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

FORM 10-Q
(Mark One)
 
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2011
or

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

For the transition period from   ________        to _____________   
                                      
Commission File Number: 000-54331
 
THE GUITAMMER COMPANY
(Exact name of registrant as specified in its charter)

Nevada
61-1650777
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
   
6117 Maxtown Road, Westerville, OH
43082
 (Address of principal executive offices)
(Zip Code)
 
(614) 898-9370
(Registrant’s telephone number, including area code)

None
(Former name, former address and former fiscal year, if changed since last report)
 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ X ] Yes                     [ ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
[ X ] Yes                     [ ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
  Large accelerated filer      [ ] Accelerated filer         [ ] 
  Non-accelerated filer        [ ]  (Do not check if a smaller reporting company)  Smaller reporting company [X] 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
[ ] Yes                     [ X ] No
 
As of September 30,  2011, 50,601,374 shares of Common Stock were outstanding.
 
 
 

 

The Guitammer Company
INDEX

                                                                                                                                                                       
   Page
PART I - Financial Information
 
   
Item 1. Condensed Financial Statements (unaudited)
 
   
Condensed Consolidated Balance Sheet at September 30, 2011 and December 31, 2010
1
   
Condensed Consolidated Statements of Operations for the Three and nine months ended September 30, 2011 and 2010
2
 
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2011 and 2010
3
   
Notes to Condensed Consolidated Financial Statements
4
   
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
16
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk. .
22
   
Item 4. Controls and Procedures
22
   
PART II - Other Information
 
   
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.    
24
   
Item 6. Exhibits   
24
   
Signature
29
   
Certifications
30


 
 

 
 

THE GUITAMMER COMPANY
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
ASSETS
           
Current assets
           
Cash and cash equivalents
  $ 25,591     $ 65,922  
Accounts receivable, net
    7,167       31,200  
Inventory
    80,538       279,899  
Prepaid expenses and other current assets
    6,832       2,073  
Total current assets
    120,128       379,094  
Property and equipment, net
    15,150       21,576  
Deferred financing costs, net
    49,868       65,897  
Other assets
    37,914       43,395  
    $ 223,060     $ 509,962  
LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities
               
Line of credit
  $ 39,800     $ 39,800  
Accounts payable
    898,529       871,061  
Accrued expenses
    392,480       262,629  
Capital lease obligations, current portion
    -       515  
Deferred revenue
    190,092       131,492  
Current portion of long-term debt
    2,804,297       2,598,654  
Total current liabilities
    4,325,198       3,904,151  
Long-term debt, net of current portion
    333,147       524,834  
      4,658,345       4,428,985  
Stockholders' deficit
               
Common stock, no par value, 150,000,000 shares authorized;
               
50,601,374 and 50,001,374 shares issued and outstanding at
September 30, 2011 and December 31, 2010, respectively
    1,892,170       1,742,170  
Accumulated deficit
    (6,327,455 )     (5,661,193 )
      (4,435,285 )     (3,919,023 )
    $ 223,060     $ 509,962  

See notes to the condensed consolidated financial statements
 
 
 
1

 

THE GUITAMMER COMPANY
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)


   
For the Three Months Ended
September 30,
   
For the Nine Months Ended
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Total revenue
  $ 179,272     $ 353,926     $ 1,158,844     $ 975,221  
Cost of goods sold
    101,325       198,062       690,275       569,413  
Gross profit
    77,947       155,864       468,569       405,808  
                                 
Operating expenses
                               
General and administrative
    187,613       268,197       781,829       840,849  
Research and development
    191       300       32,192       25,691  
      187,804       268,497       814,021       866,540  
                                 
Loss from operations
    (109,857 )     (112,633 )     (345,452 )     (460,732 )
                                 
Other income (expense)
                               
Interest expense
    (112,138 )     (75,476 )     (320,858 )     (220,930 )
Interest income
    -       387       47       1,234  
      (112,138 )     (75,089 )     (320,811 )     (219,696 )
Loss before provision for income taxes
    (221,995 )     (187,722 )     (666,263 )     (680,428 )
                                 
Provision for income taxes
    -       -       -       -  
Net loss
  $ (221,995 )   $ (187,722 )   $ (666,263 )   $ (680,428 )
Basic and diluted loss per share
  $ (0.004 )   $ (0.004 )   $ (0.013 )   $ (0.014 )
Basic and diluted weighted average common shares outstanding
    50,516,591       50,001,374       50,175,000       50,001,374  


See notes to the condensed consolidated financial statements
 
 
 
2

 
 
THE GUITAMMER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
(UNAUDITED)



   
2011
   
2010
 
Cash flows from operating activities
           
Net loss
  $ (666,263 )   $ (680,428 )
Adjustments to reconcile net loss to net cash used in operating activities
               
Depreciation and amortization
    28,215       28,601  
Stock-based compensation
    -       32,805  
Accounts receivable allowance
    19,000       -  
Changes in assets and liabilities
               
Restricted cash
    -       383,777  
Accounts receivable
    5,033       78,809  
Inventory
    199,361       176,695  
Prepaid expenses
    (4,759 )     (1,675 )
Other current assets
    -       (2,073 )
Accounts payable and accrued expenses
    157,320       160,974  
Deferred revenue
    58,600       (9,088 )
Net cash (used in) provided by operating activities
    (203,493 )     168,397  
Cash flows from investing activities
               
Purchase of intangible assets
    -       (5,559 )
Purchase of property and equipment
    (279 )     (1,317 )
Net cash used in investing activities
    (279 )     (6,876 )
Cash flows from financing activities
               
Proceeds from issued stock
    150,000       -  
Repayment of line of credit
    -       (205 )
Payment of capital lease obligation
    (515 )     (2,176 )
Proceeds from debt
    35,727       250,000  
Repayment of debt
    (21,771 )     (429,223 )
Net cash provided by (used in) financing activities
    163,441       (181,604 )
Net decrease in cash and cash equivalents
    (40,331 )     (20,083 )
Cash and cash equivalents, beginning of period
    65,922       28,071  
Cash and cash equivalents, end of period
  $ 25,591     $ 7,988  
Supplemental disclosure of cash flow information
               
Cash paid during the period for
               
Interest
  $ 161,545     $ 130,663  
Income taxes
    -       -  

See notes to the condensed consolidated financial statements

 
3

 
 
THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The financial information presented represents The Guitammer Company (the “Company”) incorporated on March 6, 1990, under the laws of the State of Ohio, prior to the creation of the Nevada holding company that was formed on May 18, 2011.

