UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

þ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended: September 30, 2011

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 333-138927

A5 LABORATORIES INC.

(Exact name of registrant as specified in its charter)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

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

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

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 last 90 days.

Yes þ 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). Yes ¨ No þ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ¨ No þ

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨	Smaller reporting company þ

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

Issuer’s revenues for its most recent fiscal year were approximately $0.

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant on March 24, 2011, based on a closing price of $0.11 was approximately $3,195,684.40.  As of February 15, 2012, the registrant had 58,184,388 shares of its common stock, par value $0.001 per share, outstanding.

Documents Incorporated By Reference: None.

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TABLE OF CONTENTS

		Page
PART I
Item 1.	Business.	4
Item 1A.	Risk Factors.	10
Item 1B.	Unresolved Staff Comments.	15
Item 2.	Properties.	15
Item 3.	Legal Proceedings.	15
Item 4.	Mine Safety Disclosures.	15
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.	16
Item 6.	Selected Financial Data.	16
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results Of Operations.	16
Item 7A.	Quantitative And Qualitative Disclosures About Market Risk.	22
Item 8.	Financial Statements and Supplementary Data.	22
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.	22
Item 9A.	Controls and Procedures.	22
Item 9B.	Other Information.	23
PART III
Item 10.	Directors, Executive Officers and Corporate Governance.	24
Item 11.	Executive Compensation.	25
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	26
Item 13.	Certain Relationships and Related Transactions, and Director Independence.	27
Item 14.	Principal Accounting Fees and Services.	27
PART IV
Item 15.	Exhibits, Financial Statement Schedules.	28

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PART I

Item 1. Business.

Company History

We were incorporated in the State of Nevada on June 21, 2006, as El Palenque Nercery, Inc.  On June 30, 2006, we changed our name to El Palenque Vivero, Inc., and on March 23, 2010, we changed our name to A5 Laboratories Inc.  On April 8, 2010, we effectuated a forward split of our issued shares of common stock on the basis of 10-for-1.  Our business offices are located at 22200 Trans Canada Hwy, Baie d’Urfé, QC, Canada, H9X 4B4 and our telephone number is (514) 420-0333.

Principal Services

Contract Research and Laboratory Services

We plan to offer a full range of testing services to the pharmaceutical industry in a variety of fields, all in compliance with Good Laboratory Practices (GLP) and current Good Manufacturing Practices regulations (cGMP) through in-house and outsourcing arrangements.  The comprehensive services we provide help to expedite the development process by providing immediate resources and technical expertise to help our clients meet deadlines, pursue projects of varying priority and risk, handle changes in workload, handle multiple projects, and pursue developments without in-house resources.  Our Custom Research Organization (CRO) services can be divided into two sections: Analytical and Quality Assurance.

Analytical

We plan to offer a wide range of analytical services to support a client’s quality control, product development, method development, validation and marketed product activities.  We are able to provide quantitative and qualitative, as well as consulting and analytical services, in chemistry, microbiology and chromatography to the pharmaceutical, biotechnology and cosmetics industries.  At our facility, we are able to perform a wide variety of quality control tests on raw materials as well as finished products.  We also offer a full range of ICH stability conditions and provide total stability management.  In addition, we can develop and validate new methods, revalidate existing methods to ensure compliance with current regulatory requirements and perform technology transfers.

These services can be broken down as follows:

Analytical Services
Stability Testing and Storage (I.C.H. and Custom Conditions)	Method Developments and Validation	Microbiological Testing
Pharmaceutical Synthesis	Drug Substance Testing	Reverse Engineering
Formulation Development		Validated Secondary Standard

Consulting Services
Quality Audits	Submission Support and Documentation	GLP and GMP Audit and Inspection

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Testing Capabilities
Chromatography	H.P.L.C.	G.C.
Chiral H.P.L.C.	T.L.C.	Semi-Prep L.C.
USP and Compendial Testing	UV-VIS Spectrophotometry	Polarimetry
Atomic Absorption Spectrophotometry (AA)	Fourier Transform Infrared Spectrophotometry (FTIR)	Dissolution/Disintegration Physical Testing

Microbiological Analysis Services
Antibiotic Assays	Stability Testing	Sample Collection
Finished Product and Raw Material Testing	Manufacturing Validation Support	Method Development and Validation

Micro Testing Capabilities
Speciation (MIDI GC, API, Biochemical Tests)	BI Verification (Titer and Organism ID)	Compendial Testing (USP, CFR, SP, EP, JP, and BP)
Bacterial Endotoxin Testing (LAL: Gel Clot and Kinetic)	Container/Closure Testing (Dye, Ingression Microbial Ingression)	Antimicrobial Preservative Efficacy
Sterility Testing	Bioburden Testing	Cleaning Validation
Antibiotic Assay	Filter Retention Testing	Microbial Limits Testing
Dose Audits of Sterile Fill Areas		Environmental Monitoring

Quality Assurance and Support Services

We will also provide various support services via which clients receive quality testing data on their products through compliance with Good Laboratory Practices (GLPs) and Good Manufacturing Practices (cGMPs).  The Quality Assurance department independently audits and tracks every project to assure accurate and reliable results.  Every report includes a Quality Assurance Letter verifying and qualifying data and compliance, which completes the audit trail.  We can prepare or help our customer to obtain all regulatory authorization to import and distribute their pharmaceutical product via getting D.I.N ( drug identification Number) or nutraceuticals products via getting N.P.N (natural product Number) from Health Canada.

Interferon

The normal function of the immune system is essential for health, and dysfunction of the immune system leads to a wide diversity of diseases.  Deficiency of immune cell production or defective immune cell function can lead to a spectrum of immunodeficiency diseases.  Over-activity of various components of the immune system leads to the development of allergic or autoimmune diseases.  Leukemia and lymphoma are the result of malignant transformation in cells of the immune system.  Cytokines are soluble mediators acting as cell-to-cell messengers in the immune system.  They are critical for normal immune system function, and their expression may be perturbed in disease states.  They are involved in the regulation of the growth, development, and activation of immune system

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cells and the mediation of the inflammatory response. In general, cytokines are pleotropic in that they are capable of acting on many different cell types.  This pleotropism results from the presence of receptors for the same cytokine on multiple cell types, leading to the formation of “cytokine networks.”

Interferons (IFNs) are cytokines that exhibit a broad spectrum of immune-modulating and anti-proliferative properties. Alpha (leukocyte) IFN-a is made by white blood cells; beta (fibroblast) IFN-b is made by skin cells and gamma (immune) IFN-g is made by lymphocytes after stimulation by antigen.  IFNs are not species-specific. IFNs are coded by three distinct cell genes; they have important differences in amino acid sequence, stimulus for induction, producer cell and role in the body.  The active substance is not IFN itself, but proteins that IFN causes to be produced by other cells of the immune system.

Interferon-gamma is produced by stimulated T-lymphocytes (CD4+ and CD8+) and natural killer (NK) cells (both components of the immune system) in response to infection and antigenic challenge.  IFN-gamma shows little structural relationship to IFN-alpha and IFN-beta.  IFN-gamma has antiviral and antiproliferative properties and several biological actions not shared with the other interferons.  It alone is a potent activator of macrophages and neutrophils, enhancing the production of reactive oxygen species and the killing of microbacterial, fungal and protozoan pathogens.  Another important difference is its role as a primary mediator of the immune response.  Cytokines such as IFN-gamma play an essential role in the mechanisms of immunity.  When the host is challenged with a pathogen, cytokines are synthesized in situ and it is the influence of these cytokines on the other cells of the immune system, which contributes towards development of immunity to that pathogen.

We have acquired proprietary technology from Vida Nutra Pharma Inc., for cost effective gamma interferon (IFN-g) production technology.  The application of human gamma interferon in immune-based therapy has potential therapeutic applications in cancers, chronic hepatitis B, opportunistic infections in HIV patients, antibiotic resistant bacterial and fungal infections, parasite infections, sepsis, and diabetes. Interferon (IFN)-gamma is a soluble protein produced by immune cells in response to infection and antigenic challenge.  IFN-gamma has antiviral and antiproliferative properties and is a potent activator of macrophages and neutrophils, enhancing killing of microbacterial, fungal and protozoan pathogens.

We have not yet created sufficient IFN-gamma to effectively test it across a large enough animal or human population to generate any meaningful data on the efficacy of IFN-gamma as a treatment method.

A large number of experimental and clinical data indicate a wide spectrum of disease states that are potentially amenable to IFN-gamma treatment.  In several of the diseases, IFN-gamma immune-based therapy is in phase II or III clinical trials.  Recombinant IFN-gamma immune-based therapy has been approved for clinical therapy of three rare diseases.  The major hurdle to overcome in IFN-gamma treatment is the cost of dosages that can easily run into tens of thousands of dollars for a single treatment.  Cost has been the limiting factor in the expansion of recombinant IFN-gamma to clinical settings treating major diseases, and we believe that our technology may be able to significantly lower this cost, by a factor of 10 to 1 or even 100 to 1 by the application of our interferon production technology.  We intend to focus on production of natural human gamma interferon for clinical trials and therapeutics if we are able to prove efficacy and efficiency, we expect to commercialize our product.

