuing every 30 days thereafter until the Maturity Date.

Events of Default. The Financing Documents contain events of default, including, without limitation: (i) our uncured failure to timely pay any payment due under the $1M Note when due; (ii) our uncured breach of any material covenant, representation, warranty or other material term or condition of any material agreement; (iii) any bankruptcy event under which our Company shall be subject. Upon the occurrence of an uncured event of default, the Note holder would be entitled to demand the entire amount outstanding under the $1M Note to be immediately due and payable.

Covenants. The Financing Documents contain certain covenants on our Company including, without limitation, requirements on our Company and its subsidiary Socialwise-CA, regarding: (i) all shares of capital stock issued upon the conversion of the $1M Note shall be validly issued, fully paid and non-assessable, and (ii) our Company will not, by amendment of its Certificate of Incorporation or By-Laws or other organizational document, or through reorganization, consolidation, merger, dissolution, issue or sale of securities, sale of assets or any other voluntary action, willfully avoid or seek to avoid the observance or performance of any of the terms of the $1M Note, and shall take action as may be necessary or appropriate to protect the rights of the Holder against impairment or dilution.

Subsequent Equity Sales. The Warrant also provides that if, at any time while the Warrant is outstanding, our Company issues additional shares of common stock or common stock equivalents at an effective price per share which is less than $0.40, the Warrant exercise price shall be reduced to the lower price issuance. The provision does not apply to certain issuances of excluded common stock and common stock equivalents which are described in the Warrant.

Impact on Prior Anti-Dilution Provisions. Issuance of the warrants triggered a full-ratchet anti-dilution provision within the financial advisory agreement executed with Iroquois (the effect of issuance of the warrants described above reduced the exercise price on the 450,000 warrants issued to Iroquois from $0.60 to $0.40 per share).

We accounted for the $1M Note by allocating the proportional fair value of the warrants issued therewith of $170,277 to the warrants which was an addition to derivative liabilities at the date of their issuance. The remaining face value of the $1M Note was discounted by that amount to $762,500 at inception and the discount will be accreted over the six month term of the note on the interest method. The accreted value of $818,648 is included in notes payable in the accompanying balance sheet at September 30, 2010. Accrued interest on the note totaling $6,528 at September 30, 2010 is included in the accompanying balance sheet’s total of accrued interest.

Additionally, we recognized the difference between the discounted conversion price of our common stock and its prior day’s closing price as a beneficial conversion feature. We also included the beneficial conversion feature of the 1,250,000 shares of common stock covered by the additional warrant to be awarded upon conversion. The total beneficial conversion feature of $512,500 was recognized as interest expense at the time of the inception of the Note.

We incurred costs in connection with procuring the note in the form of $50,000 paid to Maxim. Upon payment of the commission, we capitalized the total paid and are amortizing it to interest expense on the interest method through the maturity of the $1M Note. Included in prepaid interest on the accompanying balance sheet at September 30, 2010 is the unamortized portion of the commission totaling $36,717. Interest expense recognized in connection with the $1M Note through September 30, 2010 (excluding amounts charged for the recognition of the beneficial conversion feature noted above) totaled $236,393.

On March 31, 2009, we issued a 12% Senior Note (the “Note”) payable for $750,000 due December 31, 2009, and 400,000 shares of our Company’s restricted common stock. This financing transaction resulted in net proceeds to us of $573,750, after deducting

Socialwise, Inc.

Notes to Consolidated Financial Statements

discounts, prepaid interest expense, and fees totaling $63,750 paid in connection with the transaction. The Note was neither convertible nor secured and carries certain operating and other covenants as well as prescribing certain events of default. Upon the occurrence of an uncured event of default, the Note holder would be entitled to demand repayment of the entire amount outstanding under the Note multiplied by 115% and all remaining amounts outstanding would accrue interest at the rate of 20% per annum.

Under the original terms of the Note, we were required to use no less than 50% of the proceeds of any subsequent equity or debt financing to repay the Note during the time that the Note remains outstanding. In November 2009, the Note holder agreed to revise the required repayments under the Note due to future financings to payments of $25,000, $250,000 and $100,000 on October 30, 2009, November 20, 2009 and December 15, 2009, respectively (which required payments the Company made). On December 28, 2009, the Company exercised its option (with the issuance of 75,000 shares of our common stock to the Note holder) to extend the maturity date of the Note to February 28, 2010.

In February and May 2010, the Note holder agreed to further extensions of the maturity date of the Note (now maturing on February 28, 2011) in exchange for a total of 150,000 shares of our common stock and the added option to convert the Note into shares of our common stock at the rate of $0.40 per share. The value of all additional shares issued to the Note holder totaling $96,750 was accounted for as prepaid interest expense at the time of issuance and was amortized through the revised maturity dates. We recognized the convertibility feature granted to the Note holder in February 2010 as a beneficial conversion feature which equaled the difference between the closing market price of our stock at the time of the grant ($0.47) less the conversion price ($0.40), multiplied by the number of shares into which it was convertible (950,000) or $66,500. The value of the convertibility feature granted was amortized through May 2010. During the years ended September 30, 2010 and 2009, we recognized interest expense in connection with all of the related costs of the Note totaling $298,886 and $210,206, respectively. At September 30, 2010, the principal and accrued interest due to the note holder totaled $350,000 and $4,264, respectively (the balance of the Note less future accretion at September 30, 2009 totaled $645,206). The balance of the Note and all related accrued interest was repaid in November 2010.

Stockholders’ equity

Surrender of common stock

On February 11, 2010, we entered into an agreement with our Vice President of Business Development (and a member of our Company’s Board of Directors) Chris Nicolaidis concerning certain matters in relation to his holdings of our Company’s common stock. Under the agreement, Mr. Nicolaidis agreed to: 1) tender to our Company 875,000 shares of common stock held by him; and 2) to restrict future sales of our Company’s common stock during the period of time covered by the agreement.

Stock options

On October 16, 2007, our stockholders approved the adoption of the IdeaEdge, Inc. 2007 Equity Incentive Plan (the “Plan”). The Plan provides for granting of stock-based awards including: incentive stock options, non-statutory stock options, stock bonuses and rights to acquire restricted stock. The total number of shares of common stock that may be issued pursuant to stock awards under the Plan (as approved by the Board of Directors but subject to future shareholder approval) shall not exceed in the aggregate 5,000,000 shares of the common stock of our Company. Through September 30, 2010, we have outstanding a total of 4,115,000 (net of cancellations totaling 30,000) incentive and nonqualified stock options granted under the Plan, all of which we have estimated will eventually vest. All of the options have terms of five years with expiration dates ranging from November 13, 2007 to August 6, 2015. During the years ended September 30, 2010 and 2009, we recognized stock based compensation expense totaling $438,711 and $788,389, respectively, related to stock options.

Stock option activity during the two years ended September 30, 2010 and 2009 was as follows:


	2010	2009
Beginning balance outstanding	3,445,000	3,220,000
Options issued during the year	700,000	225,000
Options cancelled during the year	(30,000)	-

Ending balance outstanding	4,115,000	3,445,000

Socialwise, Inc.

Notes to Consolidated Financial Statements

Warrants

During the years ended September 30, 2010 and 2009, our Company issued a total of 6,643,163 and 1,273,940 warrants, respectively, to purchase our common stock, respectively, to third parties providing consulting and advisory services. Warrants to purchase 151,515 shares at $0.40 per share and 50,000 shares at $0.37 per share were exercised in July 2010 and May 2009, respectively, while warrants to purchase a total of 450,000 shares of our common stock expired. In determining our number for stock based compensation related to these warrants, we have assumed that all of the outstanding warrants at September 30, 2010 will eventually vest.

Our Company also issued warrants to purchase 5,471,557 and 705,704 shares of our common stock to investors in connection with the issuances of restricted shares of our preferred and common stock during the years ended September 30, 2010 and 2009, respectively (the value of which was offset against the proceeds of the issuance of our common stock and not charged to operations).

Outstanding warrants from all sources have terms ranging from two to five and a half years. During the year ended September 30, 2010 and 2009, we recognized stock based compensation expense totaling $2,455,380 and $1,124,336, respectively, related to warrants.

Warrant activity (including warrants issued to investors and for consulting and advisory services) during the two years ended September 30, 2010 and 2009 was as follows:


	2010	2009
Beginning balance outstanding	5,344,039	3,414,395
Warrants issued during the year:
For consulting and advisory services	6,643,163	1,273,940
In connection with sales of common stock	5,471,557	705,704
Warrants expiring during the year	(450,000)	-
Warrants exercised	(151,515)	(50,000)

Ending balance outstanding	16,857,244	5,344,039

Socialwise, Inc.

Notes to Consolidated Financial Statements

The number and exercise price of all options and warrants outstanding at September 30, 2010 is as follows:


Shares Outstanding	Weighted Average Exercise Price	Shares Vested	Expiration Fiscal Period
781,448	$1.05	781,448	1^st Qtr, 2011
75,000	0.40	75,000	2^nd Qtr, 2011
100,000	1.45	100,000	3^rd Qtr, 2011
298,196	1.31	298,196	4^th Qtr, 2011
2,580,036	0.60	2,580,036	1^st Qtr, 2012
2,181,250	0.58	2,181,250	2^nd Qtr, 2012
1,110,313	0.59	1,060,313	3^rd Qtr, 2012
1,207,244	0.60	1,207,244	4^th Qtr, 2012
1,230,000	0.94	1,230,000	1^st Qtr, 2013
250,000	0.60	250,000	2^nd Qtr, 2013
2,155,000	0.72	2,105,000	3^rd Qtr, 2013
-	-	-	4^th Qtr, 2013
2,471,213	0.43	2,471,213	1^st Qtr, 2014
591,667	0.54	547,917	2^nd Qtr, 2014
850,000	0.65	835,416	3^rd Qtr, 2014
900,000	0.51	899,998	4^th Qtr, 2014
1,501,600	0.51	1,018,264	1^st Qtr, 2015
1,171,500	0.52	1,129,833	2^nd Qtr, 2015
159,000	0.67	92,333	3^rd Qtr, 2015
1,358,777	0.46	1,108,776	4^th Qtr, 2015
20,972,244		19,972,237

Stock based compensation

Results of operations for the year ended September 30, 2010 include stock based compensation costs totaling $2,795,479 ($1,912,726 for the year ended September 30, 2009) charged to selling and marketing expense ($1,916,320 and $356,139 in fiscal 2010 and 2009, respectively) and to operations, general and administrative expense ($879,159 and $1,556,587 in fiscal 2010 and 2009, respectively).

For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula. The following weighted average assumptions were utilized for the calculations during the years ended September 30, 2010 and 2009:

2010

2009

Expected life (in years)

2.76 years

3.00 years

Weighted average volatility

165.55%

133.55%

Forfeiture rate

Risk-free interest rate

1.71%

2.06%

Expected dividend rate

0%.

The weighted average expected option and warrant term for employee stock options granted reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107). The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all options. We utilized this approach as our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term. Expected volatilities are based on the historical volatility of our stock. We estimated the forfeiture rate based on our expectation for future forfeitures and we currently expect substantially all options and warrants to vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

Socialwise, Inc.

Notes to Consolidated Financial Statements

As of September 30, 2010, $456,130 of total unrecognized compensation cost related to unvested stock based compensation arrangements is expected to be recognized over a weighted-average period of 6.57 months. The following table summarizes option activity in connection with stock options and warrants (which resulted in stock based compensation charges) as of September 30, 2010:


	Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at September 30, 2009	5,293,940	$0.95
Granted	6,503,913	0.53
Cancelled	(480,000)	0.53
Exercised	-	-
Outstanding at September 30, 2010	11,317,853	0.65	36.7 months	$632,126

Exercisable	10,317,846	$0.67	35.4 months	$524,980

Additional disclosure concerning options and warrants is as follows:


	2010	2009
Weighted average grant date fair value of options and warrants granted	$ 0.43	$ 0.57
Aggregate intrinsic value of options and warrants exercised	-	17,500
Weighted average fair value of options and warrants vested	0.48	0.59

The range of exercise prices for options and warrants granted and outstanding (which resulted in stock based compensation charges) was as follows at September 30, 2010:


Exercise Price Range	Number of Options or Warrants
$0.37 - $0.50	4,700,000
$0.51 - $0.75	4,348,033
$0.76 - $1.00	2,040,326
$1.26 - $1.50	100,000
$1.76 - $2.00	50,000
$2.01 - $2.25	4,494
$2.26 - $2.45	75,000
	11,317,853

A summary of the status of our non-vested options and warrants as of September 30, 2010, and changes during the year then ended is as follows:


	Shares
Non-vested outstanding, beginning	1,159,589
Granted	6,503,913
Vested	(6,663,495)
Non-vested outstanding, ending	1,000,007

Socialwise, Inc.

Notes to Consolidated Financial Statements

Common Shares Reserved for Future Issuance

The following table summarizes shares of our common stock reserved for future issuance at September 30, 2010:


Stock options outstanding	4,115,000
Stock options available for future grant	885,000
Convertible preferred stock	2,460,607
Warrants	16,857,244

Total common shares reserved for future issuance	24,317,851

Income taxes

Deferred tax assets at September 30, 2010 and 2009 consisted of the following:


			2010		2009
Deferred tax assets:
	Net operating loss carryforwards	$	5,070,000	$	3,572,000
	Accrued compensation costs		26,000		36,000

Deferred tax assets			5,096,000		3,608,000

Valuation allowance			(5,096,000)		(3,608,000)

Net deferred tax assets		$	-	$	-

Internal Revenue Code Section 382 and similar California rules place a limitation on the amount of taxable income that can be offset by net operating loss carryforwards (“NOL”) after a change in control (generally greater than a 50% change in ownership). Transactions such as our purchase of Socialwise-CA and sales of our preferred and common stock may be included in determining such a change in control. These factors give rise to uncertainty as to whether the net deferred tax assets are realizable. We have approximately $12,500,000 in NOL at September 30, 2010 that will begin to expire in 2022 for federal purposes (2029 for state income tax purposes) and may be limited for use under IRC Section 382. We have recorded a valuation allowance against the entire net deferred tax asset balance due because we believe it is more likely than not that we will be unable to realize the benefits due to our lack of a history of earnings and due to possible limitations under IRC Section 382. As a result of these provisions, our NOL could expire unused.

A reconciliation of the expected tax benefit computed at the U.S. federal and state statutory income tax rates to our tax benefit is as follows:


		Year ended September 30, 2010			Year ended September 30, 2009

Federal income tax rate at 34%	$	(1,231,000)	34.0 %	$	(1,335,000)	34.0 %
State income tax, net of federal benefit		(228,000)	6.3 %		(247,000)	6.3 %
Change in valuation allowance		1,459,000	(40.3) %		1,582,000	(40.3) %

Benefit for income taxes	$	-	- %	$	-	- %

We file income tax returns in the U.S. and in the state of California with varying statutes of limitations. Our policy is to recognize interest expense and penalties related to income tax matters as a component of our provision for income taxes. There were no accrued interest and penalties associated with uncertain tax positions as of September 30, 2010. All operations are in California and the Company believes it has no tax positions which could more-likely-than not be challenged by tax authorities. We have no unrecognized tax benefits and thus no interest or penalties included in the financial statements. The Company is subject to examination for tax years after 2006 for federal purposes and after 2005 for California state tax purposes.

Socialwise, Inc.

Notes to Consolidated Financial Statements

Facilities

Our Company leases its office facilities on a month to month basis with current monthly rentals of $2,576. Rent expense was $30,912 for the year ended September 30, 2010 ($30,145 for the year ended September 30, 2009).

Employee benefit plan

We have an employee savings plan (the “Plan”) pursuant to Section 401(k) of the Internal Revenue Code (the “Code”), covering all of our employees. Participants in the Plan may contribute a percentage of compensation, but not in excess of the maximum allowed under the Code. Our Company may make contributions at the discretion of its Board of Directors. During the years ended September 30, 2010 and 2009, we made contributions to the Plan totaling $41,391 and $40,983, respectively.

10.

Subsequent events

Beginning October 1, 2010 through December 2, 2010, we entered into subscription agreements with 44 accredited investors pursuant to which we issued 8,825,875 shares of our common stock and warrants to purchase an additional 3,530,350 shares of our common stock with an exercise price of $0.60 per share for periods of two to five years after their date of issuance, in exchange for gross proceeds totaling $3,530,350 ($3,138,914 net of cash commissions and related expenses totaling $391,436).

On November 24, 2010, we received notice from the holder of the convertible note payable with an outstanding principal balance of $1 million on September 30, 2010 (unaccreted face value of $818,648 at September 30, 2010) of his election to convert the note into 2,500,000 shares of the Company’s common stock at a price of $0.40 per share. Also in November 2010, we repaid the note payable due to Gemini for cash totaling $358,288.

As provided in the Convertible Note Purchase Agreement with the holder dated August 13, 2010, in connection with the conversion of the note, the holder was issued a warrant to purchase up to an additional 1,250,000 shares of our Company’s restricted common stock at an exercise price of $0.40 per share. The terms of the warrant are identical to the warrant agreement described and included as an exhibit to our Current Report on Form 8-K dated August 17, 2010. In addition, our Company agreed to issue the Holder a warrant to purchase 62,500 shares of common stock at an exercise price of $0.40 per share to reflect the interest due to the Holder under the terms of the Note from inception to its scheduled maturity on February 13, 2011. We paid Maxim additional fees in connection with the conversion that included cash of $50,000 and five-year warrants to purchase up to 250,000 shares of our Company’s stock at $0.60 per share.

On December 29, 2010, we agreed to award 500,000 shares of our common stock to Kay in recognition of its efforts in our recently completed fund raising. We also entered into a new investor relations agreement with Kay that will result in Kay receiving a minimum of 1,500,000 shares of our common stock through December 2011, such amounts to be vested immediately should the Company’s shares be accepted for trading on a stock exchange or should our Company be acquired as described in the agreement.

Our Company has evaluated subsequent events through the date that our financial statements were issued.

Item 9 – Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A – Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities and Exchange Commission Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(e) and 15d-15(e), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Because of its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

We conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework, our management concluded that our internal control over financial reporting was effective as of September 30, 2010. This annual report does not include an attestation report of the Company’s registered public accounting firm as our Company’s unaffiliated market capitalization as of March 31, 2010 was less that that requiring such reporting as established by rules of the Securities and Exchange Commission.

Item 9B – Other Information

On December 29, 2010, Chris Nicolaidis our former Vice President of Business Development tendered his resignation as an officer and the Secretary of our Company. Mr. Nicolaidis will remain on our Company’s Board of Directors. On December 29, 2010, Mr. Shultz, our Chief Financial Officer and Treasurer, was appointed as Secretary for our Company.

On December 29, 2010, the Company entered into an Investor Relations Agreement with Kay Holdings, Inc. pursuant to which Kay Holdings will provide investor relations consulting services to the Company for a term of one year. Under the terms of the Agreement, the Company shall pay Kay Holdings 1,500,000 shares of its unregistered Common Stock through the term of the Agreement. All amounts under the Agreement will be vested immediately upon the Company’s becoming listed on a major stock exchange (e.g. NASDAQ Stock Market) or upon the acquisition of the Company. The summary of the terms of the investor relations agreement is qualified in its entirety by reference to the investor relations agreement which is filed as an exhibit to this Annual Report.

Item 10 – Directors, Executive Officers and Corporate Governance

Our directors are elected by our stockholders to a term of one year and to serve until his or her successor is duly elected and qualified, or until his death, resignation or removal. Each of our officers is appointed by our board of directors to a term of one year and serves until his successor is duly elected and qualified, or until his death, resignation or removal from office.

Our bylaws provide that the number of directors which shall constitute our whole board of directors shall not be less than one or more than five. The number of directors is determined by resolution of our board of directors or by our stockholders at our annual meeting. The board of directors has currently set the number of directors at three. Our current board of directors consists of two directors which were elected to serve on our board of directors on October 16, 2007 and one director who was appointed on September 24, 2008. Our three directors were approved to serve on our Board of Directors by a vote of our Company’s shareholders on March 20, 2009.

The following table sets forth certain information regarding our executive officers and directors as of the date of this proxy:

Name

Age

Position

James Collas

Chief Executive Officer and a director of the Company

Jonathan Shultz

Chief Financial Officer and Treasurer

Chris Nicolaidis

Director

Mark Sandson

Director

Mr. Collas has been the Chief Executive Officer and a director of our Company since October 16, 2007. Mr. Collas has been the Chief Executive Officer, President and a director of our Company’s subsidiary, Socialwise, Inc., a California corporation from April 2007 until the present. From October 16, 2007 to November 13, 2007, Mr. Collas was also the Chief Financial Officer and Treasurer of our Company, and from April 2006 until November 13, 2007, he was the Chief Financial Officer and Treasurer of Socialwise, Inc.. From September 2005 through March 2007, Mr. Collas was President, CEO and a director of DVD Movie Update, Inc., a DVD movie retailer which used the gift card retail channel to sell DVD movies. From November 2002 through August 2006, Mr. Collas was an executive consultant in San Diego specializing in early stage ventures in the technology and Internet space. From January 2000 through October 2002, Mr. Collas was a Founder and Managing Partner of IdeaEdge Ventures LLC, a San Diego based an internet venture incubator. From September 1998 through September 1999, Mr. Collas was President of Amiga, Inc., which was a subsidiary of Gateway, Inc. focused on the convergence computer market. From June 1992 through August 1998, Mr. Collas was CTO and Senior Vice President of Product Development at Gateway, Inc., a leading computer manufacturer and retailer.

Mr. Shultz has been the Chief Financial Officer and Treasurer of the Company since November 13, 2007. From June 2007 to November 2007, Mr. Shultz worked in the audit and attest practice of Squar, Milner, Peterson, Miranda and Williamson, LLP. From November 2006 to June 2007, Mr. Shultz worked as a financial consultant or interim Chief Financial Officer for several San Diego area public and private companies. From October 2004 to November 2006, Mr. Shultz was the Chief Financial Officer for Neology, Inc., located in Poway, California, which manufactured and deployed radio frequency identification solutions.

Mr. Nicolaidis has been a Director of our Company since October 16, 2007. From April 2006 until the December 2010, Mr. Nicolaidis was our Vice President of Business Development, Corporate Secretary and a director of the Company’s operating subsidiary incorporated in California, Socialwise, Inc. From December 2005 to March 2006, he co-founded and was Vice President of DVD Movie Update, Inc., a DVD movie retailer which used the gift card retail channel to sell DVD movies.

Mr. Sandson was appointed to the Board of Directors on September 24, 2008. Since May 2001, Mr. Sandson has been the President of Core Technology Partners, a consulting firm that provides merger and acquisition and strategic advisory services. From October 1999 to April 2001, Mr. Sandson was a Vice President with CompuCom Systems, Inc., an information technology products and services company. From August 1990 to September 1999, Mr. Sandson served as a consultant to the information technology and defense systems industries.

There are no family relationships among members of our management or our Board of Directors.

Item 11 - Executive Compensation

Overview of Executive Compensation Objectives and Philosophy

Our Company’s Management’s objectives are to attract and retain highly competent executives and to compensate them based upon a pay-for-performance mentality. Our current plan relies on informal goals and objectives agreed upon among the small existing executive group. The achievement of such informal goals and objectives constitute requirements for continued employment and advancement with our Company but there are no objective performance measures at present that upon achievement by the executives would trigger the payment of an annual incentive bonus. In the future we intend to formalize our plans with respect to executive compensation if our products gain market acceptance and if more objective performance criteria become available with which to judge the performance of our executive Management team. Members of our executive team received an increase in compensation effective October 1, 2008. No member of our executive team has received any compensation under an annual incentive bonus to date. A discretionary bonus for calendar year 2010 was paid in August 2010 totaling $50,000 to three executives (including one non-officer) in August 2010 (the second portion of the calendar year 2010 bonus totaling $176,000 was paid to the executives and three other employees in our Company’s first quarter of fiscal 2011). An employment retention bonus of 7.5% of our executive team’s annual salaries was paid during our third fiscal quarter ended June 30, 2009.

With the intent to increase short-term and long-term stockholder value, we have designed our executive compensation policies and practices to reward our Company’s executives based on:

Company performance;

Individual performance; and

The demonstration of leadership, team building skills and high ethical standards.

We include a significant equity component in our overall compensation to align the long-term interests of our executives with those of our stockholders. Our executive compensation plan is designed to encourage the success of our executives as a team, rather than only as individual contributors, by attaining overall corporate goals. In setting those goals, we consider the current and anticipated economic conditions in our market place and industry and the performance of other companies in our market place and industry.

Overall, we seek to employ executives that were not only qualified to fulfill the roles of the positions we require at the time of their hire, but who also have prior experience and demonstrated capabilities to function in a far larger and complex entity than where our Company is currently. We believe it is critical that our executives be able to work in an environment without the support of staff subordinates which usually accompany a larger and more seasoned company. Further, along with and given the benefit of maintaining continuity within the executive team, we highly desire executives that can adapt to what we hope will be a rapidly growing company. Our executives must be able to not only fill many roles within their areas of expertise, but also to oversee other areas that may be outside their specialty. Accordingly, we highly value the trait of adaptability.

In order to attract the type of talented executive we seek, we have found that these individuals value the potential large future rewards that come from long-term compensation arrangements in the form of stock ownership and stock option arrangements over current cash compensation. Also, given the current early stage nature of our business and the accompanying premium we must place on cash, this allocation of compensation also currently benefits our Company. Accordingly, we have structured our compensation arrangements accordingly.

Two of the three remaining members of our executive team were founders of Socialwise and have large holdings of our common stock. By the very nature of their shareholdings in our Company, these executives’ personal financial well-being is closely tied to our Company’s long-term success. Our Chief Financial Officer was employed after the acquisition of Socialwise. Therefore we felt it was necessary in order to incentivize him in a similar manner to the other members of the executive team, to make substantial grants of stock options when he joined our Company and at the time we refocused our business in a new direction. The grants made to Mr. Shultz reflected both our compensation philosophy and the results of negotiations between him and our Board of Directors at the time of the respective grants. Unlike the stock options granted to Mr. Shultz, the common stock received by our Company’s other officers (at our Company’s founding) did not (and will not) result in noncash compensation expense required to be recognized in our Company’s results of operations.

Elements of Executive Compensation

Executive compensation consists of the following elements:

Base salary;

Annual incentive bonuses;

Long-term incentives; and

Retirement benefits under a 401(k) plan and generally available benefit programs.

Base Salary. The base salary for each executive is initially established through negotiation at the time the executive is hired, taking into account his scope of responsibilities, qualifications, experience, prior salary and competitive salary information within our industry. Year-to-year adjustments to each executive officer’s base salary are determined by an assessment of his sustained performance against individual goals, including leadership skills and the achievement of high ethical standards, the individual’s impact on the Company’s business and financial results, current salary in relation to the salary range designated for the job, experience, demonstrated potential for advancement, and an assessment against base salaries paid to executives for comparable jobs in the marketplace.

Annual Incentive Bonuses. Our Company’s bonus plan’s year begins on January 1^st and runs through December 31^st. Payments under future executive bonus plans that may be instituted will be based on achieving both personal and corporate goals. Personal goals will support our overall corporate goals and, wherever possible, contain quantitative components. An executive officer’s success or failure in meeting some or all of these personal goals will affect the individual’s bonus amount. Corporate goals will consist of specific financial targets for the Company. For example, we would not expect to pay incentive bonuses prior to achieving an annual rate of revenues of at least $1 million, nor would we expect to pay incentive bonuses when we are forecasting needing to raise additional equity capital to fund operations. We believe that offering significant potential income in the form of bonuses will allow us to attract and retain executives and to align their interests with those of our shareholders.

Long-Term Incentives. Our long-term incentives consist of our Company’s Common Stock and stock option awards. The objective of these awards is to align the longer-term interests of our shareholders and our executive officers and to complement incentives tied to annual performance. We have used stock options as our primary long-term equity incentive vehicle with respect to our Chief Financial Officer who joined our Company after its founding. The remainder of our executives who are also Company founders are presently incentivized on a long-term basis by way of their shares of Common Stock received at the founding of our Socialwise, Inc. subsidiary (that were subsequently exchanged for shares of our Company’s Common Stock in October 2007). We have not adopted stock ownership guidelines.

401(k) and Other Benefits. During the years ended September 30, 2010 and 2009, our executive officers were eligible to receive certain benefits available to all our employees on the same terms, including medical and dental insurance. During the year, we also maintained a tax-qualified 401(k) Plan, which provides for broad-based employee participation. Under the 401(k) Plan, all employees are eligible to receive matching contributions from the Company of 100% of employee contributions up to a maximum of 4% of the employees’ salaries, per year. We do not provide defined benefit pension plans or defined contribution retirement plans to our executives or other employees. We believe that the 401(k) Plan and medical and dental insurance benefits allow us to remain competitive for employee talent, and we believe that the availability of these benefit programs generally enhances employee productivity and retention.

The Impact of Tax and Accounting Treatments on Elements of Compensation

We have elected to award non-qualified stock options instead of incentive stock options to all grantees of our Company’s stock options that remain outstanding as of the date of this report. All other options or warrants granted to advisors, Directors and consultants were non-qualified options or warrants in order to allow our Company to take advantage of the more favorable tax advantages associated with non-qualified stock options or warrants.

Internal Revenue Code Section 162(m) precludes the Company from deducting certain forms of non-performance-based compensation in excess of $1,000,000 to named executive officers. To date, we have not exceeded the $1,000,000 limit for any executive. However, since stock-based awards comprise a significant portion of total compensation, the Board of Directors has taken appropriate steps to preserve deductibility for such awards in the future, when appropriate.

Our Rationale for Selecting a Particular Event to Trigger Payment under a Change of Control Agreement

We are required to make payments upon a change of control of our Company to only one employee, our Chief Financial Officer Jonathan Shultz. Payments or benefits that would be required to be made to Mr. Shultz as a result of any change of control of our Company are as follows:

Mr. Shultz’s stock option grants provide that, in case of an Acquisition of the Company (as defined in Section 11(c)(i) of our Company’s 2007 Equity Incentive Plan), all of his stock options then outstanding shall become fully vested; and

On August 12, 2008, our Company entered into a change of control agreement with Mr. Shultz that calls for Mr. Shultz to be paid the cash value of 500,000 shares (as adjusted for any splits or combinations) of our Common Stock, or equivalent acquisition consideration, should our Company be acquired (as defined in the agreement) and he is in our Company’s employ on the date of the closing of the transaction.

We adopted these agreements with Mr. Shultz with defined trigger events for such compensation upon a termination following, or as a result of a change of control, in order to provide incentives for him to work for, instead of against, changes of control of the Company that align with our shareholders’ interests. We do not believe similar agreements are necessary for our other members of management due to their significant existing ownership of Company common stock.

The amount of compensation for which Mr. Shultz would be eligible upon the Company’s acquisition, and in the event he remains employed with our Company on the date of the closing of the acquisition, would be the per share price for which the Company was acquired multiplied by 500,000. Based on the closing price of our Common Stock on September 30, 2009 of $0.61, the cash payment that would be due to Mr. Shultz upon a change of control (as defined in the agreement) would be $305,000.

The agreement with Mr. Shultz defines a change of control as an “Acquisition” and states as follows.

Acquisition shall mean (i) any consolidation or merger of the Company with or into any other corporation or other entity or person (the “Purchaser”) in which the shareholders of the Company prior to such consolidation or merger (but excluding any ownership by the Purchaser) own less than fifty percent (50%) of the Company's voting power immediately after such consolidation or merger, excluding any consolidation or merger effected exclusively to change the domicile of the Company (collectively, a “Stock Purchase”); or (ii) a sale of all or substantially all of the assets of the Company (an “Asset Purchase”).

No other compensation or benefits would be due to Mr. Shultz based on agreements currently in place between him and our Company. Mr. Shultz is the only executive with a change of control agreement as he is the only executive officer that does not have substantial holdings of our Common Stock as a result of being a Company founder.

The Level of Salary and Bonus in Proportion to Total Compensation

Because of the commonality of interests among our executives and our shareholders in achieving the sustained, long-term growth of the value of our stock, we seek to keep cash compensation in line with market conditions and, if justified by the Company’s financial performance, place emphasis on the ownership of Company stock and use of stock options as a means of obtaining significantly better than average compensation. Our efforts to keep cash compensation in line with market conditions to date have been informal and based primarily on discussions with business colleagues in the local marketplace, consultation with a local benefits consulting firm and the review of widely available comparative salary data (specifically we make reference to the periodic publication by the San Diego Union-Tribune of San Diego public company executive salaries compiled from their Securities and Exchange Commission annual filings and to the survey State of CEO and CFO Pay – San Diego Public Companies published by Barney & Barney, LLC). We also based our conclusions that our cash compensation was in line with market conditions based on our executives’ prior employment histories with other similar sized companies, in similar responsible positions. We have not engaged in a practice of formal benchmarking of our executive compensation, but expect to formalize our compensation practices in the future should we be successful in growing our business. Part of such formalization may take the form of benchmarking. Because of the significant equity stake or equity incentives that our executives maintain in our Company, we believe their cash compensation and benefits received are modest in comparison to similar sized public companies. We have not engaged the services of compensation consultants but may do so in the future.

Other Compensation

We intend to continue to maintain our current benefits for our executives, including medical and dental insurance coverage and the ability to contribute to a 401(k) retirement plan; however, our Board of Directors may in its discretion revise, amend or add to the executive’s benefits if it deems it advisable. The benefits currently available to the executives are also available to our other employees.

Executive Compensation

In March and April 2008, our Company operated under severe shortages of cash. During those months, our executives elected to defer a significant portion of their compensation. This deferred compensation remains a liability of our Company at September 30, 2010.

The following table summarizes the compensation to our current and former named executive officers and Directors of our Company for the last two fiscal years ending September 30, 2010 and 2009. Our current executive officers are employed by our Company’s subsidiary, Socialwise, Inc.

SUMMARY COMPENSATION TABLE

Change in

Pension

Value and

Non-Qual.

Deferred

Stock

Option

Non-equity

Compens.

All Other

Salary

Bonus

Awards

Incentive

Earnings

Comp.⁽¹⁾⁽⁵⁾

Total

Position

Year

($)⁽⁵⁾

($)

($)⁽²⁾

($)⁽³⁾

Comp ($)

($)

James Collas

2010

230,000

25,000

9,833

264,833

2009

230,000

17,250

9,200

256,450

President/Chief Executive Officer/Director

Chris Nicolaidis ⁽⁶⁾

2010

87,600

3,504

91,104

2009

172,800

12,960

7,430

193,190

Vice President Business Development/Secretary/Director

Jonathan Shultz ⁽⁴⁾

2010

159,277

11,000

279,868

14,632

464,777

2009

172,800

12,960

745,800

7,430

938,990

Chief Financial Officer/Treasurer

(1)

Our Company made group life, health, hospitalization and medical plans available for its employees, including the officers listed herein.

(2)

Amounts do not include shares of Common Stock received by Messrs. Collas and Nicolaidis in Socialwise, Inc. on April 3, 2007. These shares of Common Stock were later exchanged for an equal number of shares of our Company’s Common Stock simultaneous with the acquisition of Socialwise, Inc. by our Company on October 16, 2007.

(3)

Refer to “Share-based Payments,” in the Notes to Consolidated Financial Statements to be included in the Annual Report on Form 10-K for the relevant assumptions used to determine the valuation of our option awards.

(4)

Mr. Shultz was appointed our Company’s Chief Financial Officer and Treasurer on November 13, 2007. Mr. Shultz was paid on a part-time basis from August 1, 2010 to September 3, 2010.

(5)

Amounts shown include matching contributions to the officers’ 401(k) retirement plans for all years presented.

(6)

Mr. Nicolaidis was employed part-time from February 2010 through April 2010 and then took a leave of absence from that date through the time of this report. Mr. Nicolaidis resigned as an officer of our Company on December 29, 2010.

The above amounts with respect to compensation from option awards equaled the amounts that were recognized as compensation expense in our financial statements for the years ended September 30, 2010 and 2009. The option award amounts were calculated in accordance with generally accepted accounting principles concerning share based payments.

Outstanding Equity Awards at September 30, 2010

Only one of our executive officers and one of our directors has outstanding equity awards through the date of this Proxy Statement. Information as of the fiscal year ended September 30, 2010, including the value of the stock awards, with respect to our Company’s Chief Financial Officer Jonathan Shultz is as follows:

November 13, 2007 grant:

Number of securities underlying unexercised options exercisable:

1,092,500

Number of securities underlying unexercised options unexercisable:

Option exercise price:

$0.95

Option expiration date:

November 13, 2012

May 22, 2008 grant:

Number of securities underlying unexercised options exercisable:

1,317,500

Number of securities underlying unexercised options unexercisable:

Option exercise price:

$0.74

Option expiration date:

May 22, 2013

Shares for the respective grants vested 1/24 upon the grant date and then 1/24 each month until fully vested.

Information as of the fiscal year ended September 30, 2010, including the value of the stock award, with respect to our outside director, Mark Sandson, is as follows:

March 25, 2009 warrant issuance:

Number of securities underlying unexercised warrants exercisable:

50,000

Number of securities underlying unexercised warrants unexercisable:

Warrant exercise price:

$0.40

Warrant expiration date:

March 25, 2011

September 25, 2009 warrant issuance:

Number of securities underlying unexercised warrants exercisable:

100,000

Number of securities underlying unexercised warrants unexercisable:

Warrant exercise price:

$0.60

Warrant expiration date:

September 25, 2014

August 10, 2010 warrant issuance:

Number of securities underlying unexercised warrants exercisable:

350,000

Number of securities underlying unexercised warrants unexercisable:

Warrant exercise price:

$0.47

Warrant expiration date:

August 10, 2015

No options or warrants have been exercised by any of the grantees through the date of this Proxy Statement.

None of our directors, executives or employees participates in or has account balances in qualified or non-qualified defined benefit plans sponsored by our Company. None of our named executive officers participate in or have account balances in non-qualified defined contribution plans or other deferred compensation plans maintained by our Company.

Director Compensation

Two of our current directors James Collas and Chris Nicolaidis are employees of the Company and are not compensated in their capacities as directors. Our one outside director (during fiscal 2010) Mr. Sandson received warrants to purchase a total of 500,000 shares of our Common Stock at the exercise prices per share shown above.

Item 12 - Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

As of December 27, 2010, we had 64,124,170 shares of common stock and 8,120 shares of Series A Cumulative Convertible Preferred stock (the “Series A Preferred Stock”) issued and outstanding. The Series A preferred stock is convertible into 2,460,607 shares of our Company’s Common Stock. Options and warrants exercisable as of (or within sixty days of) December 20, 2010 total 31,424,846. In determining the percentage of shares beneficially owned, we have used the sum of these common stock equivalent amounts or 98,009,623 shares as the total shares of common stock in order to determine the percentage of class beneficially owned on the table below. The following table sets forth as of December 27, 2010, information regarding the beneficial ownership of our common stock with respect to (i) our officers and directors; (ii) by all directors and executive officers as a group; and (iii) all persons which the Company, pursuant to filings with the Securities and Exchange Commission (the “SEC”) and our stock transfer record by each person or group known by our management to own more than 5% of the outstanding shares of our common stock. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A

person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within sixty (60) days, such as our Series A Preferred stock, warrants or options to purchase shares of our common stock. Unless otherwise noted, each person has sole voting and investment power over the shares indicated below subject to applicable community property law.


Name and Address of Beneficial Owner ⁽¹⁾	Amount and Nature of Beneficial Ownership	Percentage of Class Beneficially Owned
Officers and Directors
James Collas	8,029,473	8.2%
Chris Nicolaidis	4,375,114	4.5%
Jonathan Shultz ⁽²⁾	3,000,000	3.1%
Mark Sandson ⁽³⁾	749,999	0.8%
All directors and executive officers as a group (4 persons)	16,154,586	16.6%

5% Stockholders
Isaac Blech ⁽⁴⁾	8,812,500	9.0%

(1) Unless otherwise noted, the address is c/o Socialwise, Inc. 6440 Lusk Blvd., Suite 200, San Diego California 92121.

(2) Amounts are shares of common stock that would result from the exercise of outstanding options.

(3) Amounts include shares of common stock that would result from the exercise of outstanding warrants to purchase 500,000 shares of our common stock.

(4) Amounts include shares of common stock that would result from the exercise of outstanding warrants to purchase 3,812,500 shares of our common stock. The address for this investor is 75 Rockefeller Center, 75^th Floor, New York, NY 10019.

Item 13 – Certain Relationships and Related Transactions and Director Independence

Related Party Transactions. Our Company closely reviews transactions between the Company and persons or entities considered to be related parties (collectively “related parties”). Our Company considers entities to be related parties where an executive officer, director or a 5% or more beneficial owner of our common stock (or an immediate family member of these persons) has a direct or indirect material interest. Transactions of this nature require the approval of our management and our Board of Directors. We believe such transactions were at terms comparable to those we could have obtained from unaffiliated third parties. Since October 1, 2007, we have not had any transactions in which any of our related parties had or will have a direct or indirect material interest, nor are any such transactions currently proposed, except as noted below.

Parent Companies. We do not have a parent company.

Director Independence. Neither Mr. Collas nor Mr. Nicolaidis is considered to be an independent director under the NASDAQ listing standards. The Board has determined that Mr. Sandson is an independent director under the NASDAQ listing standards. Our entire Board also serves as the audit committee of our Board of Directors.

Item 14 – Principal Accountant Fees and Services

Principal Accountant Fees and Services

In connection with the audit of the 2008 financial statements, on October 8, 2008 our Company entered into an engagement agreement with BDO USA, LLP which set forth the terms by which BDO USA, LLP has performed audit services for the Company.

(1) Audit Fees

The fees by BDO USA, LLP for the audit of the registrant’s financial statements and review of its quarterly reports for the years ended September 30, 2010 and 2009 are $44,000 and $45,000, respectively, not inclusive of expenses. The aggregate fees during the years ended September 30, 2010 and 2009 for professional services rendered by the principal accountants BDO USA, LLP for the audit of the registrant’s annual financial statements and review of financial statements included in the registrant’s quarterly reports and registration statements (including expenses) totaled $45,255 and $66,734, respectively.

(2) Audit-Related Fees

There were no fees billed in each of the last two fiscal years for assurance and related services by BDO USA, LLP that are reasonably related to the performance of the audit or review of the registrant's financial statements and are not reported under item (1).

(3) Tax Fees

No fees were billed for professional services rendered by BDO USA, LLP for tax compliance, tax advice, and tax planning for the fiscal years ending September 30, 2010 and 2009.

(4) All Other Fees

No aggregate fees were billed for professional services provided by BDO USA, LLP, other than the services reported in items (1) through (3) for the fiscal years ending September 30, 2010 and 2009.

(5) Audit Committee

The registrant's Board of Directors, which currently performs the functions of the Audit Committee, approved BDO USA, LLP’s performance of services for the audit of the registrant’s annual financial statements for the years ended September 30, 2010 and 2009. Audit-related fees, tax fees, and all other fees, if any, were also approved by the Board of Directors.

(6) Work Performance by others

The percentage of hours expended on the principal accountant's engagement to audit the registrant's financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was less than 50 percent.

Item 15 – Exhibits


Exhibit No.	Description
2.1	Share Exchange Agreement with IdeaEdge, Inc., a California corporation (1)
2.2	Purchase Agreement for VOS Systems, Inc. by Allan Ligi (1)
3.1	Amended and Restated Articles of Incorporation (2)
3.2	Bylaws (3)
3.3	Certificate of Designations for the Series A Cumulative Convertible Preferred Stock (4)
4.1	Form of Common Stock Purchase Warrant dated June 6, 2008 (4)
10.2	2007 Equity Incentive Plan (1)
10.9	Form of Lock-Up Agreement dated June 6, 2008 (4)
10.10	Change of Control Agreement with Jonathan Shultz dated August 11, 2008(5)
10.14	Form of Advisor Warrant Agreement (6)
10.16	Form Socialwise™ Group Gifting Platform Merchant Agreement (6)
10.19	Securities Purchase Agreement dated March 31, 2009 (7)
10.20	12% Senior Note dated March 31, 2009 (7)
10.21	Subsidiary Guarantee dated March 31, 2009 (7)
10.22	Waiver and Consent dated March 31, 2009 (7)
10.23	Strategic Advisor Agreement with Patrick Kolenik (8)
10.24	Supplemental Finder Agreement dated August 12, 2009 with SPN Investments, Inc. (9)
10.25	Amendment to Company 12% Senior Note dated November 9, 2009 (10)
10.25	Investor relations agreement dated February 12, 2010 (11)
10.26	Stock contribution and disposition restriction agreement with Chris Nicolaidis dated February 11, 2010 (11)
10.27	Investor relations agreement with Kay Holdings, Inc. dated May 10, 2010 (12)
10.28	Agreement with Equity Source Partners, LLC dated April 30, 2010 (12)
10.29	Placement agent agreement with Maxim Group LLC dated April 28, 2010 (12)
10.30	Investor relations agreement with Two Eight, Inc. dated April 7, 2010 (12)
10.31	Financial Advisory Services agreement with Iroquois Master Fund Ltd. dated June 24, 2010 (13)
10.32*	Investor Relations Agreement with Kay Holdings, Inc. dated December 29, 2010
11.1	Statement re Computation of Per Share Earnings (14)
14.1	Code of Business Conduct and Ethics (15)
21.1*	Listing of Subsidiaries
24.1	Power of Attorney (contained in the signature page to this Annual Report)
31.1*	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, by Chief Executive Officer
31.2*	Certification pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act, as amended, by Chief Financial Officer
32.1*	Certification pursuant to 18 U.S.C. §1350 by Chief Executive Officer
32.2*	Certification pursuant to 18 U.S.C. §1350 by Chief Financial Officer
*	Filed as an exhibit to this report
(1)	Incorporated by reference from the registrant’s Definitive Proxy Statement filed on September 21, 2007
(2)	Incorporated herein by reference to the registrant's Form 8-K filed on October 22, 2007
(3)	Incorporated herein by reference to the registrant’s Form 8-K filed on September 22, 2005
(4)	Incorporated herein by reference to the registrant’s Form 8-K filed on June 11, 2008
(5)	Incorporated herein by reference to the registrant’s Form 10-QSB filed on August 14, 2008
(6)	Incorporated herein by reference to the registrant’s Form S-1/A filed on May 15, 2009
(7)	Incorporated herein by reference to the registrant’s Form 8-K filed on March 31, 2009
(8)	Incorporated herein by reference to the registrant’s Form 10-Q filed on May 13, 2009
(9)	Incorporated herein by reference to the registrant’s Form 10-Q filed on August 13, 2009
(10)	Incorporated herein by reference to the registrant’s Form 8-K filed on November 10, 2009
(11)	Incorporated herein by reference to the registrant’s Form 10-Q filed on February 12, 2010
(12)	Incorporated herein by reference to the registrant’s Form 10-Q filed on May 14, 2010
(13)	Incorporated herein by reference to the registrant’s Form 10-Q filed on August 12, 2010
(14)	Included within the financial statements filed in this Annual Report
(15)	Incorporated herein by reference to the registrant’s Form 8-K filed on November 10, 2005

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

IdeaEdge, Inc., a Colorado corporation

By: /s/ JAMES COLLAS

James Collas, Chief Executive Officer

December 29, 2010

Power of Attorney

We, the undersigned directors and/or officers of IdeaEdge, Inc. hereby severally constitute and appoint James Collas, acting individually, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this registration statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1934, this registration statement has been signed by the followings persons in the capacities and on the dates stated.

Signature

Title

Date

/s/ JAMES COLLAS

James Collas

Chief Executive Officer, Chief Financial Officer and Director (Principal Executive Officer)

December 29, 2010

/s/ CHRIS NICOLAIDIS

Chris Nicolaidis

Director

December 29, 2010

/s/ MARK SANDSON

Mark Sandson

Director

December 29, 2010

/s/ JONATHAN SHULTZ

Jonathan Shultz

Chief Financial Officer and Treasurer (Principal Financial Officer and Principal Accounting Officer)

December 29, 2010

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