In April 2011, the Board of Directors approved a resolution to create a holding company to own 100% of the Company. The holding company is incorporated in the State of Nevada and has 150 million authorized common shares. Existing shareholders of the Company received 31,206 shares in the holding company for each share they currently own, resulting in a total of 50,001,374 shares of Common Stock, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio.  The purpose of creating a holding company structure in the State of Nevada is because the legal environment in Nevada is more conducive to being a public company with public shareholders than in the State of Ohio.  The per share numbers and the per share amounts in the financial statements and the notes to the financial statements reflect the retroactive application of our stock split.

Creation of the holding company has not impacted the Company’s operations and the Company does not intend to relocate its operations or headquarters.

The Company is involved in the design and distribution of a low frequency audio transducer branded as the original ButtKicker® products.  The Company, headquartered in Ohio, sells products internationally.

Basis of Presentation
All inter-company transactions and accounts and have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not indicative of the results that may be expected for the year ending December 31, 2011 or for any other future period. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Form 10 for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on July 26, 2011.

Use of Estimates
The preparation of financial statements in conformity with accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of
 
 
 
4

 
 
THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.

Subject to certain limitations, the Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation.

Accounts Receivable
Accounts receivable are carried at cost less an allowance for doubtful accounts.  The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on current economic conditions.

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The Company recorded an allowance of approximately $27,000 and $8,000 at September 30, 2011 and December 31, 2010 respectively.
 
Inventory
Inventory, consisting of finished goods, is stated at the lower of cost or market.  Cost is determined using the weighted average method.  Inventory that is determined to be in a condition of obsolescence or not sellable is expensed immediately.

Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation.  Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs and maintenance are charged to expense as incurred.  Leasehold improvements are amortized over the shorter of the assets’ economic lives or the lease term.  Depreciation is provided using the straight- line method over the estimated useful lives of the assets as follows:

Equipment and electronics
5 - 7 years
Furniture and fixtures
7 years
Leasehold improvements
Shorter or lease terms or 7 years

Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable.  Determination of recoverability is generally based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition.  If the evaluation indicates that the carrying amount of an asset is not recoverable from our undiscounted cash flows, then an impairment loss is measured by comparing the carrying amount of the asset to its fair value.
 
 
 
5

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition
The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collectibility is reasonably assured.

Deferred Revenue
The Company received prepayment for products from two of its customers for approximately $250,000 and $62,000.   As of September 30, 2011 and December 31, 2010 the Company had deferred revenue of $190,092 and $131,492, respectively.  The Company recognizes revenue and decreases deferred revenue upon delivery of products and services.

Income Taxes
Prior to the creation of the Nevada holding company that was formed on May 18, 2011, the Company had elected S Corporation status for Federal and for Ohio state income tax purposes.  Under these elections, the Company’s taxable income is includable by the stockholders on their individual income tax returns, and the Company makes no provision for Federal and State income tax.

Effective with the Company formation of the Guitammer-Nevada holding company, the Company is now a C Corporation for both Federal and State income tax purposes.

There were no uncertain tax positions at September 30, 2011 or December 31, 2010, as the Company’s tax positions for open years meet the recognition thresholds of more likely than not to be sustained upon examinations.  Tax returns for the years 2007 through 2010 are currently open to examination.

Fair Value of Financial Instruments
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles.  The fair value hierarchy has three levels, which are based on reliable available inputs of observable data.  The hierarchy requires the use of observable market data when available.  The levels are defined as follows:

Level 1 – quoted prices for identical instruments in active markets;
Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
 
The carrying amount reported in the balance sheets for cash and cash equivalents, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments.  The majority of the Company’s debt had fixed rates and the fair value was estimated at $3.1 million based on a discounted cash flow model as of September 30, 2011 and December 31, 2010.
 
 
 
6

 
 
THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Advertising
Costs of advertising and marketing are expensed as incurred.  Advertising and marketing costs were $3,040 and $66,030 for the nine months ended September 30, 2011 and 2010, respectively

Shipping and Handling
Shipping and handling costs of approximately $88,567and $107,228 for the periods ended September 30, 2011 and 2010, respectively, are included in general and administrative expenses in the statements of operations.

Research and development costs
The costs of research and development activities are expensed when incurred. Research and development activities consist of costs related to development of reduced size ButtKicker transducers.

Earnings (Loss) Per Share of Common Stock
Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.

Stock Based Compensation
Share-based compensation is measured as the fair value of the award at its grant date based on the estimated number of awards that are expected to vest and is recorded over a defined service period.  In the absence of an observable market price for share-based award, the fair value is based upon a valuation methodology that takes into consideration various factors, including the exercise price of the award, the term of the award, the current price of the underlying shares, the expected volatility of the underlying share price, the expected dividends on the underlying shares, and a risk-free interest rate.  Compensation expense is recognized based on the estimated grant date fair value method using a Black-Scholes valuation model.

Subsequent Events
On November 1, The Company sold 400,000 shares of stock and 400,000 stock warrants at $.25 per share. On November 3, The Company sold 400,000 shares of stock and 400,000 stock warrants at $.25 per share.  The total amount raised from both sales was $200,000.

2 - GOING CONCERN
The Company has incurred net losses, negative cash flows from operating activities, and has an accumulated deficit of approximately $6.3 million at September 30, 2011.  In addition, at September 30, 2011 the Company had a cash balance of approximately $26,000 and working capital deficiency of approximately $4.2 million.  The Company has relied upon cash from its financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from its operating activities in the past and there is no assurance it will be able to do so in the future.  Unless the Company can obtain additional cash resources, these factors raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
 
 
 
7

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
2 - GOING CONCERN (continued)

The Company needs additional capital to fund current working capital requirements, ongoing debt service and to repay its obligations that are maturing over the upcoming twelve month period.  Management plans to increase revenues and to control operating expenses in order to reduce losses from operations.  Additionally, the Company will continue to seek equity and/or debt financing in order to enable the Company to meet its financial obligations until it achieves profitability.  The Company may not be able to obtain this additional financing on acceptable terms or at all.

3 - PROPERTY AND EQUIPMENT, NET
 
   
September 30, 
2011
   
December 31,
2010
 
Equipment and electronics
  $ 175,447     $ 175,168  
Furniture and fixtures
    19,464       19,464  
Leasehold improvements
    12,313       12,313  
      207,224       206,945  
Less accumulated depreciation
    (192,074 )     (185,369 )
                 
Property and equipment, net
  $ 15,150     $ 21,576  

Depreciation expense for the nine months ended September 30, 2011 and September 30, 2010 was $6,705 and $9,442, respectively.

4 - LINE OF CREDIT

The Company has entered into an unsecured line of credit arrangement with Key Bank, which carries a maximum possible loan balance of $40,000 at an annual interest rate of 6.35% and is due on demand.  As of September 30, 2011 and December 31, 2010, the Company had borrowed $39,800.