Gamma interferons are manufactured commercially in three ways: by genetic engineering, by cell culture, and from human white blood cells.  In the United States, only one type of gamma interferon is approved for commercial sale: Actimmune, which is a recombinant form of human IFN-gamma and is produced in E. coli bacteria.

The critical step in the production of natural IFNs involves activation by inducers to stimulate IFNs secretion in spleen cells.  In the past, inducers used for stimulating IFN secretion were toxic agents such as bacterial endotoxins, plant lectins (ConA, PHA), as well as viruses and the issue of safety was one of the main factors that limited clinical application of natural IFNs.

Markets, Customers and Distribution

Contract Research and Laboratory Services

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The drug development process is a lengthy, expensive activity monitored and regulated by a number of governing bodies.  The identification of any new drug candidate involves proving its safety and efficacy through a series of prescribed laboratory experiments and tests including safety and biological activity testing.  The drug industry has been under increasing pressure from managed care, industry consolidation and competition, and globalization to increase annual output of new products and conduct the research in a more cost-effective and time-efficient manner.  The increasing pressure from managed care and industry competition will continue forcing sponsors to expand their outsourcing to contract research organizations. Stricter regulatory requirements both in the United States and abroad have also made CROs a more attractive alternative to in-house testing and management.

Market situation appraisal for CRO indicates a market size of approximately $15 million for the Quebec market, $20 million for the Ontario market, and $190 - 230 million for the US market.

We provide services to a diverse client base consisting of emerging pharmaceutical companies, biotechnology companies, large pharmaceutical companies, specialty pharmaceuticals, drug delivery companies, and generics.

Interferon

Thus far, IFN-gamma has been recognized as clinically effective in the prophylaxis of chronic granulomatous disease, as adjunctive treatment in at least one systemic intracellular infection, visceral leishmaniasis and in treatment of osteopretosis.  However, we believe that IFN-gamma treatment can prove to be effective in all types of diseases ranging from cancer, viral infections, sepsis, AIDS and diabetes.

Many of the infectious diseases listed affect large segments of the world population and could benefit from IFN-gamma as both first line therapy or as an adjunct therapy in restoring proper immune system function.

Actimmune, a recombinant human IFN-gamma currently approved for IFN-gamma immunotherapy is expensive - ~ 3x106 IFN Units or 100 micrograms cost $470 US (Sigma catalogue # I1520).  In chronic hepatitis B, for instance, treatment of a single patient requires 150 micrograms per day for 4 weeks and costs $19,740 US.  Treating 1000 patients would then cost ~ $20 million US.  Cost reductions as function of number of patients to be treated can be envisaged, however even a two-fold reduction would make little difference in the cost of treating large number of chronic hepatitis B sufferers.  This same rationale applies to many of the diseases that are potentially susceptible to IFN-gamma immunotherapy and currently limits the use of IFN-gamma - making it at best a second line therapy.

Current production of natural human IFN-gamma from 5 kg of spleen cells obtained from 10-20 human donors will yield 3X109 IFN Units of IFN-gamma or 106 doses.  Based on the site visit, cost of production at laboratory scale can be set at $100,000 US for 106 doses, or $0.10 US per dose.  However, this cost per dose will probably increase ten-fold when manufactured under GMP (Good Manufacturing Practice) conditions.  The cost is then estimated at $1 US per dose when produced under GMP.  Production scaled up 100 fold without further increase in cost is challenging but feasible.

We will attempt market penetration at reduced price structures of natural IFN-gamma with respect to Actimmune.  Given the current number of infectious diseases as well as cancer, for which IFN-gamma immune-based therapy may be effective, we believe we will be able to find a market for our product if its efficacy is proven.

Competition

CRO

We face competition from various CRO companies ranging from small, private businesses to large enterprises.  Many of our competitors have longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully compete in our industry we will need to:

·

develop awareness of our services among our client base;

·

continue developing the scope of services we can provide and improve efficiency and accuracy; and

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·

increase our financial resources.

However, there can be no assurance that even if we do these things we will be able to compete effectively with the other companies in our industry.

We believe that we will be able to compete effectively in our industry because of:

·

the established reputation of our Chief Executive Officer, Mr. Azani;

·

well diversified portfolio of services and testing procedures; and

·

intimate knowledge of local and international pharmaceutical companies.

However, as we are a newly-established company, we face the same problems as other new companies starting up in an industry, such as lack of available funds.  Our competitors may be substantially larger and better funded than us, and have significantly longer histories of research, operation and development than us.  In addition, they may develop similar testing procedures to ours and use the same methods as we do and generally be able to respond more quickly to new or emerging technologies and changes in legislation and regulations relating to the industry.  Additionally, our competitors may devote greater resources to the development, promotion and sale of their services than we do.  Increased competition could also result in loss of key personnel, reduced margins or loss of market share, any of which could harm our business.

Interferon

We face many of the same challenges in developing our Interferon technology.  We face competition from various pharmaceutical companies ranging from small, private businesses to large multinational enterprises.  Many of our competitors have longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully compete in our industry we will need to:

·

further development of our Interferon technology;

·

assure that all of our technological progress is properly protected via intellectual property mechanisms; and

·

increase our financial resources.

We believe that we will be able to compete effectively in our industry due to the potential inherent advantages of our technology.  The following are some of the potential advantages:

·

Fully glycosylated natural IFN-gamma showed full or partial resistance against crude granulocyte protease, elastase, cathepsin G and plasmin while recombinant E. coli human IFN-gamma was sensitive to all of these proteases that are found in body.  This data strongly implies that natural IFN-gamma is expected to have a longer half-live in the body because of its greater resistance to proteases than the currently marketed recombinant human IFN-gamma.

·

Production of human IFN-gamma is not efficient in E. coli bacteria as it yields improperly folded species of the recombinant protein.  Biological efficacy depends on properly folded protein.  Improperly folded protein is a target for proteases in the body that rapidly degrade it.  Although recombinant human IFN-gamma is subject to a refolding protocol to restore biological activity, this refolding process does not necessarily ensure a homogeneously refolded protein.  Higher doses of recombinant protein may thus necessary to ensure adequate concentration of properly folded species.  By comparison, natural IFN-g, which is produced in spleen cells, responsible for natural IFN-g production, is properly folded and thus requires lower dosages for biological response.

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·

Natural human IFN-gamma has fewer side-effects and better patient safety.  Long-term intra-muscular or subcutaneous injections of IFN-alpha, beta, gamma in patients with chronic myelogeneous leukemia (CML) can cause severe, long-lasting cutaneous complications consistent with necrotizing vasculitis which frequently require surgical intervention.  The high concentrations of IFN at the injection site were suspected.  We believe that the absence of glycosylation may be responsible for the production of interferon-neutralizing antibodies in these patients.  Consequently, lower dosages of IFN-gamma are expected to have fewer side effects, improved patient compliance, and good market acceptance.

To be competitive and expand research into use of natural human gamma interferon, we anticipate that a single dose of natural human IFN-gamma corresponding to 3,000 units will be priced at $50 US (an equivalent dose of 3X106 Units of Actimmune costs $470 US).  Assuming a dose of 4,500 IFN Units per patient for 4 weeks and 10,000 patients treated yields more than $20,000,000 in sales.  A further 10-fold price reduction and one million patients treated, i.e. $5 US per dose to reach an even larger market, gives more than $200,000,000 in sales potential.  A sliding scale will be used in making the transition in cost reduction to maximize profitably.  The inventory of IFN-gamma doses remaining after projected sales is 50% of total doses produced in each scenario, allowing an additional margin in price reduction.

If we are unable to establish these competitive advantages or if we are not able to develop our interferon technology to the point that it is commercially viable, it is likely that we will not be able to continue our business.

Intellectual Property

We have filed for a provisory patent with the U.S. patent office in order to preserve our natural gamma interferon technology (U.S. provisional Patent No. US 61-400719).  We do own copyrights on all of the content of our website: www.a5labs.com.

Research and Development

We did not incur any research and development expenses from our inception to September 30, 2011.

Government Regulations

We are not aware of any government regulations which would have a significant impact on our operations.

Environmental Regulations

We are not aware of any material violations of environmental permits, licenses or approvals that have been issued with respect to our operations.  We expect to comply with all applicable laws, rules and regulations relating to our business, and at this time, we do not anticipate incurring any material capital expenditures to comply with any environmental regulations or other requirements.

While our intended projects and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.

Employees

As of February 15, 2012, we had 2 employees, both of which are engaged on a full time basis.

WHERE YOU CAN FIND MORE INFORMATION

You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC.  In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-

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K that we file from time to time.  You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.

Item 1A. Risk Factors.

This Annual Report contains forward-looking statements that involve risks and uncertainties.  These statements can be identified by the use of forward-looking terminology such as “believes,” “expects,” “intends,” “plans,” “may,” “will,” “should,” or “anticipation” or the negative thereof or other variations thereon or comparable terminology.  Actual results could differ materially from those discussed in the forward-looking statements as a result of certain factors, including those set forth below and elsewhere in this Annual Report.  The following risk factors should be considered carefully in addition to the other information in this Annual Report.

Risks Related to our Business and Industry

WE MAY BE REQUIRED TO PERFORM ADDITIONAL CLINICAL TRIALS OR CHANGE THE LABELING OF OUR PRODUCTS IF SIDE EFFECTS OR MANUFACTURING PROBLEMS ARE IDENTIFIED AFTER OUR PRODUCTS ARE ON THE MARKET.

If side effects are identified after any of our products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and product recalls, reformulation of products, additional clinical trials, changes in labeling of products, and changes to or re-approvals of our manufacturing facilities may be required, any of which could have a material adverse effect on sales of the affected products and on our business and results of operations.

After products are approved for commercial use, we or regulatory bodies could decide that changes to the product labeling are required.  Label changes may be necessary for a number of reasons, including the identification of actual or theoretical safety or efficacy concerns by regulatory agencies or the discovery of significant problems with a similar product that implicates an entire class of products.  Any significant concerns raised about the safety or efficacy of our products could also result in the need to recall products, reformulate those products, to conduct additional clinical trials, to make changes to the manufacturing processes, or to seek re-approval of the manufacturing facilities.  Significant concerns about the safety and effectiveness of a product could ultimately lead to the revocation of our marketing approval.  The revision of product labeling or the regulatory actions described above could be required even if there is no clearly established connection between the product and the safety or efficacy concerns that have been raised.  The revision of product labeling or the regulatory actions described above could have a material adverse effect on sales of the affected products and on our business and results of operations.

IF WE OR OUR SUPPLIERS ARE UNABLE TO COMPLY WITH ONGOING AND CHANGING REGULATORY STANDARDS, SALES OF OUR PRODUCTS COULD BE DELAYED OR PREVENTED.

Virtually all aspects of our business, including the development, testing, manufacturing, processing, quality, safety, efficacy, packaging, labeling, record-keeping, distribution, storage and advertising and promotion of our products and disposal of waste products arising from these activities, are subject to extensive regulation by federal, state and local governmental authorities in the United States, including the FDA and the Department of Health and Human Services Office of Inspector General (HHS OIG).  Our business is also subject to similar and/or additional regulation in other countries. Compliance with these regulations is costly and time-consuming.

Our manufacturing facilities and procedures and those of our suppliers are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory agencies.  For example, manufacturers of pharmaceutical products must comply with detailed regulations governing current good manufacturing practices, including requirements relating to quality control and quality assurance.  We must spend funds, time and effort in the areas of production, safety, quality control and quality assurance to ensure compliance with these regulations.  We cannot assure that our manufacturing facilities or those of our suppliers will not be subject to regulatory action in the future.

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Our products generally must receive appropriate regulatory clearance before they can be sold in a particular country, including the United States.  We may encounter delays in the introduction of a product as a result of, among other things, insufficient or incomplete submissions to a regulatory agency for approval of a product, objections by another company with respect to our submissions for approval, new patents by other companies, patent challenges by other companies that result in a 180-day exclusivity period, and changes in regulatory policy during the period of product development or during the regulatory approval process.  Regulatory agencies have the authority to revoke drug approvals previously granted and remove from the market previously approved products for various reasons, including issues related to current good manufacturing practices for that particular product or in general.  We may be subject from time to time to product recalls initiated by us or by regulatory authorities.

Our inability or the inability of our suppliers to comply with applicable regulatory requirements can result in, among other things, warning letters, fines, consent decrees restricting or suspending our manufacturing operations, delay of approvals for new products, injunctions, civil penalties, recall or seizure of products, total or partial suspension of sales and criminal prosecution.  Any of these or other regulatory actions could materially adversely affect our business and financial condition.

WE DEPEND ON THIRD PARTIES TO SUPPLY RAW MATERIALS AND OTHER COMPONENTS AND MAY NOT BE ABLE TO OBTAIN SUFFICIENT QUANTITIES OF THESE MATERIALS, WHICH WILL LIMIT OUR ABILITY TO MANUFACTURE OUR PRODUCTS ON A TIMELY BASIS AND HARM OUR OPERATING RESULTS.

The manufacture of Interferon requires, and our product candidates will require, raw materials and other components that must meet stringent regulatory requirements.  Some of these raw materials and other components are available only from a limited number of sources.  Obtaining approval to change, substitute or add a raw material or component, or the supplier of a raw material or component, can be time consuming and expensive, as testing and regulatory approval are necessary.

OTHER COMPANIES MAY CLAIM THAT WE INFRINGE ON THEIR INTELLECTUAL PROPERTY OR PROPRIETARY RIGHTS, WHICH COULD CAUSE US TO INCUR SIGNIFICANT EXPENSES OR PREVENT US FROM SELLING OUR PRODUCTS.

Our success depends in part on our ability to operate without infringing the patents and proprietary rights of third parties.  The manufacture, use and sale of new products with conflicting patent rights have been subject to substantial litigation in the pharmaceutical industry.  These lawsuits relate to the validity and infringement of patents or proprietary rights of third parties.  A number of pharmaceutical companies, biotechnology companies, universities and research institutions may have filed patent applications or may have been granted patents that cover aspects of our products or our licensors’ products, product candidates or other technologies.

Future or existing patents issued to third parties may contain claims that conflict with our products.  We may be subject to infringement claims from time to time in the ordinary course of our business, and third parties could assert infringement claims against us in the future.  Litigation or interference proceedings could force us to:

·

stop or delay selling, manufacturing or using products that incorporate or are made using the challenged intellectual property;

·

pay damages; or

·

enter into licensing or royalty agreements that may not be available on acceptable terms, if at all.

Any litigation or interference proceedings, regardless of their outcome, would likely delay the regulatory approval process, be costly and require significant time and attention of key management and technical personnel.

We may not be able to prevent third parties from infringing or using our intellectual property.  We generally control and limit access to, and the distribution of, our product documentation and other proprietary information.  Despite our efforts to protect this proprietary information, however, unauthorized parties may obtain and use information

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that we regard as proprietary.  Other parties may independently develop similar know-how or may even obtain access to these technologies.

The laws of some foreign countries do not protect proprietary information to the same extent as the laws of the United States, and many companies have encountered significant problems and costs in protecting their proprietary information in these foreign countries.

The U.S. Patent and Trademark Office and the courts have not established a consistent policy regarding the breadth of claims allowed in pharmaceutical patents.  The allowance of broader claims may increase the incidence and cost of patent interference proceedings and the risk of infringement litigation.  On the other hand, the allowance of narrower claims may limit the value of our proprietary rights.

THE STRATEGY TO LICENSE RIGHTS TO OR ACQUIRE AND COMMERCIALIZE PROPRIETARY, BIOLOGICAL INJECTABLE OR OTHER SPECIALTY INJECTABLE PRODUCTS MAY NOT BE SUCCESSFUL AND WE MAY NEVER RECEIVE ANY RETURN ON OUR INVESTMENT IN THESE PRODUCTS.

We may license rights to or acquire products or technologies from third parties.  Other companies, including those with substantially greater financial and sales and marketing resources, will compete with us to license rights to or acquire these products and technologies.  We may not be able to license rights to or acquire these proprietary or other products or technologies on acceptable terms, if at all.  Even if we obtain rights to a pharmaceutical product and commit to payment terms, including, in some cases, significant up-front license payments, we may not be able to generate product sales sufficient to create a profit or otherwise avoid a loss.

A product candidate may fail to result in a commercially successful drug for other reasons, including the possibility that the product candidate may:

·

be found during clinical trials to be unsafe or ineffective;

·

fail to receive necessary regulatory approvals;

·

be difficult or uneconomical to produce in commercial quantities;

·

be precluded from commercialization by proprietary rights of third parties; or

·

fail to achieve market acceptance.

WE MAY BECOME SUBJECT TO FEDERAL OR STATE FALSE CLAIMS OR OTHER SIMILAR LITIGATION BROUGHT BY PRIVATE INDIVIDUALS AND THE GOVERNMENT.

The Federal False Claims Act (and equivalent state statutes) allows persons meeting specified requirements to bring suit alleging false or fraudulent Medicare or Medicaid claims and to share in any amounts paid to the government in fines or settlement.  These suits, known as qui tam actions, have increased significantly in recent years and have increased the risk that a health care company will have to defend a false claim action, pay fines and/or be excluded from Medicare and Medicaid programs.  False claims litigation can lead to civil monetary penalties, criminal fines and imprisonment and/or exclusion from participation in Medicare, Medicaid and other federally funded health programs.  Other alternate theories of liability may also be available to private parties seeking redress for such claims.  A number of parties have brought claims against numerous pharmaceutical manufacturers, and we cannot be certain that such claims will not be brought against us, or if they are brought, that such claims might not be successful.

WE MAY NEED TO CHANGE OUR BUSINESS PRACTICES TO COMPLY WITH CHANGES TO, OR MAY BE SUBJECT TO CHARGES UNDER, THE FRAUD AND ABUSE LAWS.