5 – ACCRUED EXPENSES

Other current liabilities consisted of the following at September 30, 2011 and December 31, 2010:
 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Accrued Payroll
  $ 20,028     $ 45,835  
Accrued interest
    290,391       147,107  
Warrant liability
    22,597       14,159  
Deferred rent
    10,383       12,721  
Miscellaneous accrued expenses
    49,081       42,807  
    $ 392,480     $ 262,629  
 
 
 
8

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
5 – ACCRUED EXPENSES (continued)

The Company has outstanding warrants for the purchase of 2,116,934 shares. 1,291,928 of the warrants expire July 2015 and have an exercise price of $.02131.  825,006 of the warrants have an exercise price of $.25, 225,006 expire May 2013 and 600,000 expire July 2013.   Because these warrants contain provisions that protect the holder from declines in stock price, the Company recognizes these warrants as liabilities at their respective fair value on each reporting date. Fair value is estimated using the Black-Scholes valuation model. The significant assumptions considered by the model were the amount of outstanding warrants, the remaining term of the warrants, the per share stock price of $.03, a risk-free rate of 3.30% and estimated volatility of 60%. The resulting fair value of the warrants was calculated to be $22,597.

6 - DEBT

Debt payable to related parties is as follows:
    September 30, 
December 31,
 
   
2011
   
2010
 
Notes payable to two stockholders in original amounts of $300,000 at an interest rate of 12%.
Notes are due no later than June 30, 2012.
  $ 237,734     $ 237,734  
                 
Note payable to Forest Capital, an affiliate of the Walter J. Doyle Trust, a stockholder, in the
original amount of $250,000 at an annual interest rate of 10%.  Effective December 13, 2009,
the annual interest rate increased to 20%.  This note is due on demand.
    250,000       250,000  
                 
Note payable to Julie E. Jacobs Trust in the original amount of $100,000 at an annual interest
rate of 20%.  Effective September 26, 2010, the annual interest rate increased to 30%.  This note
is due on demand.
    100,000       100,000  
                 
Note payable to Thelma Gault, a stockholder, in the original amount of $800,000 at an interest
rate of 10%.  The loan is collateralized by all assets of the Company, and on April 25, 2008
signed an agreement in which her collateralization is shared with the State of Ohio. On
November 18, 2010, Thelma Gault signed an agreement subordinating up to $700,000 of debt
to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through the
Julie Jacobs Trust.  Note is due on May 1, 2014.
    584,352       584,352  
                 
On October 5, 2010, the Company issued a note payable in the amount of $100,000 to
Standard Energy, an affiliate of the Julie E. Jacobs Trust, at an annual interest rate of 10%.  
The note is due on demand.
    100,000       100,000  
                 


 
9

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 

 
 6 - DEBT (Continued)
   
September 30,
   
December 31,
 
   
2011
   
2010
 
On October 5, 2010, the Company issued a note payable in the amount of $25,000 to the
Walter J. Doyle Trust at an annual interest rate of 10%. The note is due on demand.
    25,000       25,000  
                 
On November 12, 2010, the Company entered into an inventory financing agreement with
Standard Energy and the Walter J. Doyle Trust, each with an original issuance amount of
$150,000 at a monthly interest rate of 2%.  These notes share a first position lien on all assets.  
The note is due on demand.
    299,386       299,386  
                 
Note payable to Richard Luden, a relative of Mark Luden, an officer and stockholder,
for $82,000.  This is an interest free loan that is to be repaid upon sale of the Company or
at the discretion of the Board of Directors.
    82,000       82,000  
Total debt payable to related parties
  $ 1,678,472     $ 1,678,472  

Other debt is as follows:
 
Note payable to Ohio Innovation Loan Fund at an interest rate of 8%.  Monthly payments
of principal, interest, escrow, and service fees are based on the phase structure.  The loan
is collateralized by all assets of the Company, and this collateralization is shared with the
Thelma Gault per agreement signed on April 25, 2008. On November 29, 2010, The Direct of
Development for the State of Ohio signed an agreement subordinating up to $700,000 of
debt to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through
the Julie Jacobs Trust.  Note is due in January 2014.
  $ 681,885     $ 703,656  
                 
Note payable to Merrill Lynch with interest payable at Libor plus .56%. In addition, this debt
is guaranteed 50% each by the Walter J. Doyle Trust and the Julie E. Jacobs Trust. As
compensation for their guarantees, the trusts receive 4% per annum and share a first position
lien on all assets.  The note is due on demand.
    398,221       397,494  
                 
Notes payable to four different investors in the original amount of $250,000 at an interest rate
of 12%. Note is due no later than June 30, 2012.
    193,866       193,866  
                 
Note payable to Joseph Albert in the original amount of $100,000 at an annual interest rate
of 7%.  This note is convertible at the note holders option into 400,000 shares of common
stock.  The note is due on demand.
    100,000       100,000  

 
 
 
10

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
 
6 - DEBT (Continued)

 
   
September 30,
   
December 31,
 
   
2011
   
2010
 
             
Note payable to John Robison in the original amount of $50,000 at an annual interest
rate of 7%.  This note is convertible at the note holder’s option into 250,000 shares of
common stock.  The note is due on demand.
    50,000       50,000  
                 
Note payable to Carl Generes with no interest payable in the amount of 35,000.  Note is
due no later than February 23, 2012 and is for legal services related to SEC filings to
occur in 2011.
    35,000       -  
Other debt
  $ 1,458,972     $ 1,445,016  


The principal maturities of the notes payable for the next five years and in the aggregate are as follows:

   
Period ending
September 30,
 
2012
  $ 2,804,297  
2013
    138,134  
2014
    113,013  
2015
    82,000  
    $ 3,137,444  
 
In previous periods, the Company was not in compliance with certain debt covenants for which waivers were never received.  As a result, the note payable to Ohio Innovation Loan Fund is classified as current in the accompanying balance sheets.