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We are subject to various federal and state laws pertaining to health care fraud and abuse, including the federal Anti-Kickback Statute and its various state analogues, the federal and state False Claims Act and additional marketing and pricing laws.  Violations of these laws are punishable by criminal and/or civil sanctions, including, in some instances, imprisonment and exclusion from participation in federal and state health care programs such as Medicare and Medicaid.  We may have to change our advertising and promotional business practices, or our existing business practices could be challenged as unlawful due to changes in laws, regulations or rules or due to administrative or judicial findings, which could materially adversely affect our business.

WE FACE UNCERTAINTY RELATED TO PRICING AND REIMBURSEMENT AND HEALTH CARE REFORM.

In both domestic and foreign markets, sales of our products will depend in part on the availability of reimbursement from third-party payers such as government health administration authorities, private health insurers, health maintenance organizations and other health care-related organizations.  However, reimbursement by such payers is presently undergoing reform, and there is significant uncertainty at this time how this will affect sales of certain pharmaceutical products.  There is possible U.S. legislation or regulatory action affecting, among other things, pharmaceutical pricing and reimbursement, including under Medicaid and Medicare, the importation of prescription drugs that are marketed outside the U.S. and sold at prices that are regulated by governments of various foreign countries.

Medicare, Medicaid and other governmental reimbursement legislation or programs govern drug coverage and reimbursement levels in the United States.  Federal law requires all pharmaceutical manufacturers to rebate a percentage of their revenue arising from Medicaid-reimbursed drug sales to individual states.

Both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, rules and regulations designed to contain or reduce the cost of health care.  Existing regulations that affect the price of pharmaceutical and other medical products may also change before any of our products are approved for marketing.  Cost control initiatives could decrease the price that we receive for any product we develop in the future. In addition, third-party payers are increasingly challenging the price and cost-effectiveness of medical products and services and litigation has been filed against a number of pharmaceutical companies in relation to these issues.  Additionally, significant uncertainty exists as to the reimbursement status of newly approved injectable pharmaceutical products.  Our products may not be considered cost effective or adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an adequate return on our investment.

WE MAY BE REQUIRED TO DEFEND LAWSUITS OR PAY DAMAGES FOR PRODUCT LIABILITY CLAIMS.

Product liability is a major risk in testing and marketing biotechnology and pharmaceutical products.  We may face substantial product liability exposure in human clinical trials and for products that we sell after regulatory approval.  We maintain insurance coverage for product liability claims in the aggregate amount of $100 million, including primary and excess coverage, which we believe is reasonably adequate coverage.  Product liability claims, regardless of their merits, could exceed policy limits, divert management’s attention and adversely affect our reputation and the demand for these products.

WE DEPEND HEAVILY ON THE PRINCIPAL MEMBERS OF OUR MANAGEMENT AND RESEARCH AND DEVELOPMENT TEAMS, THE LOSS OF WHOM COULD HARM OUR BUSINESS.

We depend heavily on the principal members of our management and research and development teams, including Dr. Richard Azani and Gisele Matni.  Each of the members of the executive management team is employed “at will.”  The loss of the services of any member of the executive management team may significantly delay or prevent the achievement of product development or business objectives.

TO BE SUCCESSFUL, WE MUST ATTRACT, RETAIN AND MOTIVATE KEY EMPLOYEES, AND THE INABILITY TO DO SO COULD SERIOUSLY HARM OUR BUSINESS AND OPERATIONS.

13

To be successful, we must attract, retain and motivate executives and other key employees.  We face competition for qualified scientific, technical and other personnel, which may adversely affect our ability to attract and retain key personnel.  We also must continue to attract and motivate employees and keep them focused on our strategies and goals.

Risks Related to Our Common Stock

THERE IS NO LIQUID MARKET FOR OUR COMMON STOCK.

Our shares are traded on the OTCBB and the trading volume has historically been very low.  An active trading market for our shares may not develop or be sustained.  We cannot predict at this time how actively our shares will trade in the public market or whether the price of our shares in the public market will reflect our actual financial performance.

OUR COMMON STOCK MAY BE CONSIDERED “A PENNY STOCK” AND MAY BE DIFFICULT FOR YOU TO SELL.

The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been for much of its trading history and may continue to be less than $5.00 per share, and therefore may be designated as a “penny stock” according to SEC rules.  This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities.  These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.

COMPLIANCE AND CONTINUED MONITORING IN CONNECTION WITH CHANGING REGULATION OF CORPORATE GOVERNANCE AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.

Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters.  New or changed laws, regulations and standards are subject to varying interpretations in many cases.  As a result, their application in practice may evolve over time.  We are committed to maintaining high standards of corporate governance and public disclosure.  Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue generating activities to compliance activities.  If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might be harmed which would could have a significant impact on our stock price and our business.  In addition, the ongoing maintenance of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.

OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTEREST OF ALL OTHER STOCKHOLDERS.

The Company’s Chairman and Chief Executive Officer controls approximately 32.65% of its current outstanding shares of voting common stock.  He may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions.  This concentration of ownership may expedite approvals of company decisions, or have the effect of delaying or preventing a change in control, adversely affect the market price of our common stock, or be in the best interests of all our stockholders.

YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.

As of February 15, 2012, we had 58,184,388 shares of common stock outstanding and no shares of preferred stock outstanding.  We are authorized to issue up to 100,000,000 shares of common stock and 100,000,000 shares of preferred stock.  To the extent of such authorization, our board of directors will have the ability, without seeking

14

stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration as the board of directors may consider sufficient.  The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership and voting power.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Description of Property.

We currently rent an office totaling 10,000 square feet in area and we pay $15,000 in rent on a monthly basis.  The lease expired in January 2012 and the Company has exercised the option to renew for a three year period.

Item 3. Legal Proceedings.

We are not aware of any legal proceedings to which we are a party or of which our property is the subject.  None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings.  We are not aware of any other legal proceedings that have been threatened against us.

Item 4. Mine Safety Disclosures.

Not applicable.

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PART II

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

(a) Market Information

Our shares of common stock trade on the OTCBB under the symbol “AFLB.OB”.

The following table sets forth the high and low trade information for our common stock for each quarter since the Company changed business plans on July 5, 2010.  The prices reflect inter-dealer quotations, do not include retail mark-ups, markdowns or commissions and do not necessarily reflect actual transactions.

Quarter ended		High				Low
December 31, 2011		$	0.03			$	0.01
September 30, 2011		$	0.11			$	0.01
June 30, 2011		$	0.12			$	0.07
March 31, 2011		$	0.25			$	0.10
December 31, 2010		$	0.87			$	0.18
September 30, 2010		$	1.23			$	0.60

(b) Holders

As of February 15, 2012, a total of 58,184,388 shares of the Company’s common stock are currently outstanding held by approximately 55 shareholders of record.

(c) Dividends

We have not declared or paid any dividends on our common stock and intend to retain any future earnings to fund the development and growth of our business. Therefore, we do not anticipate paying dividends on our common stock for the foreseeable future. There are no restrictions on our present ability to pay dividends to stockholders of our common stock, other than those prescribed by Nevada law.

(d) Securities Authorized for Issuance under Equity Compensation Plan

None.

Item 6. Selected Financial Data.

Not applicable.

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

Forward Looking Statements

This annual report on Form 10-K and other reports filed by the Company from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management.  Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the

16

section entitled “Risk Factors”, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire.  Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements.  Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Plan of Operation

A5 Laboratories Inc. is a development stage company specializing in production of natural interferons using a unique technology that allows the Company to produce interferons for the human and animal health market. The Company is not currently in production. In order to execute our business plan, we need to raise additional capital to avoid the interruption of our current Custom Research Organization (CRO) and CRO related software sales operations.

On August 2, 2010, the Company filed a provisory patent with the U.S. Patent office in order to preserve our technology for the production of natural gamma interferons.  Over the next 12 months, the Company plans to produce interferon in different research centers worldwide.  The Company currently has two research labs engaged to produce interferons using our own technology.  The first lab in Europe has finished their work and the results will be published in the next fiscal quarter.  The second lab in North America will being testing immediately after the publication of the first set of results.  Although this technology has previously been tested, the Company is currently focused on producing interferons in different independent laboratories.

After completion of lab scale production of interferons using our technology in North America and with the assurance of repeatability of our technology in various centers, we will begin producing interferons for in vitro testing at our own facility in Montreal.  Simultaneously, we plan to proceed with the necessary regulatory efforts needed in Europe to register our product for veterinary use.  If successful, we plan on introducing the interferon for one species (bovine or porcine).  The Company also hopes to begin clinical trials in United States, including satisfying various FDA requirements, by the end of 2012.

Results of Operations

Our results of operations are summarized below:

		Year Ended September 30, 2011 ($)				Year Ended September 30,  2010 ($)
Revenue			None				None
Expenses			2,091,546				351,790
Other Income (Expenses)			(933,071)				(0)
Net Loss			(3,024,617)				(351,790)
Loss Per Share			(0.06)				(0.01)

Year Ended September 30, 2011 Compared to the Year Ended September 30, 2010

During the year ended September 30, 2011, we did not earn any revenues.  We have not earned any revenues since our inception and there is no assurance that we will be able to earn any revenues in the future.

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Our expenses for the years ended September 30, 2011 and 2010 can be summarized as follows:

		For the Year Ended September 30,
		2011 ($)				2010 ($)				Difference ($)
Management fees to related party – Note 7			258,940				0				258,940
Professional fees			139,327				31,398				107,929
Rent paid to related party – Note 7			183,916				72,581				111,335
General and administrative expenses			474,336				247,811				226,525
Impairment of software			1,035,027				-				1,035,027
Other income (expense) - net			(933,071)				0				(933,071)

Our net loss for the year ended September 30, 2011, was $3,024,671, compared to a net loss of $351,790 for the year ended September 30, 2010 (an increase of $2,672,827).  During the year ended September 30, 2011 and September 30, 2010, we did not generate any revenues from operations.

During the year ended September 30, 2011, we incurred operating expenses (and respective net operating losses) of $1,056,519, compared to operating expenses of $351,790 incurred during the year ended September 30, 2010 (an increase of $704,729).  The operating expenses incurred during the year ended September 30, 2011 and 2010, consisted of (i) $258,940 and $0, respectively, of management fees to a related party; (ii) $139,327 and $31,398, respectively, in fees paid to professionals; (iii) $183,916 and $72,581, respectively, in rent paid to an officer of the Company; (iv) impairment of software $1,035,027 and (v) $433,940 and $247,811, respectively, in other general and administrative expenses.  Our expenses increased during the year ended September 30, 2011, primarily based on the increased scope and scale of our business operations relating to the activity engaged by our two operating labs.  Thus, expenses increased primarily resulting from an increase of $258,940 in management fees to an officer of the Company, $1,035,027 impairment of software and $111,135 in general and administrative expenses. During the year ended September 30, 2011, management determined that it was more likely than not that any significant future benefits would be appreciated due to the development costs.

Other expenses incurred during the year ended September 30, 2011, included: (i) interest expense of $89,480; (ii) derivative expense of $1,196,045; and (iii) change in fair value of the derivative liability of ($352,454).  During the year ended September 30, 2011, the total increase of $933,071 in other income and expenses was comprised primarily of charges of $1,196,045 due to the derivative expense.  

Therefore, our net loss and loss per share during the year ended September 30, 2011 was ($3,024,617) or ($0.06) per share, compared to a net loss and loss per share of ($351,790) or ($0.01) per share during the year ended September 30, 2010.  The weighted average number of shares outstanding was 48,187,766 for the year ended September 30, 2011, compared to 45,934,427 for the year ended September 30, 2010.

Liquidity and Capital Resources

As of September 30, 2011, our current assets were $79,254 and our current liabilities were $1,622,879, which resulted in a working capital deficiency of ($1,543,625).  As of September 30, 2011, current assets were comprised of: (i) $854 in cash; and (ii) $78,400 in Canadian General Service Taxes refundable.  As of September 30, 2011, current liabilities were comprised of: (i) $140,664 in accounts payable and accrued liabilities; (ii) $282,470 in accounts payable due to a related party; (iii) $10,834 in accrued interest payable; (iv) $30,618 in notes payable due to a related party; (v) $41,824 in convertible debt (net of $66,814 of discount); and (vi) a derivative liability of $1,116,469 resulting from a convertible note payable issued to an officer of the Company.

As of September 30, 2011, our total assets of $386,151 were comprised of: (i) $79,254 in current assets; (ii) $39,068 in debt issue costs (net of $11,833 of amortization); and (iii) $267,829 in property and equipment (net of $18,405 of depreciation).  As of September 30, 2011, our total liabilities of $1,622,879 were comprised of current liabilities of the same amount.

Stockholders’ equity (deficit) decreased $2,821,369 from $1,584,641 as of September 30, 2010 to ($1,263,728) as of September 30, 2011.  The change in Stockholder’s deficit was comprised of (i) 387,500 shares being issued for

18

$115,000 in cash; (ii) a charge to additional paid-in capital from a debt discount and a warrant financing expense on a convertible note payable of $27,122 and $26,901, respectively; (iii) 1,120,000 shares issued for the partial conversion of a note with the value of $24,990; (iv)  a change in accumulated other comprehensive income due to a foreign currency translation adjustment of $9,234; and (v) a net loss for the year ended September 30, 2011, of ($3,024,617).

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities.  For the year ended September 30, 2011, net cash flows used by operations was ($346,488).  Net cash flows used in operating activities for the year ended September 30, 2011, consisted of a net loss of ($3,024,617) adjusted by: (i) $1,196,045 in an expense charge due to a derivative liability on a convertible note payable; (ii) $1,035,045 in impairment of software development; (iii) $364,254 in depreciation expense; (iv) $11,833 in amortization of debt issue cost; and (v) $66,814 in amortization of debt discount.  Net cash flows used by operating activities was further changed by an increase of (i) ($44,236) in other receivables; (ii) an increase of ($352,454) due to an increase in the fair value of derivative liabilities; (iii) an increase of $10,834 in accrued interest; (iv) an increase of 282,470 in accrued interest payable on notes payable due to a related party; and (v) an increase in accounts payable and accrued interest of $107,542.

Cash Flows from Investing Activities

For the year ended September 30, 2011, net cash flows used in investing activities was ($101,304), consisting of purchase of property and equipment.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments.  For the year ended September 30, 2011, net cash flows provided from financing activities was $421,618, consisting of (i) $31,586 in proceeds from related party notes; (ii) $300,000 in the issuance of convertible notes payable; (iii) $115,000 in proceeds from issuance of common stock. Net cash flows from financing activities was further changed by a decrease of (iv) ($968) by the repayment of related party notes; and (v) ($24,000) by cash paid as debt offering costs.

We anticipate that we will meet our ongoing cash requirements by selling our equity securities or through shareholder loans.  Our management has changed our business focus to the acquisition of operating assets and we estimate that our expenses over the next 12 months will be approximately $350,000, as described in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.

	Estimated		Estimated Expenses
Description	Completion Date		($)
Legal and accounting fees	12 months			90,000
Due diligence expenses	12 months			60,000
General and administrative expenses	12 months			200,000
Total				350,000

Material Commitments

As of the date of this Annual Report, we do not have any material commitments other than as described below.

Convertible Debt

Effective on February 23, 2011, the company entered into a secured convertible promissory note between the Company and John M. Fife (“Lender”).  The note balance totaled $300,000 USD.  In accordance with the terms and provision of the convertible feature, the lender will contribute funds convertible in tranche’s.  The first tranche being equal to $300,000 USD and an additional ten (10) tranches equal to $200,000 USD each commencing on October

19

23, 2011, and continuing each subsequent month for ten months.  The number of shares of Common Stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the higher of (i) the market price or (ii) the floor price.  Where “Market Price” is defined as 80% of the average of the closing bid price for the three (3) days with the lowest closing bids during the twenty trading days immediately preceding the conversion date.  Providing however that if the market prices falls below $0.05 per share of common stock the conversion factor shall be reduced by 10 percentage points.

For purposes hereof the “Floor Price” is defined as $0.012. The trading data used to compute the closing bid shall be as reported by Bloomberg, LP or if such information is not then being reported by Bloomberg, then as reported by such other data information sources as may be selected by the lender.

In accordance with the terms of this note, a debt discount has been calculated using the “floor price” of $0.12 per share under the intrinsic value method of valuation.  This calculation resulted in a total debt discount of $300,000, of which $66,814 was amortized and expensed during the year ended September 30, 2011.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position.  The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Critical Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires 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.

Such estimates for the year ended September 30, 2011 and 2010, and assumptions affect, among others, the following:

·

estimated carrying value, useful lives and related impairment of property and equipment;

·

estimated fair value of derivative liabilities;

·

estimated valuation allowance for deferred tax assets, due to continuing losses; and

·

estimated fair value of share based payments.

Making estimates requires management to exercise significant judgment.  It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events.  Accordingly, the actual results could differ significantly from estimates.

Derivative Liabilities

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Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model.  In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.  If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.  In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Debt Issue Costs and Debt Discount

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt.  These costs are amortized over the life of the debt to interest expense.  If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount.  The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

Share-based Payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.  Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

Earnings per Share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company reflected a net loss in 2011 and 2010, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive.  A separate computation of diluted earnings (loss) per share is not presented.

Fair Value of Financial Instruments

ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements.  ASC 820’s valuation techniques are based on observable and unobservable inputs.  Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

·

Level 1 inputs: Quoted prices for identical instruments in active markets.

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·

Level 2 inputs: 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 whose inputs are observable or whose significant value drivers are observable.

·

Level 3 inputs: Instruments with primarily unobservable value drivers.

Foreign Currency Transactions

The Company’s functional currency is the Canadian Dollar.  The Company’s reporting currency is the U.S. Dollar.  All transactions initiated in Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20 “Foreign Currency Translation” as follows:

(i)

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)

Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income (loss).  Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date.  If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 8. Financial Statements and Supplementary Data.

Our financial statements are contained in pages F-1 through F-20 which appear at the end of this Annual Report.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

There were no changes in or disagreements with accountants on accounting and financial disclosure for the year ended September 30, 2011, other than those matters disclosed on Form 8-K.