 
11

 


THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


7 - STOCKHOLDERS’ DEFICIENCY

Options
The following table summarizes the activity for all stock options:


   
Number of
Options
   
Range of
Exercise Price
   
Weighted
Average Exercise Price
   
Weighted
Average
Remaining
Contractual
Term in Years
   
Weighted
Average
Grant Date
Fair Value
 
Outstanding options as of January 1, 2010
    42,324,386     $ .0032-$.02131     $ .01681       6.0     $ .00865  
Options granted
    10,641,246     $ .0032     $ .0032       8.8     $ .01959  
Options cancelled
    (10,641,246 )   $ .0032     $ .0032       -     $ .00141  
Outstanding options as of December 31,  2010
    42,324,386     $ .0032-$.02131     $ .01681       7.3     $ .01296  
                                         
Options granted
    -       -       -       -       -  
Options cancelled
    -       -       -       -       -  
Outstanding options as of September 30, 2011
    42,324,386     $ .0032-$.02131     $ .01681       6.58     $ .01296  


The following table provides information about options under the Plan that are outstanding and exercisable as of September 30, 2011:
 
 
Options Outstanding
Options Exercisable
Exercise Price
As of
September
30, 2011
Weighted
Average
Contractual
Life Remaining
As of
September
30, 2011
$.0032
10,837,532
7.89 years
10,837,532
$.02131
31,486,854
6.12 years
31,486,854
 
42,324,386
 
42,324,386
 

Included in the above table are 16,071,090 options to non-employees and 26,253,296 to officers of the Company.

Warrants
The Company has 2,116,934 and 1,291,928 warrants outstanding as of September 30, 2011 and December 31, 2010, respectively. 1,291,928 warrants with an exercise price of $.02131 expire July 2015 and 825,006 have an exercise price of $.25; 225,006 expire May 2013 and 600,000 expire July 2013. The warrants include certain provisions that protect the holders from a decline in the stock price of the Company. As a result of those provisions, the Company recognizes the warrants as liabilities at their fair values on each reporting date.
 
 
 
12

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 
7 - STOCKHOLDERS’ DEFICIENCY (continued)

The Company has recorded a warrant liability of $22,597 as of September 30, 2011 and $14,159 as of December 31, 2010, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants. The significant assumptions considered by the model were the remaining term of the warrants, the per share stock price of $.03 and .02131 at September 30, 2011 and December 31, 2010 respectively, a risk free rate of 3.30% and an expected volatility of 60%.

8 - COMMITMENTS

On September 1, 2009, the Company entered into a three year lease for the rental of the office and warehouse space.  The lease expires on August 31, 2012.  Under the terms of the lease, the Company’s future minimum rental payments are as follows:

Year Ending December 31,
     
2011
  $ 21,246  
2012
    56,656  
    $ 77,902  

Total rent expense under operating leases for the three and nine months ending September 30, 2011 amounted to approximately $14,720 and $53,802, respectively.   Total rent expense under operating leases for the three and nine months ending September 30, 2010 amounted to approximately $16,550 and $46,922, respectively.

9 - CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Companies to concentrations of credit risk consist principally of accounts receivable.  Receivables are stated at the amounts management expects to collect from outstanding balances.  Generally, the Company does not require collateral or other security to support contract receivables.

The Company had major customers in each of the reporting periods presented.  A major customer is defined as one that purchases ten-percent or more in a reporting period.  Net sales for the three and nine months ended September 30, 2011 include sales to major customers as follows:

    Three months ended    Nine months ended
 
Customer
September 30, 2011
September 30, 2010
 
Customer A
11%
2%
 
Customer B
 10%
2%


 
13

 

THE GUITAMMER COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


9 - CONCENTRATION OF CREDIT RISK (continued)

The Company had major suppliers in each of the reporting periods presented.  A major supplier is defined as one that provides ten-percent or more of total cost-of-sales in a particular reporting period or has an outstanding account payable balance of ten-percent or more as of the reporting period.

 
Three months ended 
September 30, 2011
Nine months ended
September 30, 2011
 
Purchases
During Period
Account Payable
Percentage at
end of Period
 
Purchases
During Period
Account Payable
Percentage at
end of period
Eminence Speaker LLC
88%
34%
 
56%
34%
Vendor B
0%
28%
 
33%
  28%

10 - RELATED PARTY TRANSACTIONS

One of the Company’s shareholders is also a note holder and a minority shareholder of a major supplier to the Company.  This shareholder is a note holder who also owns 2,590,098 shares of the Company’s common stock and options to purchase another 3,276,630 shares, and is a minority shareholder in Eminence Speaker, LLC, a major supplier to the Company.


11 – INTANGIBLE ASSETS

Intangible assets principally consist of patents and trademarks related to the ButtKicker products. The assets are being amortized over 10 years based on the estimated useful lives of the patents and trademarks.   Amortization of the intangible assets, which is included in general and administrative expenses, was approximately $5,500 and $5,300 for the nine months ended September 30, 2011 and September 30, 2010.  The estimated future amortization expense for intangible assets is approximately $7,000 per year from 2012 through 2014, $6,000 in 2015 and $8,000 thereafter.



 
14

 


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
  OF OPERATIONS

The following discussion and analysis should be read in conjunction with Guitammer's Unaudited Consolidated Interim Financial Statements and notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of Guitammer plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. These statements include, without limitation, statements concerning the potential operations and results of Guitammer described below. Guitammer's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, without limitation, those factors discussed herein and in Guitammer's Form 10 Registration Statement.

OVERVIEW

Guitammer Company (“Guitammer-Ohio”) was incorporated in Ohio on March 6, 1990, as a research, development and licensing company and manufacturer and marketer of low frequency audio transducers that allows users to feel low frequency sound (“bass”) like a subwoofer but silent.

On May 18, 2011, Guitammer-Ohio caused the formation of a Nevada corporation with the same name (the “Registrant” “Company”, “Guitammer-Nevada”, “we”, “us” and “our”) and entered into a Plan and Agreement of Reorganization with Guitammer-Nevada pursuant to which (i) the shareholders of Guitammer-Ohio would exchange (on a one (1) for thirty-one thousand, two hundred and six (31,206) shares basis) their aggregate 1,602.3 issued and outstanding shares of common stock for an aggregate of 50,001,374  shares of Common Stock, par value $0.001 per share, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio, and  (ii) option and warrant holders to purchase an aggregate of  1,397.7 shares of common stock of Guitammer-Ohio would exchange (on a one (1) for thirty-one thousand, two hundred and six (31,206) shares basis) their options and warrants for options and warrants to purchase an aggregate of 43,616,626 shares of Common Stock, par value $0.001 per share,  of Guitammer-Nevada in the same proportional interest  in Guitammer-Nevada as they held in Guitammer-Ohio (the “Reorganization”). In addition, the Company issued to two lenders warrants to purchase shares of Guitammer-Ohio which because of the Reorganization would be converted into warrants to purchase an aggregate of 225,000 shares of our Common Stock, par value $0.001 per share.  In order to save time and expense of creating and issuing new Guitammer-Nevada options and warrants, the Company’s Board of Directors passed a resolution that the outstanding Guitammer- Ohio options and warrants would be and are deemed to be and constitute the Guitammer- Nevada options and warrants (on the said 1 for 31,206 shares basis) to purchase an aggregate of 43,841,320 shares of our Common Stock.

On July 14, 2011, the Company sold to two existing shareholders in private transactions a total of 600,000 shares of Common Stock for $0.25 per share (an aggregate of $150,000), including warrants to purchase an additional 600,000 shares for $0.36 per share.

RESULTS OF OPERATIONS


 
15

 

Nine months ended September 30, 2011

All references below to per share and shares of Common Stock of the Company reflect the Reorganization.

Results of Operations

Revenue increased $183,623 or 19%, to $1,158,844 for the nine months ended September 30, 2011, compared to revenue of $975,221 for the nine months ended September 30, 2010.  During the first nine months of 2011, the Company has not significantly changed our product line, our distributions channels or our pricing.  Consequently, management believes our increase in revenues is attributable to an increase in organic growth due to word of mouth and customer referrals which have resulted in an increased demand for ButtKicker brand products.  Management believes revenues for the nine months ended September 30, 2011, could have been significantly larger, but the lack of inventory for the third quarter for several key products resulted in sales backorders of approximately $500,000. Management believes that the company’s delay in securing final approval for our stock to trade publicly  combined with the uncertain general business climate during the past nine months, and especially the past three months, hindered its ability to secure the necessary financing to obtain inventory necessary to fulfill its backorders. Management believes its nine months Results of Operations would have shown a significant increase in revenue if it had the appropriate level of inventory to meet product demand.

The Company experiences some seasonality in sales as the 1st quarter and 4th quarter of the year typically experience higher sales volumes attributable to the holiday season and the recurring increase in consumer electronic sales after the holiday season.

           Cost of goods sold increased $120,862, approximately 21%, to $690,275, for the nine months ended September 30, 2011, compared to cost of goods sold of $569,413 for the nine months ended September 30, 2010. The 21% increase in the cost of goods sold for the nine months ending September 30, 2011 corresponds closely with the 19% increase in revenue for the same time period, but is higher due to variations in the sales mix of products sold since some products have slightly lower profit margins.

Gross profit increased by $62,761 or 15% to $468,569 for the nine months ended September 30, 2011, compared to gross profit of $405,808 for the nine months ended September 30, 2010. Our gross margin percentage dropped slightly as it was approximately 40.4% for the nine months ended September 30, 2011, and 41.6% for the nine months ended September 30, 2010.  The decrease of in gross margin of 1.2% was the result of the sale of more products with higher margins in the 3 months ended September 30, 2010 than for the 3 months ended September 30, 2011.

General and administrative expenses decreased $59,020, or 7%, to $781,829 for the nine months ended September 30, 2011, compared to general and administrative expenses of $840,849 for the nine months ended September 30, 2010. Significant variations within the general and administrative expenses were as follows:
 
 
 
16

 
 
   
Nine Months ended September 30,
 
   
2011
   
2010
 
Payroll
  $ 309,738     368,156  
Professional fees
    138,134       83,570  
Freight
    88,567       107,228  
Rent
    53,802       46,922  
Bad Debts
    20,121       -  
Marketing and trade shows
    2,764       71,902  
        
Payroll expense decreased by approximately $58,000, in the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010, due to a charge of approximately $32,000 to payroll in 2010 for officer’s stock options, approximately $12,000 more employee payroll dollars being charged to Research and Development projects in 2011, which is consistent with the company’s Research and Development polices, and due to a the elimination of a salaried position effective July 1, 2011 which reduced 2011 payroll by approximately $15,000. Professional fees increased by approximately $55,000 for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 due to audit expenses and the costs associated with filing the Form 10 Registration Statement and becoming a fully reporting public company. Freight decreased by approximately $19,000 due to an increase in sales to international customers who  pay shipping costs along with product costs. Rent increased according to the provisions of the building lease.  Bad debts expense increased approximately $20,000 for the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 due to the bankruptcy of a large customer. Marketing and trade shows expense decreased by approximately $69,000 the nine months ended September 30, 2011 compared to the nine months ended September 30, 2010 primarily due to the Company not having a display at the International Consumer Electronics Show in January 2011.
 
Research and development expenses increased $6,501 to $32,192 for the nine months ended September 30, 2011, compared to $25,691 for the nine months ended September 30, 2010.

Loss from operations decreased by $115,280 or 25% for the nine months ended September 30, 2011 to $345,452 as compared to $460,732 for the nine months ended September 30, 2010. The decrease was caused by the increase in revenue and gross profit offset partially by the decrease in general and administrative fees and indicated above.

Interest expense increased $99,928 or 45%, to $320,858 for the nine months ended September 30, 2011, compared to interest expense of $220,930 for the nine months ended September 30, 2010. The increase was due primarily to an overall increase in debt of approximately $575,000 during the second half of the year ended December 31, 2010, and an increase in interest charged by the Ohio Innovation Loan Fund for the nine months ended September 30, 2011 of approximately $44,000 as required in the loan agreement.

Our net loss decreased $14,165 for the nine months ended September 30, 2011. We had net loss of $666,263 (or basic and diluted net loss per share of $0.01) for the nine months ended September 30, 2011, compared to net loss of $680,428 (or basic and diluted net loss per share of $0.01) for the nine months ended September 30, 2010. The decrease in net loss was primarily attributable to the increase in revenue and gross profit partially offset by the increase in interest expense and professional fees.

The following table sets forth EBITDA for the Company.  Management has elected to include this data so that the reader may see the Company’s earnings before the impact of interest, taxes, depreciation, and amortization.
 
 
 
17

 
 
 
 
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
September 30,
   
September 30,
 
    2011     2010     2011     2010  
                         
Net Loss                                                                                                                                         
  $ (221,995   $ (187,722 )      $ (666,263 )   $ (680,428
Adjustments
                               
Interest expense                                                                                                                                            
    112,138       75,476       320,858       220,930  
Depreciation and Amortization                                                                                                                                             
    9,408       9,499       28,215       28,601  
Taxes                                                                                                              
    -       -       -       -  
EBITDA                                                                                                                                        
  $ (100,449 )      $ (102,747   $ (317,190 )         $ (430,897
 
EBITDA increased $113,707 or 26% to $(317,190) for the nine months ended September 30, 2011, compared to EBITDA of $(430,897) for the nine months ended September 30, 2010.  EBITDA increased $2,298 or 2% to $(100,449) for the three months ended September 30, 2011, compared to EBITDA of $(102,747) for the three months ended September 30, 2010.  The increase in 2011 was accomplished despite the lower sales volumes resulting from the inventory issue previously mentioned and was primarily the result of lower expenses as demonstrated by the table on page 19.
 
Three months ended September 30, 2011 and September 30, 2010
 
Results of Operations
 
Revenue decreased $174,654 or 49%, to $179,272 for the three months ended September 30, 2011, compared to revenue of $353,926 for the three months ended September 30, 2010.  Management believes revenues for the three months ended September 30, 2011, could have been significantly larger, but the lack of inventory for the entire third quarter for several key products resulted in sales backorders of approximately $500,000. Management believes that the company’s delay in securing final approval for our stock to trade publicly combined with the uncertain general business climate during the past nine months, and especially the past three months, hindered its ability to secure the necessary financing to obtain inventory necessary to fulfill its backorders.  Management believes its three months Results of Operations would have shown a significant increase in revenue if it had the appropriate level of inventory to meet product demand.
 
      Cost of goods sold decreased $96,737, approximately 49%, to $101,325, for the three months ended September 30, 2011, compared to cost of goods sold of $198,062 for the three months ended September 30, 2010.   The 49% decrease in the cost of goods sold for the three months ending September 30, 2011 corresponds with the 49% decrease in revenue for the same time period.
 
Gross profit decreased by $77,917 or 50% to $77,947 for the three months ended September 30, 2011, compared to gross profit of $155,864 for the three months ended September 30, 2010.   The 50% decrease in Gross profit corresponds closely to the 49% decrease in revenue for the same time period.
 
 
 
18

 
 
General and administrative expenses decreased $80,584, or 30%, to $187,613 for the three  months ended September 30, 2011, compared to general and administrative expenses of $268,197 for the three months ended September 30, 2010.  Significant variations within the general and administrative expenses were as follows:
 
       2011        2010  
Payroll
  $ 101,744     $ 117,391  
Professional fees
    25,428       70,876  
Freight
    15,210       19,749  
Travel and Entertainment
    3,847       11,232  
Marketing and trade shows
    620       6,030  
 
 The decrease in payroll of approximately $16,000 resulted from the elimination of a salaried position in July 2011.  The decrease in Professional fees resulted from the 2009 audit taking place in August and September 2010 and the expense being recognized in the three months ending September 30, 2010.  Freight decreased due to lower sales volumes in 2011 versus 2010.  Travel and entertainment was lower due to less travel being incurred in this time period as compared to the previous period.   Marketing and trade shows was lower in 2011 versus 2010 due to decreased spending on Marketing and trade Shows in 2011 than the previous time period.
 
Interest expense increased $36,662 or 49%, to $112,138 for the three months ended September 30, 2011, compared to interest expense of $75,476 for the three months ended September 30, 2010. The increase was due primarily to an overall increase in debt during the second half of the year ended December 31, 2010 and an increase in interest charged by the Ohio Innovation Loan Fund as required in the loan agreement.
 
Our net loss increased $34,273 or 18% for the three months ended September 30, 2011.  We had net loss of $221,995 (or basic and diluted net loss per share of $0.004) for the three months ended September 30, 2011, compared to net loss of $187,722 (or basic and diluted net loss per share of $0.004) for the three months ended September 30, 2010.

Liquidity and Capital Resources

Total current assets were $120,128 as of September 30, 2011, consisting of cash of $25,591, net accounts receivable of $7,167, inventory of $80,538 and other current assets of $6,832.

Total current liabilities were $4,325,198 as of September 30, 2011, consisting of accounts payable and accrued expenses of $1,291,009, current maturities of long-term debt of $2,804,297 and other current liabilities of $229,892.

As of September 30, 2011, we had a working capital deficit of $4,205,070.
 
 
 
19

 

Cash Flows during the Nine Months Ended September 30, 2011
 
During the nine months ended September 30, 2011 we had a net decrease in cash and cash equivalents of $40,331 mostly consisting of net cash used by operating activities of $203,493 and net cash provided by financing activities of $163,441.

Net cash used by operating activities was $203,493 for the nine months ended September 30, 2011, consisting of an increase in: prepaid expenses and other current assets of $4,759 accounts payable and accrued expenses of $157,318, and deferred revenue of $58,600 and decreases in: accounts receivable of $24,033, and inventory of $199,361.. These changes were reduced by net loss of $666,263 which had adjustments for depreciation and amortization of $28,215.

Net cash provided by financing activities was $163,441 for the nine months ended September 30, 2011, primarily consisting of net proceeds from debt of $13,956 and proceeds from issued stock of $150,000.

The Company also expects to need approximately $1,133,000 of cash to purchase inventory: $381,000 within the next six months and $752,000 more within the next year.
 
We also anticipate needing $3,500,000 in the next 12 months for debt service, before conversion of any debt into shares of our Common Stock. However, assuming conversion of $1,604,245 in debt into Common Stock of the Company, of which there is no assurance (see next paragraph below) we estimate that for the next 12 months we will need only $1,895,755 for debt service, $1,133,000 for inventory purchases and $351,240 to cover our cash burn (non-debt service portion only and assuming sales do not increase enough to cover the non-debt cash shortfall, but including anticipated expenses of becoming a public company) a total of approximately $3,380,000. Refer to the Q3 FY2011 Statement of Cash Flows where the Company’s monthly burn rate net of interest expense, depreciation, and amortization is approximately $35,000. Net of interest expense is used because the “Debt Service” of $1,895,755 includes interest expense. Monthly burn rate is estimated higher than the Q1 burn rate to provide a margin. We also will need cash for increased sales and marketing expenses, notably increasing advertising and marketing expenditures and to hire one or more sales people. If the Company does not receive additional capital, we anticipate running out of funds mid-December 2011.
 
Based on ongoing discussions, we anticipate three note holders of convertible debt will convert their respective loans in the aggregate amount of $229,245. Additionally we are in discussions with two lenders, Gerald Jacobs (who represents the Julie E. Jacobs Trust and Standard Energy loans) and Walter Doyle (who represents the loans made by Walter Doyle, the Walter Doyle Trust and Forest Capital) to convert or stand still on debt in the amounts of $1,375,000. Gerald Jacobs and Walter Doyle are large shareholders of the Company and have each individually and collectively financed much of the Company’s activities in the past three years with multiple inventory and financing loans, as disclosed herein. The amount of debt service left after subtracting the said $229,245 and $1,375,000 from $3,500,000 leaves a total of $1,895,755 in debt service. No one of these debt holders has committed to convert into Common Stock his or its loans to the Company. There is no assurance that any one of these debt holders will do so.

We are seeking to raise $5 million in equity to implement our business plan and meet our capital needs for the next 12 months, particularly regarding the expansion of sales and marketing efforts, inventory financing, debt repayment and general working capital. Our plan to raise this equity is: to have our stock trade publicly trade on the OTC BB to provide liquidity for new and existing investors in the Company, possibly making an investment in the Company more attractive; offer a private placement memorandum to qualified accredited investors and institutional funding sources. The Company has secured a market maker, Finance 500 of Irvine, CA,, who filed a Form 15(c)-211 with FINRA on behalf of the Company.  On October 7, 2011 FINRA approved the Form 15(c)-211 and gave the Company the ticker symbol of “GTMM”. The Company is waiting for The Depository Trust Company approval to begin trading. Our private placement memorandum is completed and we are continuing investment discussions with accredited investors.  There can be no assurance that the Company will be able to raise any capital from the sale of its Common Stock to investors.
 
 
 
20

 

On July 14, 2011, the Company sold to two existing shareholders in private transactions a total of 600,000 shares of Common Stock for $0.25 per share (an aggregate of $150,000), including warrants to purchase an additional 600,000 shares for $0.36 per share.
 
The Company believes that the receipt of private placement equity will enable it to increase sales by purchasing adequate inventory to meet increased sales demand. The company intends to significantly increase its budgets for advertising and marketing targeting consumers who have shown an interest in the company’s or similar products.  Additionally, the company intends to increase its advertising and marketing expense with key resellers and partners such as large online resellers and international distributors. The Company also intends to hire one or more sales people to sell the Company’s products to key markets including the home theater, commercial cinema and international markets.
 
We believe the combination of increased advertising and marketing spending combined with more sales people can increase our product’s awareness, therefore increasing demand for our products, allowing the Company to have sales staff to secure more sales channels.
 
           At this time, we have not secured or identified any definitive source of additional financing. We do not have any commitments or other identified sources of additional capital from third parties or from our officers or directors or any of our shareholders to supplement our operations or provide us with financing in the future. There can be no assurance that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. If we are unable to increase revenues from operations, to raise additional capital from conventional sources and/or additional sales of stock in the future, we may be forced to curtail or cease our operations.  These factors raise doubt in our ability to continue as a going concern.  The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.  Our auditors issued a going concern opinion with the audited financial statements for the year ended December 31, 2010,meaning that there is substantial doubt if we can continue as a going concern for the next 12 months unless a major funding event occurs for the Company.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our Company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide the information required under this item.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures
 
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms and is accumulated and communicated to the Company's management, as appropriate, in order to allow timely decisions in connection with required disclosure.
 
 
 
21

 
 
Evaluation of Disclosure Controls and Procedures
 
Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 ("Exchange Act"), the Company carried out an evaluation, with the participation of the Company’s management, including Mark Luden, the Company's Chief Executive Officer ("CEO") and Richard Conn, the Company's Chief Financial Officer ("CFO") (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures were not effective as of September 30, 2011 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses described below.
 
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The Company believes its weaknesses in internal controls and procedures is due in part to the Company's lack of sufficient personnel with expertise in the area of SEC, generally accepted accounting principles (GAAP) and tax accounting procedures. In addition, the Company lacks the personnel structure, size and complexity to segregate duties sufficiently for proper controls.
 
The Company is currently seeking additional personnel with expertise in these areas necessary to segregate duties for proper controls; however, until such time as additional personnel is hired, the Company believes that it will continue to recognize a weakness in its internal controls and procedures. The Company’s plan is to hire additional personnel to properly implement a control structure when the appropriate funds become available. In the meantime, the Chief Executive Officer and Chief Financial Officer will continue to perform or supervise the performance of additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures, to ensure that the Company's Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America.
 
Changes in Internal Controls
 
During the three months ended September 30, 2011, there were no significant changes in internal controls of the Company, or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


Part II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 
 
 
22

 

On July 14, 2011 Standard Energy Company purchased from the Company 400,000 shares of common stock of the Company at $0.25 per share and acquired warrants to acquire 400,000 shares of common stock of the Company at $0.36 per share which warrants expire on July 14, 2013.

 On July 14, 2011 The Walter J. Doyle Trust purchased from the Company 200,000 shares of common stock of the Company at $0.25 per share and acquired warrants to acquire 200,000 shares of common stock of the Company at $0.36 per share which warrants expire on July 14, 2013.

 The Company claims an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended for the above issuances and grants, since the foregoing did not involve a public offering, the recipients took the securities for investment and not resale and the Company took appropriate measures to restrict transfer.

Item 6. Exhibits.

 a. The following exhibits are filed as part of this report or incorporated herein as indicated.
 
 
Exhibit No.
Date of
Document
Name of Document
 
2.0*
May 17, 2011
Agreement and Plan of Reorganization
3.0*
March 3, 1990
Articles of Incorporation of Guitammer-Ohio
3.1*
June 6, 2005
Certificate of Amendment of Guitammer- Ohio
3.2*
June 17, 2005
Certificate of Amendment of Guitammer- Ohio
3.3*
 
Code of Regulations of Guitammer - Ohio
3.4*
May 17, 2011
Articles of Incorporation of Guitammer- Nevada
3.5*
 
Bylaws of Guitammer - Nevada
4.0*
Sept. 30, 1999
1999 Non-Qualified Stock Option Plan, as amended
4.1*
 
Form of Option Agreement
4.2*
June 17, 2005
2005 Amendment to1999 Non-Qualified Stock Option Plan
4.3**
July 14, 2011
Form of Warrant issued to The Walter J. Doyle Trust
4.4**
July 14, 2011
Form of Warrant issued to Standard Energy Company
10. 1*
Nov. 1, 2002
Richard B. Luden $82,000 Note
10. 2*
May 13,  2005
Note Purchase Agreement—Walter Doyle, John O. Huston and Eric Roy
10. 3*
Sept.1, 2007
First Amendment To Note Purchase Agreement—Walter Doyle, John O. Huston and Eric Roy
 
 
 
23

 
 
10. 4*
May 13,  2005
Walter J. Doyle $150,000 Note
10.4A*
September 1, 2007
Amended and Restated Walter Doyle Note
10. 5*
May 13,  2005
Eric Roy $100,000 Note
10.5A*
March 28, 2011
Agreement to Convert An Existing Note—Eric P. Roy
10.5B*
September 1, 2007
Eric Roy 9.4 Stock Options on 100K 0901207note
10.5C*
May 13, 2005
Eric Roy 16 stock options 05132005
10.5D*
May 13, 2006
Eric Roy 16 Stock options 05132006
10.5E*
September 1, 2007
Amended and Restated Eric Roy Note
10. 6*
May 13,  2005
John O. Huston $50,000 Promissory Note
10.6A*
September 1, 2007
John O. Huston 4.7 Stock options 09012007
10.6B*
May 13, 2005
John O. Huston 8 Stock Options 05132005
10.6C*
May 13, 2006
John O. Huston 8 Stock Options 05132006
10.6D*
September 1, 2007
Amended and Restated John O. Huston Promissory Note
10.7*
June 29, 2005
Note Purchase Agreement—Walter Doyle, Andrea L. Levenson and Gust Van Sant
10.8*
September 1, 2007
First Amendment To Note Purchase Agreement—Walter Doyle, Andrea L. Levenson and Gust Van Sant
10.9*
June 29, 2005
Walter J. Doyle $50,000 Promissory Note
10.9A*
September 1, 2007
Amended and Restated Walter Doyle Note
10.10*
June 29, 2005
Andrea Lerner Levenson $50,000 Promissory Note
10.10A*
September 1, 2007
Andrea Lerner Levenson 4.7 Stock Options on 50K 09012007 note
10.10B*
June 29, 2006
Andrea Lerner Levenson 8 stock options 62920006
10.10C*
June 29, 2005
Andrea Lerner Levenson 8 stock options 06292005
10.10D*
September 1, 2007
Amended and Restated Andrea L. Levenson Promissory Note
10.11*
June 29, 2005
Gust Van Sant $50,000 Promissory Note
10.11A*
September 1, 2007
Gust Van Sant 4.7 Stock Options on 50K 09012007 note
10.11B*
June 29, 2005
Gust Van Sant 8 Stock Options 06292005
 
 
 
24

 
 
10.11C*
June 29, 2006
Gust Van Sant 8 Stock Options 06292006
10.11D*
September 1, 2007
Amended and Restated Gust Van Sant Promissory Note
10.12*
July 19, 2005
Promissory Note --Opal Private Equity Fund, LP
10.12A*
September 1, 2007
Opal Private Equity Stock Warrants on 100K note
10.12B*
July 19, 2005
Opal 16 Stock Warrants 07192005
10.12C*
July 19, 2006
Opal 16 Stock Warrants 07192006
10.12D*
September 1, 2007
Amended and Restated Opal Promissory Note
10.13*
September 1, 2007
First Amendment To Note Purchase Agreement--Opal Private Equity Fund, LP
10.14*
July 19, 2005
Opal Private Equity Fund, LP $100,000 Note Purchase agreement
10.15*
July 3, 2005
Forest Capital $250,000 Working Capital Loan and Consulting Agreement
10.15A*
January 1, 2010
Forest Capital 214.7 options 01012010
10.16*
May 5, 2003
Thelma Gault $800,000 Loan and Option Agreement
10.17*
January 31, 2008
First Amendment To Thelma Gault $800,000 Loan Agreement
10.18*
February 28, 2009
Second Amendment To Thelma Gault $800,000 Loan Agreement
10.19*
January 31, 2008
Thelma Gault $800,000 Amended and Restated Promissory Note
10.20*
November 18, 2010
Thelma Gault Subordination Agreement 1st Lien carve out
10.21*
March 9, 2009
Credit Facilitation Agreement—Walter J. Doyle Trust and Julie E. Jacobs Trust
10.21A*
February 26, 2009
Merrill Lynch Loan Application and acceptance
10.21B*
March 2009
Merrill Lynch Loan agreement
10.21C*
December 1, 2009
Revised Merrill Lynch Loan agreement
10.22*
April 25, 2008
Ohio Innovation Loan Agreement
10.23*
April 25, 2008
Ohio Innovation Loan Security Agreement
 
 
 
 
25

 
 
10.24*
September 11, 2008
Ohio Innovation Loan Modification Agreement
10.24A*
September 17, 2009
Ohio Innovation Loan Modification Agreement 2nd mod
10.24B*
November 24, 2010
Ohio Innovation Loan Modification Agreement 3rd mod
10.25*
November 29, 2010
Ohio Innovation Loan Subordination Agreement
10.25A*
April 25, 2008
Ohio Innovation Loan Intercreditor agreement
10.25B*
April 25, 2008
Ohio Innovation Loan Cognovit promissory note
10.26*
April 7, 2010
Julie E. Jacobs Trust $100,000 Loan Agreement
10.27*
October 4, 2010
Amendment To Julie E. Jacobs Trust $100,000 Loan Agreement
10.28*
January 11, 2011
Joseph Albert $100,000 Convertible Promissory Note
10.29*
January 11, 2011
Joseph Albert $100,000 Convertible Promissory Note Extension Agreement
10.30*
 
Joseph Albert 50,000 Common Stock Purchase Warrants
10.30A*
 
Joseph Albert 100,000 Common Stock Purchase Warrants
10.31*
October 5, 2010
Standard Energy Company $100,000 Loan Agreement and Promissory Note
10.32*
October 11, 2010
Doyle Trust $25,000 Promissory Note
10.32A*
October 5, 2010
Doyle Trust $25,000 Loan Agreement
10.33*
November 12, 2010
Walter J. Doyle Trust and Julie E. Jacobs Trust Inventory Financing Agreement
10.33A*
November 12, 2010
Jacobs Trust Stock 82.8 Options
10.34*
November 12, 2010
Walter J. Doyle Trust $150,000 Promissory Note
10.35*
November 12, 2010
Standard Energy Company $150,000 Promissory Note
10.36*
February 2, 2011
Robison Note Extension Agreement
 
 
 
26

 
 
10.36A*
July 10, 2010
Robison original promissory note
10.37*
February 2, 2011
Robison $50,000 Convertible Promissory Note
10.38*
 
Robison Common Stock Purchase Warrants for 50,000 shares and 25,000 shares
10.39*
February 24, 2011
Carl A. Generes $35,000 Promissory Note
10.40*
July 13, 2009
Lease Modification  Agreement
10.40A*
January 18, 2006
Lease Agreement – original
10.40B **
April 10, 2008
First Lease Agreement Amendment
10.40C***
August 11, 2011
(Second) Lease Modification Agreement
21.1*
 
List of Subsidiaries of the Registrant


31.1  ****  Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   ****  Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1  ****  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2  ****  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
  Filed with the SEC on July 8, 2011 as Exhibits to Amendment No. 1 to the Company’s Form 10 Registration Statement and are incorporated herein by reference. 
     
**     Filed with the SEC on July 28, 2011 as Exhibits to Amendment No. 2 to the Company’s Form 10 Registration Statement and are incorporated herein by reference. 
     
***     Filed with the SEC on August 12, 2011 as Exhibit to Amendment No. 3 to the Company’s Form 10 Registration Statement and is incorporated herein by reference. 
     
****    Filed herewith. 
 


 
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Signature

  Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
The Guitammer Company
(Registrant)
Date: November 10, 2011



/s/ Richard E. Conn
Richard E. Conn
Chief Financial Officer
(principal financial officer)



 
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