Item 9A. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Management’s Assessment of Internal Control over Financial Reporting

22

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a−15(f) and 15d−15(f) under the Exchange Act.  Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2011.  In making this assessment, management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The objective of this assessment is to determine whether our internal control over financial reporting was effective as of September 30, 2011.  Based on our assessment utilizing the criteria issued by COSO, management has concluded that our internal control over financial reporting was not effective as of September 30, 2011.  Management’s assessment identified the following material weaknesses:

·

As of September 30, 2011, there was a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles (“GAAP”) in the U.S. and the financial reporting requirements of the SEC.

·

As of September 30, 2011, there were insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

·

As of September 30, 2011, there was a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented.  We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis.  We plan to further address these issues once we commence operations and are able to hire additional personnel in financial reporting.

(c) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

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PART III

Item 10. Directors, Executive Officers, and Corporate Governance.

The following table and biographical summaries set forth information, including principal occupation and business experience, about our directors and executive officers as of February 15, 2012.

The Company’s directors serve in such capacity until the first annual meeting of the Company’s shareholders and until their successors have been elected and qualified.  The Company’s officers serve at the discretion of the Company’s board of directors, until their death, or until they resign or have been removed from office.

There are no agreements or understandings for any director or officer to resign at the request of another person and none of the directors or officers is acting on behalf of or will act at the direction of any other person. The activities of each director and officer are material to the operation of the Company. No other person’s activities are material to the operation of the Company.

Richard Azani, age 52, Chief Executive Officer, Chief Financial Officer, Chairman

Richard Azani has been the president and chief executive officer of Vida nutra pharma since 2003.  From 1996 to 2006 Richard was the president and chief executive officer of Actilab Pharma Inc. and from 1994 to 1996 was the vice-president of Analex Laboratory.

Richard Azani received his B.Sc in Biochemistry and Analytical Chemistry and his M.Sc in Structural determination of protein using N.M.R. and X-Ray at the University of Toulouse – France.  Mr. Azani also received his Ph.D at the University of Toulouse – France and his Post-Doctorate at McGill University – Montreal Canada.

Gisele Matni, age 47, Vice President of Operations and Director

Dr. Matni holds a doctorate in Pharmacy, a master degree in Biochemistry from University of Montreal and a Ph.D. in Analytical chemistry from McGill University.

Dr. Matni brings over 15 years’ experience in management of pharmaceutical and biotechnology related projects, including in-vitro potency analysis of therapeutic proteins. In addition she has extensive knowledge in identification, specification, extraction, separation and analyses of actives proteins from various source of materials and pharmaceutical drugs.

Dr. Matni has held research scientist positions at Environment Canada where in 1996 she worked on Microwave-Assisted Process technology. From 1997 to 2005 Dr. Matni held a senior management position at Actilab Pharma as director of laboratory operations, quality control/quality assurance of pharmaceutical analyses. Dr. Matni’s experience and education in pharmaceutical and biotechnology industry are the reasons the Company appointed her to its board of directors.

Dr. Matni will remain the Company’s director and Vice President of Operations until the next annual meeting of the Company’s shareholders at which directors will be voted on or until the Company’s board of directors appoints her replacement. Dr. Matni is the spouse of Dr. Azani, our director and President. During the last five years Dr. Matni has not held any other directorships in any company with a class of securities registered pursuant to section 12 of the

24

Exchange Act or subject to the requirements of section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940, 15 U.S.C. 80a-1, et seq., as amended.

Family Relationships

Richard Azani and Gisele Matni are husband and wife.

Subsequent Executive Relationships

No director or executive officer has been a director or executive officer of any business which has filed a bankruptcy petition or had a bankruptcy petition filed against it during the past five years. No director or executive officer has been convicted of a criminal offense or is the subject of a pending criminal proceeding during the past five years. No director or executive officer has been the subject of any order, judgment or decree of any court permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities during the past five years.  No director or officer has been found by a court to have violated a federal or state securities or commodities law during the past five years.  None of our directors or executive officers or their respective immediate family members or affiliates are indebted to us.

Item 11. Executive Compensation.

The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers paid by us during the years ended September 30, 2011 and 2010.

Outstanding Equity Awards

None.

Director Compensation

The table below lists the aggregate amount of payments that were made to directors during the year ended September 30, 2011.

														Non-
		Fees												Equity				Nonqualified
		Earned or												Incentive				Deferred
		Paid in				Stock				Option				Plan				Compensation				All Other
		Cash				Awards				Awards				Comp.				Earnings				Compensation
Name		($)				($)				($)				($)				($)				($)(1)				Total ($)
Richard Azani			-				-				-				-				-				-				-
Gisele Matni			-				-				-				-				-				-				-

25

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

As of February 15, 2012, our authorized capitalization was 200,000,000 shares of capital stock, consisting of 100,000,000 shares of common stock, $0.001 par value per share and 100,000,000 shares of preferred stock, par value $0.001.  As of February 15, 2012, there were 58,184,388 shares of our common stock outstanding, all of which were fully paid, non-assessable and entitled to vote.  Each share of our common stock entitles its holder to one vote on each matter submitted to the stockholders.

The following table sets forth, as of February 15, 2012, the number of shares of our common stock owned by (i) each person who is known by us to own of record or beneficially five percent (5%) or more of our outstanding shares, (ii) each of our directors, (iii) each of our executive officers and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, each of the persons listed below has sole voting and investment power with respect to the shares of our common stock beneficially owned.

Title of Class		Name of Beneficial Owner (1)		Number of shares				Percent of Class
Common		Richard Azani, Chairman. Chief Executive Officer, Chief Financial Officer			19,000,000				32.65	%
Common		Gisele Matni, Vice President of Operations, Director			0				0	%
		All officers and directors as a group (2 persons)			19,000,000				32.65	%

(1)

Beneficial ownership is determined in accordance with Rule 13d-3 of the Exchange Act and generally includes voting or investment power with respect to securities.

Changes in Control

We are not aware of any arrangements that may result in a change in control of the Company.

Description of Securities

General

Our authorized capital stock consists of 100,000,000 shares of common stock, par value $0.001, and 100,000,000 shares of preferred stock, par value $0.001 (none of which are issued and outstanding).

Common Stock

The shares of our common stock presently outstanding, and any shares of our common stock issues upon exercise of stock options and/or warrants, will be fully paid and non-assessable.  Each holder of common stock is entitled to one vote for each share owned on all matters voted upon by shareholders, and a majority vote is required for all actions to be taken by shareholders. In the event we liquidate, dissolve or wind-up our operations, the holders of the common stock are entitled to share equally and ratably in our assets, if any, remaining after the payment of all our debts and liabilities and the liquidation preference of any shares of preferred stock that may then be outstanding.  The common stock has no preemptive rights, no cumulative voting rights, and no redemption, sinking fund, or conversion provisions. Since the holders of common stock do not have cumulative voting rights, holders of more than 50% of the outstanding shares can elect all of our Directors, and the holders of the remaining shares by themselves cannot elect any directors.  Holders of common stock are entitled to receive dividends, if and when declared by the board of directors, out of funds legally available for such purpose, subject to the dividend and liquidation rights of any preferred stock that may then be outstanding.

Voting Rights

Each holder of common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders.

26

Dividends

Subject to preferences that may be applicable to any then-outstanding shares of preferred stock, if any, and any other restrictions, holders of common stock are entitled to receive ratably those dividends, if any, as may be declared from time to time by the Company’s board of directors out of legally available funds.  The Company and its predecessors have not declared any dividends in the past.  Further, the Company does not presently contemplate that there will be any future payment of any dividends on common stock.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The Company is currently a party to a sublease agreement with Vida Nutra Pharma, Inc., a company controlled by Richard Azani, the Company’s Chief Executive Officer.  The sublease pertains to the office space the Company currently occupies (See Item 3).

The Company paid consulting fees to its Chief Executive Officer of $245,112 and $196,548 for the years ended September 30, 2011 and 2010, respectively.

Director Independence

The common stock of the Company trades on the OTCBB, a quotation system which currently does not have director independence requirements. As of September 30, 2011, none of the Company’s directors were considered to be “independent.”

Item 14. Principal Accounting Fees and Services.

a. Audit Fees: Aggregate fees billed by Berman & Co. for professional services rendered for the audit of our annual financial statements for the years ended September 30, 2011 and 2010, were approximately $15,000 and $8,500, respectively.

b. Audit-Related Fees: No fees were billed for assurance and related services reasonably related to the performance of the audit or review of our financial statements and not reported under “Audit Fees” above in the years ended September 30, 2011 and 2010, respectively.

c. Tax Fees: Aggregate fees billed by Berman & Co. for tax services for the year ended September 30, 2011 and 2010, were $0 and $0, respectively.

d. All Other Fees: Aggregate fees billed by Berman & Co. for professional services other than those described above for the years ended September 30, 2011 and 2010, were approximately $23,000 and $28,000, respectively.

27

PART IV

Item 15. Exhibits, Financial Statement Schedules.

* filed herewith

28

SIGNATURES

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

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of:

A5 Laboratories Inc.

We have audited the accompanying balance sheets of A5 Laboratories Inc. (a development stage company), as of September 30, 2011 and 2010, and the related statements of operations, stockholders’ equity and cash flows for the periods then ended and from June 21, 2006 (inception) to September 30, 2011.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these 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 audit to obtain reasonable assurance about whether the 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 audit included considerations 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.   

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of A5 Laboratories, Inc. as of September 30, 2011 and 2010, and the results of its operations and its cash flows for the periods then ended and from June 21, 2006 (inception) to September 30, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has a net loss of $3,024,617 and net cash used in operations of $346,488 for the year ended September 30, 2011. The Company also has a working capital deficit of $1,543,625 and a deficit accumulated during the development stage of $3,433,273 at September 30, 2011. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Berman & Company, P.A.

Boca Raton, Florida

February 15, 2012

F-1

F-2

A5 Laboratories Inc.

(A Development Stage Company)

Statement of Operations

	Year ended September 30,		June 21, 2006 (Inception) to September 30, 2011
	2011	2010
Expenses
General and Administrative Expenses	$ 1,056,519	$ 351,790	$ 1,465,175
Impairment of software	1,035,027	-	1,035,027
Total	2,091,546	351,790	2,500,202
Other Income (Expense)
Interest expense	(89,480)	-	(89,480)
Derivative expense	(1,196,045)	-	(1,196,045)
Change in fair value of derivative liability	352,454	-	352,454
Total Other Expense- net	(933,071)	-	(933,071)
Net Loss	$ (3,024,617)	$ (351,790)	$ (3,433,273)
Net loss per common share- basic and diluted	$ (0.06)	$ (0.01)	$ (0.08)
Weighted average number of common shares outstanding during the period/year- basic and diluted	48,187,766	45,934,427	42,238,387
Comprehensive income (loss):
Net Loss	$ (3,024,617)	$ (351,790)	$ (3,433,273)
Foreign currency translation gain (loss)	6,155	(3,079)	-
Comprehensive loss	$ (3,018,462)	$ (354,869)	$ (3,433,273)

F-3

F-5

A5 Laboratories Inc.

(A Development Stage Company)
Statement of Cash Flows

F-6

Note 1 – Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

A5 Laboratories Inc. (the “Company”) was incorporated in the State of Nevada on June 21, 2006. The Company was originally incorporated as El Palenque Nercery, Inc. and changed its name to El Palenque Vivero, Inc. on June 30, 2006. On March 23, 2010, it further changed its name to A5 Laboratories Inc., which is based in Quebec, Canada.

The Company intends to provide contract research and laboratory services to the pharmaceutical industry. To date, the activities of the Company have been limited to training and raising capital.

The Company’s fiscal year end is September 30.

Development Stage

The Company's financial statements are presented as those of a development stage enterprise. Activities during the development stage primarily include equity based financing and further implementation of the business plan.

Risks and Uncertainties

The Company intends to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires 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.

Such estimates for the years ended September 30, 2011 and 2010, and assumptions affect, among others, the following:

·

estimated carrying value, useful lives and impairment of property and equipment;

·

estimated fair value of derivative liabilities;

·

estimated valuation allowance for deferred tax assets; and

·

estimated fair value of share based payments

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Cash and Cash Equivalents

The Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents. At September 30, 2011 and 2010, the Company had no cash equivalents.

The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits. At September 30, 2011 and 2010, there were no balances that exceeded the federally insured limit.

F-7

Property and Equipment

Property and equipment (including related party purchases) is stated at cost, less accumulated depreciation computed on a straight-line basis over the estimated useful lives. Maintenance and repairs are charged to operations when incurred.  Betterments and renewals are capitalized when deemed material.  When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  The Company recognized an impairment of $1,035,027 during the year ended September 30, 2011.  See Note 5.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument.  The discount would be amortized to interest expense over the life of the debt.

Derivative Liabilities

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes.  In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model.  In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement.  If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives.  In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Debt Issue Costs and Debt Discount

The Company paid debt issue costs, and recorded debt discounts in connection with raising funds through the issuance of convertible debt.  These costs are amortized over the life of the debt to interest expense.  When a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount.  The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

F-8

Share-Based Payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.  Share-based payment awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expense resulting from share-based payments are recorded as a component of general and administrative expense.

Earnings per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company reflected a net loss in 2011 and 2010, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive.  A separate computation of diluted earnings (loss) per share is not presented.

The Company had the following potential common stock equivalents at September 30, 2011 and 2010:

	September 30, 2011		September 30, 2010
Warrants	33,607,333		250,000
Convertible debt	2,291,750		-
Total common stock equivalents	35,899,083		250,000

Income Taxes

Provisions for federal and state income taxes are calculated based on reported pre-tax earnings and current tax law.

Significant judgment is required in determining income tax provisions and evaluating tax positions. The Company periodically assesses its liabilities and contingencies for all periods that are currently open to examination or have not been effectively settled based on the most current available information. When it is not more likely than not that a tax position will be sustained, the Company records its best estimate of the resulting tax liability and any applicable interest and penalties in the financial statements.

Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements using statutory rates in effect for the year in which the differences are expected to reverse. The Company presents the tax effects of these deferred tax assets and liabilities separately for each major tax jurisdiction.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that the changes are enacted. The Company records a valuation allowance to reduce deferred tax assets when it is more likely than not that some portion of the asset may not be realized. The Company evaluates its deferred tax assets and liabilities on a periodic basis.

Fair Value of Financial Instruments

The carrying amounts of the Company’s short-term financial instruments, other receivables, accounts payable and accrued liabilities, approximate fair value due to the relatively short period to maturity for these instruments.

F-9

Foreign Currency Transactions

The Company’s functional currency is the Canadian Dollar.  The Company’s reporting currency is the U.S. Dollar.  All transactions initiated in Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20 “Foreign Currency Translation” as follows:

(i)

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)

Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income (loss).  Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date.  If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

The realized exchange gains (losses) recorded at September 30, 2011 and 2010 were $6,155 and ($3,079), respectively.

Comprehensive Income (Loss)

ASC Topic No. 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements.  Comprehensive income or loss is comprised of net earnings or loss and other comprehensive income or loss, which includes certain changes in equity, excluded from net earnings, primarily foreign currency translation adjustments.

Foreign Country Risks

The Company may be exposed to certain risks as its operations are being conducted in Canada.  The Company’s results may be adversely affected by change in the political and social conditions in Canada due to governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions and remittances abroad, and rates and methods of taxation, among other things.  The Company does not believe these risks to be significant, and no such losses have occurred in the current or prior years because of these factors.  However, there can be no assurance those changes in political and other conditions will not result in any adverse impact in future periods.

Recent Accounting Pronouncements

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The guidance in ASU 2011-04 changes the wording used to describe the requirements in U.S. GAAP for measuring fair value and for disclosing information about fair value measurements, including clarification of the FASB's intent about the application of existing fair value and disclosure requirements and changing a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this ASU should be applied prospectively and are effective for interim and annual periods beginning after December 15, 2011. Early adoption by public entities is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

F-10

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income. The guidance in ASU 2011-05 applies to both annual and interim financial statements and eliminates the option for reporting entities to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income. Finally, this ASU requires an entity to present reclassification adjustments on the face of the financial statements from other comprehensive income to net income. The amendments in this ASU should be applied retrospectively and are effective for fiscal year, and interim periods within those years, beginning after December 15, 2011. The Company has adopted this guidance in these financial statements.

Note 2 – Going Concern

As reflected in the accompanying financial statements, the Company has a net loss of $3,024,617 and net cash used in operations of $346,488 for the year ended September 30, 2011. The Company also has a working capital deficit of $1,543,625 and a deficit accumulated during the development stage of $3,433,273 at September 30, 2011. In addition, the Company is in the development stage and has not yet generated any revenues. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

The ability of the Company to continue its operations is dependent on Management's plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt or equity raises. The Company will likely rely upon equity financing in order to ensure the continuing existence of the business.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3 – Fair Value of Financial Assets and Liabilities 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. The following are the hierarchical levels of inputs to measure fair value:

·

Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

·

Level 2: Inputs reflect: quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

·

Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

F-11

At September 30, 2011, the fair value of financial instruments measured on a recurring basis includes derivative liabilities, determined based on level two inputs consisting of quoted prices in active markets for identical assets. The carrying amount reported for accounts payable and accrued liabilities approximates fair value because of the short-term maturity of these financial instruments.

The Company has a derivative liability measured at fair market value on a recurring basis. Consequently, the Company had changes in fair value reported in the statements of operations, which were attributable to the change in market value relating to the liability for the year ended September 30, 2011.

The following is the Company’s derivative liability measured at fair value on a recurring basis at September 30, 2011 and 2010:

		September 30, 2011		September 30, 2010
Level 1	$	-	$	-
Level 2 – Derivative Liability		1,132,889		-
Level 3		-		-
Total	$	1,132,889	$	-

Note 4 – Other Receivables

As of September 30, 2011 and 2010, the Company had receivables of $78,400 and $34,164, respectively for taxes paid on products and services.  Under Canadian law, the Company is required to pay GST (Goods and Services Tax) and PST (Provincial Sales Tax) on goods and services that are consumed, used or supplied in the course of their business activities.  The Company is eligible to receive credit for both taxes and received the reimbursement during fiscal 2012.

Note 5 – Property and Equipment

Property and equipment consists of the following:

As of  September 30,		2011		2010		Estimated Useful Lives
Software	$	1,380,876		1,380,876		3
Leasehold improvements (1)		144,802		94,733		10
Lab equipment (2)		106,705		81,705		10
Office equipment		37,336		11,057		5
		1,669,719		1,568,371
Less: Accumulated depreciation		(366,863)		(2,566)
Less: Impairment		(1,035,027)		-
Property and equipment – net	$	267,829		1,565,805

(1) See Note 8(B) – related party

(2) See below related to related party purchases

 

F-12

During the year ended September 30, 2011, management evaluated the recoverability of long lived assets by determining whether the carrying value can be recovered through future cash flows. Management determined that it is more likely than not that no future cash flows are to be expected from the use of its software. Due to these circumstances, the remaining book value of the asset in the amount of $1,035,027 was fully impaired and is included in the Statements of Operations for the year ended September 30, 2011 as a separate caption as prescribed under ASC 360-10-50-2.

The leasehold improvements were completed and placed into service in July 2011.

The Company purchased $104,122 of lab equipment from an entity controlled by the Company’s Chief Executive Officer during fiscal years ended 2010 and 2011 as follows:

2010	$	79,765
2011		24,357
	$	104,122

See Note 7 for software acquired from a related party.

Note 6 – Notes Payable

(A) Related Party

The following is a summary of the Company’s related party liabilities:

		September 30, 2011		September 30, 2010
Note Payable (1)	$	24,360		-
Advances (2)		7,226		-
Less: Payments received		(968)		-
Total related party liabilities	$	30,618		-

(1) The note is non-interest bearing, unsecured, and due on demand.

(2) The advances are non-interest bearing, unsecured, and due on demand.  

(B) Convertible Debt – Secured – Derivative Liabilities

During 2011, the Company issued convertible notes, totaling $300,000, with the following provisions:

 

·

Interest rate 6%;

·

Default interest rate of 12%;

·

Notes are due 48 months from the issuance date of February 23, 2011;

·

Conversion rates equal to 70% or 80% of the market price on date of conversion by applying a specified formula that utilizes the average of the 3 lowest quoted closing prices 20 days immediately preceding the conversion date, and then takes the higher of the average 3 lowest closing prices or $0.12 floor price; and

·

Secured by the Chief Executive Officer’s 15,000,000 shares of the Company common stock.

F-13

The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price as discussed above.  The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle.

During the year ended September 30, 2011, the Company accrued $10,834. In addition $10,834 is a component of interest expense.

On February 23, 2011, the Company entered into a secured convertible promissory note between the Company and a third party (the “Lender”). The note balance totaled $300,000. The Lender expects to contribute funds in tranches, the first tranche being equal to $300,000, and an additional ten tranches equal to $200,000 each commencing on October 23, 2011, and continuing each subsequent month for ten months.  No additional draw downs occurred during the year ended September 30, 2011.  In January 2012, the Company received $22,000 from a lender for an additional investment, under the same terms above, which is convertible to shares pursuant to the terms described below. See Note 9(A) related to conversions of this $300,000 note.

The number of shares of common stock to be issued upon conversion of each tranche shall be determined by dividing (a) the conversion amount by (b) the higher of (i) the Market Price or (ii) the Floor Price. Where “Market Price” is defined as 80% of the average of the closing bid price for the three (3) days with the lowest closing bids during the twenty trading days immediately preceding the conversion date, provided, however, that if the market prices fall below $0.05 per share of common stock the conversion factor shall be reduced by 10 percentage points.  The “Floor Price” is defined as $.012. The trading data used to compute the closing bid shall be as reported by Bloomberg, LP or if such information is not then being reported by Bloomberg, then as reported by such other data information sources as may be selected by the Lender.

The note also contains language that removes the $0.12 floor if certain “triggering events” occur during the life of the note. Since the floor price can be removed upon any one of these events occurring, the conversion feature of this note has two elements: normal conversion and conversion upon a triggering event.

Upon each occurrence of any of the following triggering events , (a) the conversion factor shall be reduced by 10 percent points (i.e., if the conversion factor were 80% immediately prior to the occurrence of the triggering event, it shall be reduced to 70% upon the occurrence of a triggering event), (b) the conversion price shall be computed without regard to the Floor Price, and (c) this note shall accrue interest at the rate of 1% per month, whether before or after judgment; provided, however, that (1) in no event shall the triggering effects be applied more than two times, and (2) notwithstanding any provisions to the contrary herein, in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law:

The following reflects possible triggering events:

(a) Collateral Shares. If the value of the Collateral Shares (15,000,000 shares discussed above) falls below $1,800,000 (valued at the Market Price of a share of Common Stock) at any time.

(b) SEC Filings. The Company’s failure to timely file required filings with the SEC.

(c) Events of Default. The occurrence of any Event of Default.

As of September 30, 2011, as a result of the triggering events (a) and (b), the Company computes the exercise price related to convertible debt, without regard to the floor price.

The normal conversion resulted in a debt discount under ASC 470-25-8 since the calculated market price as of the date of the note was higher ($0.145) than the conversion floor of $0.12.

F-14

(C) Debt Issue Costs

In connection with the issuance of the $300,000 note discussed above, the Company incurred debt issue costs as follows:

·

8% cash – which is equivalent to $24,000, and

·

8% warrants – having a fair value of $26,901, which was computed as follows;

		Commitment Date
Expected dividends			0%
Expected volatility			180%
Expected term: conversion feature		2 years
Risk free interest rate			1.73%

In January 2012, we raised an additional $22,000 as discussed above, the Company incurred debt issue costs as follows:

·

8% cash – which is equivalent to $1,760, and

·

8% warrants – having a fair value of $154, which was computed as follows;

		Commitment Date
Expected dividends			0%
Expected volatility			364%
Expected term: conversion feature		2 years
Risk free interest rate			0.65%

The debt issue costs have been capitalized and are being amortized over the life of the note.

Debt issue costs paid - 2011		$                 50,901
Amortization of debt issue costs - 2011		(11,833)
Debt issue costs - net - 2011		$                  39,068

  

(D)	Debt Discount

During the year ended 2011 and 2010, the Company recorded debt discounts totaling $300,000 and $0, respectively.

The debt discount recorded in 2011 pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value.

During 2011, the Company amortized $66,814 in debt discount.

Note 7 – Stockholders’ Equity (Deficit)

(A) Common Stock

Stock issued in 2011

During November and December 2010, the Company issued 312,500 shares of common stock for $100,000 ($0.32/share).

On June 14, 2011, the Company issued 75,000 shares of common stock for $15,000 ($0.20/share).

F-15

On September 2, 2011, a lender converted $24,990 pertaining to a note it held with an original principal of $300,000, for 1,120,000 shares of common stock ($0.0166667/share).  The quantity of shares issued is based upon the formula described above pertaining to the effect of the triggering event (see Note 6(B)).

Subsequent to September 30, 2011, a lender converted $50,000 pertaining to a note it held with an original principal of $300,000, for 3,000,000 shares of common stock ($0.0166667/share).  The quantity of shares issued is based upon the formula described above pertaining to the effect of the triggering event (see Note 6(B)).

Stock issued in 2010

On March 9, 2010, the Company’s board of directors authorized a 10-for-1 forward split of its common stock effective April 8, 2010.  Each stockholder of record on April 7, 2010 received ten new shares of the Company’s $0.001 par value common stock for every one old share outstanding.  The effects of the split have been retroactively applied to all periods presented in the accompanying financial statements.

On June 3, 2010, the Company issued 250,000 shares of common stock for $162,500 ($0.65/share).

On July 20, 2010, the Company issued 1,569,177 shares of common stock, having a fair value of $1,380,876 ($0.88/share), based upon the closing trading price, to acquire software from an affiliate of the Company’s Chief Executive Officer.

On July 30, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 18, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 23, 2010, the Company issued 20,000 shares of common stock to a consultant, having a fair value of $16,000 ($0.80/share), based upon the closing trading price.  At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

On September 17, 2010, the Company issued 150,000 shares of common stock to a consultant, having a fair value of $135,000 ($0.90/share), based upon the closing trading price.  At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

On November 12, 2010, the Company issued 156,250 shares of common stock for $50,000 ($0.32/share).

On December 2, 2010, the Company issued 156,250 shares of common stock for $50,000 ($0.32/share).

Stock issued in 2007

During 2007, the Company issued 20,500,000 shares of common stock for $82,000 ($0.004/share).

Stock Issued in 2006

On June 21, 2006 (Inception), the Company issued 10,000,000 shares of common stock for $5,000 ($0.0005/share) to directors and officers of the Company.

On August 1, 2006, the Company issued 15,000,000 shares of common stock for $15,000 ($0.0001/share) to directors and officers of the Company.

F-16

(B) Stock Warrants

The following is a summary of the Company’s warrants that are outstanding and exercisable at September 30, 2011 and 2010: