UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the three months ended August 31, 2012

 

OR

 

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

 

For the transition period from ______________ to ______________

 

Commission file number 000-52511

 

BIZZINGO, INC.

 

(Exact name of registrant as specified in its charter)

 

Nevada				98-0471052
(State or other jurisdiction of incorporation or organization)				(IRS Employer Identification No.)

  

731 Market Street, #600

San Francisco, CA 94013_

 (Address of Principal Executive Offices)

 

(908) 968-0838

 (Registrant’s telephone, including area code)

 

Suite 202, 63 Main Street

Flemington, New Jersey 08822

(Former address if changed since last report)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months and (2) has been subject to such filing requirements for the past 90 days.

 

Yes [X] 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 [   ]

(Does not currently apply to the Registrant)

 

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	[   ]		Accelerated filer	[   ]
Non-accelerated filer	[   ]	(Do not check if a smaller	Smaller reporting company	[X]
		reporting company)

 

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

 

Yes [   ] No [X]

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:[112,434,525] Shares of $0.001 par value common stock outstanding as of October 15, 2012.

 

  

PART I. Financial Information
Item 1. Interim Financial Statements.		3
Item 2. Management’s Discussion and Analysis or Plan of Operation.		4
Item 3. Quantitative and Qualitative Disclosures about Market Risk		6
Item 4. Controls and Procedures		7
Item 5. Other		9
Part II - Other Information
Item 1. Legal Proceedings		9
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		10
Item 3. Defaults upon Senior Securities		10
Item 4. (Removed and Reserved)		10
Item 5. Other Information		10
Item 6. Exhibits		10
SIGNATURES		11

  

 

PART I. Financial Information

 

Item 1. Interim Financial Statements.

 

The accompanying unaudited consolidated financial statements of Bizzingo, Inc. (“Bizzingo) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and, should be read in conjunction with the audited financial statements and notes thereto contained in Bizzingo’sAnnual Report Form 10-K filedwith the SEC on September 13, 2012. In the opinion of management, all adjustments consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period are not necessarily indicative of the results that may be expected for the full year. Notes to the interim financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal 2012 as reported in our Annual Report onForm 10-K filedwith the SEC on September 13, 2012have been omitted.

 

 

BIZZINGO, INC.

(A Development Stage Company)

 

Unaudited Financial Statements

(Expressed in U.S. Dollars)

 

August 31, 2012

 

Index		Page Number
Consolidated Balance Sheets		F-2
Consolidated Statements of Stockholders’ Deficiency		F-3
Consolidated Statements of Operations		F-7
Consolidated Statements of Cash Flows		F-8
Notes to Consolidated Financial Statements		F-9-F-28

 

 

BIZZINGO, INC.

(A Development Stage Company)

Consolidated Balance Sheets

August 31, 2012 and May 31, 2012

(Expressed in U.S. Dollars) (Unaudited)

 

		August 31, 2012				May 31, 2011
ASSETS
Current
Cash		$	14,222			$	17,104
Prepaids			12,000				17,000
Total current assets			26,222				34,104
Total Assets		$	26,222			$	34,104
LIABILITIES
Current
Accounts payable		$	996,140			$	589,818
Advance payable			6,250				-
Interest payable			231,097				219,111
Memberholder loan			2,046				2,046
Convertible notes payable			103,770				82,945
Notes payable			150,000				150,000
Stock issuance liability			358,400				1,507,191
Derivative liability – convertible notes payable			173,666				173,666
Total Current Liabilities			2,021,369				2,724,777
Derivative liability - warrants			159,470				159,470
Total Long-Term Liabilities							159,470
Total Liabilities		$	2,180,839			$	2,884,247
STOCKHOLDERS’ (DEFICIENCY) EQUITY
Share capital
Authorized:
Preferred stock $0.001 par value 100,000 shares authorized
None issued, allotted and outstanding:			-				-
Common stock $0.001 par value, 525,000,000 shares authorized
Issued, allotted and outstanding:
91,714,692 and 112,434,525 shares as of May 31, 2012 and August 31, 2012			112,435				91,715
Additional paid-in capital			26,345,248				24,616,004
Deficit accumulated during development stage			(28,612,300	)			(27,557,862	)
Total stockholders’ (deficiency) equity			(2,154,617	)			(2,850,143	)
Total liabilities and stockholders’ (deficiency) equity		$	26,222			$	34,104

 

The accompanying notes are an integral part of these financial statements.

 

 

BIZZINGO, INC. (A Development Stage Company) Consolidated Statement of Stockholders’ (Deficiency) Equity For the period April 3, 2009 (Inception) to August 31, 2012 (Expressed in U.S. Dollars) (Unaudited)

 

																						Total
		Common stock								Additional				Subscription				Deficit				Stock-holders’
		Shares				Amount				paid-in capital				Receivable				accumulated				(deficiency)
Shares issued for property April 3, 2009			1,920,000			$	1,920			$	4,998,092			$	(90	)		$	-			$	4,999,922
Shares issued for cash May 28, 2010			12,480,000			$	12,480			$	(12,390	)			-				-			$	90
Net Loss April 3, 2009 (Inception) to May 31, 2010			-				-				-				-			$	(186,902	)		$	(186,902	)
Balance, May 31, 2009			14,400,000			$	14,400			$	4,985,702			$	(90	)		$	(186,902	)		$	4,813,110
Subscription receivable			-				-				-			$	90				-			$	90
Shares issued for cash August 25, 2009			23,136,000			$	23,136			$	(22,991	)			-				-			$	145
Shares issued for cash March 10, 2010			5,782,400			$	5,782			$	(5,746	)			-				-			$	36
Recapitalization due to reverse merger			42,700,000			$	42,700			$	(83,243	)			-				-			$	(40,543	)
Shares cancelled due to reverse merger			(32,712,176	)		$	(32,712	)		$	32,712				-				-			$	-
Issuance of common stock @ $0.15 May 20, 2010			1,9333,333			$	1,933			$	288,067				-				-			$	290,000
Issuance of common stock in settlement
of notes payable May 31, 2010			6,514,310			$	6,515			$	6,507,796				-				-			$	6,514,311
Net loss for the year ending May 31, 2010																		$	(12,990,743	)		$	(12,990,743	)
Balance, May 31, 2010			61,753,867			$	61,754			$	11,702,297			$	-			$	(13,177,645	)		$	(1,413,594	)
Shares issued for cash on June 8, 2010 @ $0.15			1,333,333			$	1,333			$	198,667				-				-				200,000
Exchange agreement issuance June 22, 2010			1,334,176			$	1,334			$	999,298				-				-				1,000,632
Shares issued for cash on July 16, 2010 @ $0.15			2,520,000			$	2,520			$	375,480				-				-				378,000
Net loss for the period June 1, 2010 to August 31, 2010																		$	(617,663	)		$	(617,663	)
Balance, August 31, 2010			66,941,376			$	66,941			$	13,275,742			$	-			$	(13,795,308	)		$	(452,625	)

 

 

BIZZINGO, INC. (A Development Stage Company) Consolidated Statement of Stockholders” (Deficiency) Equity For the period April 3, 2009 (Inception) to August 31, 2012 (Expressed in U.S. Dollars) (Unaudited)

   

																						Total
		Common Stock								Additional				Subscription				Deficit				Stock-holders
		Shares				Amount				paid-in capital				Receivable				Accumulated				(deficiency)
Shares issued for cash on November 1, 2010			1,080,000			$	1,080			$	160,920				-				-			$	162,000
Net loss for the period September 1, 2010 to November 30, 2010																		$	(196,438	)		$	(196,438	)
Balance, November 30, 2010			68,021,376			$	68,021			$	13,436,662			$	-			$	(13,991,746	)		$	(487,063	)
Shares issued for cash on December 3, 2010			720,000			$	720			$	107,280				-				-			$	108,000
Shares issued for services January 31, 2011			2,000,000			$	2,000			$	1,198,000				-				-			$	1,200,000
Net loss for the period December 1, 2010 to February 28, 2011																		$	(1,433,108	)		$	(1,433,108	)
Balance, February 28, 2011			70,741,376			$	70,741			$	14,741,942			$	-			$	(15,424,854	)		$	(612,171	)
Shares issued for asset acquisition March 15, 2011			2,500,000			$	2,500			$	1,872,500				-				-			$	1,875,000
Net loss for the period March 1, 2011 to May 31, 2011																			(2,134,195	)		$	(2,134,195	)
Balance, May 31, 2011			73,241,376			$	73,241			$	16,614,442			$	-			$	(17,559,049	)			(871,366	)
Shares cancelled on July 26, 2011			(6,460,800	)			(6,461	)			6,461				-				-			$	-
Net loss for the period June 1, 2011 to August 31, 2011																		$	(519,726	)		$	(519,726	)
Balance, August 31, 2011			66,780,576				66,780			$	16,620,903			$	-			$	(18,078,775	)		$	(1,391,092	)
Shares issued to settle accounts payable			611,512			$	612			$	207,303				-				-			$	207,915
Stock options issued for services			-				-			$	720,349				-				-			$	720,349
Warrants issued for services			-				-			$	502				-				-			$	502
Net loss for the period September 1, 2011 to November 30, 2011																			(1,532,360	)		$	(1,532,360	)
Balance, November 30, 2011			67,392,088			$	67,392			$	17,549,057			$	-			$	(19,611,135	)		$	(1,994,686	)

 

 

BIZZINGO, INC. (A Development Stage Company) Consolidated Statement of Stockholders” (Deficiency) Equity For the period April 3, 2009 (Inception) to August 31, 2012 (Expressed in U.S. Dollars) (Unaudited)

 

																						Total
		Common Stock								Additional				Subscription				Deficit				Stock-holders
		Shares				Amount				paid-in capital				Receivable				Accumulated				(deficiency)
Shares issued for cash on December 7, 2011			2,500,000			$	2,500			$	247,500				-				-			$	250,000
Shares issued for services on December 7, 2011			800,000			$	800			$	95,200				-				-			$	96,000
Shares issued in settlement of notes payable December 7, 2011			1,643,719			$	1,644			$	195,602				-				-			$	197,246
Shares issued for note extension December 7, 2011			50,000			$	50			$	5,950				-				-			$	6,000
Shares issued for cash on February 1, 2012			1,250,000			$	1,250			$	123,750				-				-			$	125,000
Stock options issued for services			-				-				450,078				-				-			$	450,078
Warrants issued for services			-				-				882,838				-				-			$	882,838
Stock issuance costs			-				-				(19,300	)			-				-			$	(19,300	)
Net loss for the period December 1, 2011 to February 29, 2012			73,635,807			$	73,636			$	19,530,675				-			$	(2,776,504	)		$	(2,776,504	)
Shares issued for cash on March 2, 2012			5,850,000			$	5,850			$	629,150				-				-			$	635,000
Shares issued for services on March 2, 2012			800,000			$	800			$	119,200				-				-			$	120,000
Shares issued for cash on March 6, 2012			500,000			$	500			$	49,500				-				-			$	50,000
Shares issued for services on March 6, 2012			500,000			$	500			$	74,500				-				-			$	75,000
Shares issued in settlement of notes payable March6, 2012			4,130,970			$	4,131			$	615,514				-				-			$	619,645
Shares issued – anti dilution clause April 12, 2012			447,915			$	448			$	(448	)			-				-			$	-
Shares issued for services on April 12, 2012			3,700,000			$	3,700			$	904,300				-				-			$	908,000
Shares issued for services on May 3, 2012			650,000			$	650			$	174,200				-				-			$	174,850
Shares issued for cash on May 3, 2012			1,500,000			$	1,500			$	148,500				-				-			$	150,000
Stock options issued for services			-				-			$	572,522				-				-			$	572,522
Warrants issued for services			-				-			$	1,771,564				-				-			$	1,771,564

 

 

BIZZINGO, INC. (A Development Stage Company) Consolidated Statement of Stockholders” (Deficiency) Equity For the period April 3, 2009 (Inception) to August 31, 2012 (Expressed in U.S. Dollars) (Unaudited)

 

																						Total
		Common Stock								Additional				Subscription				Deficit				Stock-holders
		Shares				Amount				paid-in capital				Receivable				Accumulated				(deficiency)
Beneficial Conversion Feature			-				-			$	63,652				-				-			$	63,652
Stock issuance costs			-				-			$	(36,825	)			-				-			$	(36,825	)
Net loss for the period March 1, 2012 to May 31, 2012			-				-				-				-			$	(5,170,223	)		$	(5,170,223	)
Balance, May 31, 2012			91,714,692			$	91,715			$	24,616,004				-			$	(27,557,862	)		$	(2,850,144	)
Shares issued for services			17,371,918			$	17,372			$	1,039,849				-				-			$	1,057,221
Shares issued in settlement of debt			3,000,000			$	3,000			$	150,921				-				-			$	153,921
Warrants issued for services			-				-			$	388,966				-				-			$	388,966
Stock options issued for services			-				-			$	199,857				-				-			$	199,857
Shares issued – anti dilution clause July 18, 2012			347,915			$	348			$	(348	)			-				-			$	-
Debt Discount recapture on loan conversion			-				-			$	(50,000	)			-				-			$	(50,000	)
Net loss for the period June 1, 2012 to August 31, 2012			-				-				-				-			$	(1,054,438	)		$	(1,054,438	)
Balance, August 31, 2012			112,434,525			$	112,435			$	26,345,248				-			$	(28,612,300	)		$	(2,154,617	)

 

 

BIZZINGO, INC.

(A Development Stage Company)

Consolidated Statements of Operations

For the three months ended August 31, 2012 and 2011

and the period from April 3, 2009 (inception) to August 31, 2012

(Expressed in U.S. Dollars) (Unaudited)

 

		For the Three				For the Three				From Inception Date
		Months ended August 31, 2012				Months ended August 31, 2011				of April 3, 2009 to August 31, 2012
Revenue		$	-			$	-			$	-
General and Administrative expenses			1,136,327				526,185				13,726,274
Operating loss			(1,136,327	)			(526,185	)			(13,726,274	)
Other Income (Expense)
Impairment of IP music database and Computer code							-				(8,440,989	)
Interest expense			(12,908	)			(60,165	)			(968,398	)
Derivative expense											(340,437	)
Change in fair value of derivative expense											155,454
Gain on forgiveness of debt			-				66,624				360,630
Gain (Loss) on settlement of debt			94,797								(5,652,286	)
Net loss		$	(1,054,438	)			(519,726	)			(28,612,300	)
Loss per share – basic and diluted			(0.01	)		$	(0.01	)
Weighted average number of common  shares outstanding - basic and diluted			101,624,177				70,713,237

 

 

The accompanying notes are an integral part of these financial statements.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

For the three months ended August 31, 2012 and 2011 and

the period from April 3, 2009 (inception) to August 31, 2012

(Expressed in U.S. Dollars) (Unaudited)

  

		For the Three Months Ended August 31, 2012				For the Three Months Ended August 31, 2011				From Inception Date of April 3, 2009 to August 31, 2012
Cash flows from (used in) operating activities
Net loss for the year		$	(1,054,438	)		$	(519,726	)		$	(28,612,300	)
Adjustments to reconcile net loss to net cash
Provided by operating activities:
- Impairment of IP music database and computer code							-				8,440,989
- Loss on business acquisition							-				(44,361	)
- Loss on settlement of debt			(94,797	)			-				5,652,286
- Gain on forgiveness of debt							-				(360,630	)
- Stock based compensation			505,047				-				6,941,345
- Accretion of debt discount							-				1,827,314
- Derivative expense							-				340,437
- Change in fair value of derivative liabilities							-				(155,454	)
Changes in operating assets and liabilities:
(Increase) Decrease in:
- Advances			6,250				-				6,250
- Prepaid expenses and other assets			5,000				10,000				(12,000	)
- Accounts payable and accrued expenses			406,322				(45,306	)			996,140
- Capitalized interest			-				-				121,147
- Accrued interest payable - other			11,988				60,165				243,290
Net cash provided by operating activities			(214,628	)			(494,867	)			(4,615,547	)
Cash flows from (used in) investing activities
Purchase of Capital Assets			-				-				(75,000	)
Net cash (used) provided by investing activities							-				(75,000	)
Cash flows from (used in) financing activities
Proceeds from issuance of notes			150,921				495,000				2,305,921
Proceeds from issuance of convertible notes			(29,175	)			-				245,825
Repayment of notes							-				(281,000	)
Proceeds from memberholder loan							-				2,046
Shares issued (subscribed) for cash			90,000				-				2,488,102
Stock issuance costs							-				(56,125	)
Net cash (used) provided by financing activities			211,746				495,000				4,704,769
Increase in cash and cash equivalents			(2,882	)			133				14,222
Effect of exchange rate on cash
Cash and cash equivalents, beginning of year			17,104				4,101				-
Cash and cash equivalents , end of period		$	14,222			$	4,234			$	14,222
Cash and cash equivalents represented by:
Cash		$	14,222			$	4,234			$	14,222

 

The accompanying notes are an integral part of these financial statements.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

Note 1.

Organization and Summary of Significant Accounting Policies

 

On April 27, 2010, pursuant to share purchase agreements (the “Purchase Agreements”), Phreadz, Inc. completed the acquisitions of Phreadz USA, LLC (“Phreadz LLC”) and Universal Database of Music USA, LLC (“UDM”).The acquisitions were accounted for as a recapitalization effected by a reverse merger, wherein Phreadz and UDM were considered the acquirer for accounting and financial reporting purposes. The pre-merger assets and liabilities of the acquired entities have been brought forward at their book value and no goodwill has been recognized. The consolidated accumulated deficit of Phreadz LLC and UDM has been brought forward, and common stock and additional paid-in-capital of the combined Company have been retroactively restated to give effect to the exchange rates as set forth in the Purchase Agreements.

As set forth above, on April 27, 2010 (the “Closing Date”) and pursuant to the terms and conditions of the Purchase Agreements, we: (i) consummated the acquisitions of Phreadz LLC and UDM, and (ii) each of Phreadz LLC and UDM became our wholly owned subsidiary. More specifically, pursuant to and in connection with the Purchase Agreements:

 

●

in exchange for 100% of the issued and outstanding membership interests of Phreadz LLC, we issued to the holders of the Phreadz LLC membership interests an aggregate of 21,659,200 shares of our common stock; and

●

in exchange for 100% of the issued and outstanding membership interests of UDM, we issued to the holders of the UDM membership interests an aggregate of 21,659,200 shares of our common stock.

●

in addition, pursuant to the terms of the Purchase Agreements, 32,712,176 shares of our issued and outstanding common stock previously held by certain stockholders were cancelled..

 

As a result of the acquisitions of Phreadz LLC and UDM, we experienced a change in control and ceased to be a “shell” company as defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”).

Phreadz LLC was organized as a limited liability company in the State of Nevada in April 2009. Since its inception, Phreadz LLC has not undertaken any material business activities.

 

UDM was organized as a limited liability company in the State of Nevada in April 2009. On May 29, 2009, UDM consummated an asset purchase agreement with Jacques Krischer and UDM, Ltd., pursuant to which it acquired a music database and search tools. Since its inception, UDM has not undertaken any material business activities.

 

Nature of Operations and Going Concern

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate the Company’s continuation as a going concern. Since April 3, 2009 (inception), the Company has reported net losses of ($27,557,862), operating activities have used cash of ($4,400,919) and the Company has a stockholders’ deficit of ($2,850,143) as of May 31, 2012. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

The Company is actively involved in discussions and negotiations with investors. We do not believe we have sufficient working capital to operate without additional funding. Assuming we raise the necessary capital through the sale of equity or equity equivalents, we expect that we will have adequate working capital through 2012. However, any equity financing may be very dilutive to our existing shareholders.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

There is no assurance that continued financing proceeds will be obtained in sufficient amounts necessary to meet the Company’s needs. In view of these matters, continuation as a going concern is dependent upon the Company’s ability to meet its financing requirements, raise additional capital, and the future success of its operations. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Phreadz LLC and UDM. All intercompany accounts and transactions have been eliminated in consolidation.

 

Note 2.

Significant Accounting Policies

 

(a)

Development Stage Company

 

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

 

(b)

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 amounts reported in the financial statements and accompanying notes.

 

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.

 

(c)

Cash Equivalents

 

For purposes of the statement of cash flows cash equivalents usually consist of highly liquid investments which are readily convertible into cash with maturity of three months or less when purchased.

 

(d)

Concentration of Credit Risk

 

The Company has no significant off-balance-sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with one financial institution, in the form of demand deposits.

 

  

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

(e)

Intangibles

Intangibles are comprised of acquired technologies. In accordance with ASC 350, intangible assets with indefinite lives are not amortized but instead are measured for impairment at least annually, or when events indicate that an impairment exists. The Company calculates impairment as the excess of the carrying value of its indefinite-lived assets over their estimated fair value. If the carrying value exceeds the estimate of fair value a write-down is recorded. The Company amortizes it’s intangibles with finite useful lives over their respective useful lives. For the years ended May 31, 2012 and 2011, the Company recorded impairments related to intangible assets of $1,565,989 and $1,875,000, respectively.

 

(f)

Debt Issue Costs and Debt Discount

 

These items are amortized over the life of the debt to interest expense. If a conversion, extinguishment or repayment of the underlying debt occurs, a proportionate share of these amounts is immediately expensed.

 

(g)

Fair Value of Financial Instruments

 

The Company follows ASC 820-10 of the FASB Accounting Standards Codification to measure the fair value of its financial instruments and disclosures about fair value of its financial instruments. ASC 820-10 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, ASC 820-10 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by ASC 820-10 are described below:

 

Level 1: Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.

 

Level 2: Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.

 

Level 3: Pricing inputs that are generally unobservable inputs and not corroborated by market data.

 

Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.

 

The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate their fair values because of the short maturity of these instruments.

 

The Company’s note payable and convertible notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at May 31, 2012 and May 31, 2011.

 

The Company’s Level 3 financial liabilities consist of certain common stock warrants and embedded conversion features for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. The Company valued the warrant and conversion features using an option pricing model. These models incorporate transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as assumptions about future financings, volatility, and holder behavior as of the date of issuance and each balance sheet date.

 

Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated.

 

It is not, however, practical to determine the fair value of advances from stockholders due to their related party nature.

 

(h)

Fair Value of Financial Assets and Liabilities Measured on a Recurring Basis

 

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative liability at every reporting period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of the derivative liability.

 

Financial assets and liabilities measured at fair value on a recurring basis are summarized below and disclosed on the balance sheets as follows:

 

						Fair Value Measurement Using
August 31, 2012		Carrying Value				Level 1				Level 2				Level 3				Total
Derivative conversion features and warrant liabilities		$	333,135			$	-			$	-			$	333,135			$	333,135

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

The table below provides a summary of the changes in fair value, including net transfers in and/or out, of all financial assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the period.

 

 

		Fair Value Measurement Using Level 3 Inputs
			Derivative conversion features				Total
Balance, May 31, 2012		$	333,135			$	333,135
Purchases, issuance and settlements			-
Total gains or losses (realized/unrealized) included in net loss			-
Balance, August 31, 2012		$	333,135			$	333,135

 

(i)

Debt Issue Costs and Discount on Debt

 

Amortized over the life of the debt to interest expense. If a conversion, extinguishment or repayment of the underlying debt occurs, a proportionate share is expensed.

 

(j)

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.

 

(k)

Derivative Instruments

 

The Company evaluates its convertible debt, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-15. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statements of operations as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity.

In circumstances where the embedded conversion option in a convertible instrument is required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities will be  classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument is expected within 12 months of the balance sheet date.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

(l)

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 the 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. The expense resulting from share-based payments is recorded as general and administrative expense. Stock based compensation expense for the period ended August 31, 2012 and 2011 amounted to $505,047 and $0.00 respectively.

(m)

Revenue

 

The Company records revenue on the accrual basis when all goods and services have been performed and delivered, the amounts are readily determinable, and collection is reasonably assured. The Company currently is in the development stage and has not generated any revenue since its inception. 

(n)

Advertising

 

The Company expenses advertising when incurred. Advertising expense for the period ended August 31, 2012 and 2011 was $0 and $0, respectively.

(o)

Income Taxes

 

Income taxes are provided in accordance with ASC No. 740, Accounting for Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. 

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion of all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

(p)

Net Loss per Share

 

Net loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the applicable period. Diluted loss per share is determined in the same manner as basic loss per share, except that the number of shares is increased to include potentially dilutive securities using the treasury stock method. Since the Company incurred a net loss in all periods presented, all potentially dilutive securities were excluded from the computation of diluted loss per share since the effect of including them is anti-dilutive.

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

(q)

Subsequent Events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Recent accounting pronouncements

 

There are no recent accounting pronouncements that are expected to have a material effect on the Company’s financial statements.

 

Note 3.

Intangible

 

The Company has valuation reports from Cethial Bossche Content Network (Montreal, Canada) dated January 22, 2007 and Copiliot Partners (France) dated January 19, 2007. The two firms have placed a valuation of between €9.5 and €17 million Euros and €12 million Euros, respectively, on the assets described as UDM music databases and related tools. Based on the above and other comparables, a pro forma five year cash flow analysis, the Company determined that a fair deemed value of $5,000,000 was appropriate with that deemed value attributable to the music database at April 3, 2009 (Inception). As the Company did not obtain a third party valuation report at the end of the fiscal period ended February 28, 2010, we fully impaired the $5,000,000 carrying value of this intellectual property as of that date.

 

In April 2012, the Company acquired certain shortcode technology of IntroMe, Inc which will allow Bizzingo to extend its B2B platform to mobile devices. As consideration for the acquisition of the technology, the Company paid IntroMe Inc., the sum of $75,000, issued a convertible note in the principal amount of $75,000 bearing interest at 8% per annum and a common stock purchase warrant to acquire 4.08 million shares of common stock. (See Note 4) As the Company did not obtain a third party valuation report at the end of the fiscal year ended May 31, 2012, we fully impaired the $1,565,989 carrying value of this intellectual property as of that date.

 

Amortization expense related to the Shortcode technology for the period ended August 31, 2012 and 2011 was $0 and $0, respectively.

 

Note 4.

Asset Acquisition

 

On April 30, 2012, the Company entered into an Asset Purchase Agreement with IntroMe, Inc (the “Seller”), and all the shareholders of the Seller (the “Shareholders”); setting forth the acquisition certain technology of IntroMe, Inc.

 

Pursuant to the terms of the Purchase Agreement, the Company acquired certain technology of the Seller in exchange for the sum of $75,000, the issuance of a promissory note, convertible into shares of our common stock, $0.001 par value at a per share conversion price of the closing price of the Company’s common stock on the conversion date, subject to certain adjustments, in the amount of $75,000,and common stock purchase warrants of the Company which shall enable Seller to acquire 4,080,000 shares of common stock, $0.001 par value, of the Company at $0.34 per share exercise price.

 

Total price paid for the Seller’s assets in the acquisition was $1,565,989.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

The following sets forth the components of the purchase price:

 

Purchase Price:
Convertible notes issued to seller		$	75,000
Cash paid			75,000
Fair value of common stock warrants			1,367,837
Fair value conversion option			48,152
Total purchase price			1,565,989
Assets acquired
Acquired technology			1,565,989
Total assets acquired			1,565,989
Excess purchase price		$	-

 

The intangible assets acquired were deemed fully impaired by the Company at May 31, 2012.

 

Note 5.

Notes Payable

A member of the Company loaned $200,000 to the Company pursuant to a Note(s) Payable Agreement dated August 10, 2009. The loan terms include a $16,000 interest bonus and accrues simple interest at a rate of 8% per annum. The note matured on December 31, 2009 and by agreement was extended to March 31, 2010. Interest accrued at the rate of 8% annually and was $13,776.64 for the period April 3, 2009 (inception) to May 31, 2010. On October 17, 2011 the note was paid in full along with outstanding accrued interest.

 

On February 21, 2011, the Company entered in a promissory note for $110,000.00 The note terms are for 1 year and carry an interest rate of 10% per annum. On February 15, 2012, the holder of the note entered into a subscription agreement which provided for the conversion of the principal and accrued interest on the note. On March 6, 2012 the note was settled with 1,203,972 shares of our common stock.

 

On April 7, 2011, the Company entered in a promissory note for $50,000.00. The note terms are for 1 year and carry an interest rate of 10% per annum. On February 15, 2012, the holder of the note entered into a subscription agreement which provided for the conversion of the principal and accrued interest on the note. On March 6, 2012 the note was settled with 542,191 shares of our common stock.

 

On May 3, 2011, the Company entered in a promissory note for $75,000.00 with a related party. The note terms are for 1 year and carry an interest rate of 10% per annum. On September 16, 2011, an additional $10,000 was advanced on this note. The note and accrued interest was assigned by the holder on December 7, 2011 and settled with 682,276 shares of our common stock.

 

On June 6, 2011, the Company entered in a promissory note for $50,000.00 with a related party. The note terms are for 1 year and carry an interest rate of 10% per annum. The note and accrued interest was assigned by the holder on December 7, 2011 and settled with 344,840 shares of our common stock.

 

On June 16, 2011, the Company entered in a promissory note for $40,000.00 with a related party. The note terms are for 1 year and carry an interest rate of 10% per annum. The note and accrued interest was assigned by the holder on December 7, 2011 and settled with 274,411 shares of our common stock.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

On July 5, 2011, the Company entered in a promissory note for $50,000.00 with a related party. The note terms are for 1 year and carry an interest rate of 10% per annum. The note and accrued interest was assigned by the holder on December 7, 2011 and settled with 342,192 shares of our common stock.

 

On July 5, 2011, the Company entered in a promissory note for $125,000.00. The note terms are for 1 year and carry an interest rate of 10% per annum. On February 15, 2012, the holder of the note entered into a subscription agreement which provided for the conversion of the principal and accrued interest on the note. On March 6, 2012 the note was settled with 1,327,054 shares of our common stock.

 

On July 14, 2011, the Company entered in a promissory note for $100,000.00. The note terms are for 1 year and carry an interest rate of 10% per annum. On February 15, 2012, the holder of the note entered into a subscription agreement which provided for the conversion of the principal and accrued interest on the note. On March 6, 2012 the note was settled with 1,057,753 shares of our common stock.

 

On August 2, 2011, the Company entered in a promissory note for $150,000.00. The note terms are for 1 year and carry an interest rate of 10% per annum. Interest expense was $1,191.78 for the period ending August 31, 2011. The Holder was also granted 900,000 Series A Warrants, with an exercise price of $0.30 per share, expiring July 31, 2020.

 

On October 7, 2011, the Company entered into a secured promissory note for $250,000 with a related party. The note terms are for 6 months and carry an interest rate of 10% per annum. On April 02, 2012, the holder of the note entered into a subscription agreement which provided for the conversion of the principal and accrued interest on the note. As of May 31, 2012 the Company had not yet issued the shares.

 

A member of the Company loaned $2,046 to the Company on no terms.

 

Note 7.

Convertible Notes Payable

 

7-a

On April 27, 2012, in connection with an asset acquisition, the Company issued a convertible note to IntroMe, Inc. in the principal amount of $75,000, which is convertible into shares of the Company’s common stock, and warrants to purchase 4,080,000 shares of common stock with an exercise price of $0.34 per share of $75,000 to IntroMe, Inc. (See Note 4)

 

The convertible note has a term of eleven months and accrues interest at 8% per annum. The Company is required to make ten equal, consecutive monthly payments of $7,500 on the first day of each month commencing with June 1, 2012. The holder of the convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a per share conversion price of the closing price of the Company’s common stock on the conversion date. The conversion price and number and kind of shares to be issued upon conversion of the convertible notes are subject to adjustment from time to time as more fully described in the convertible notes. At August 31, 2012, $50,825.00 was outstanding.

  

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

Conversion Feature

 

Due to the fact that these convertible notes have an option to convert at a variable amount, they are subject to derivative liability treatment. The Company has applied ASC No. 815, due to the potential for settlement in a variable quantity of shares. The convertible notes have been measured at fair value using an option pricing model at period end with gains and losses from the change in fair value of derivative liabilities recognized on the statements of operations.

 

The convertible notes, when issued, gave rise to a derivative liability which was recorded as a discount to the notes of $48,152.

 

The embedded derivative of the convertible notes was re-measured at May 31, 2012 yielding a gain on change in fair value of the derivatives of $2,095 for the period ended May 31, 2012. For the period June 1, 2012 to August 31, 2012 no change was made to the note value or derivative liability. The derivative value of the convertible notes at August 31, 2012 carried a derivative liability at fair value of $46,058.

 

As of May 31, 2012, accrued and unpaid interest under the Note was $1,799.88.

 

Warrants

 

Each of the warrants issued to the Introme Inc. has a term of six years from April 27, 2012 and were fully vested on the date of issuance. The warrants are exercisable at $0.34 per share.

 

The warrants, when issued, gave rise to the allocation of $1,367,837 fair value into the asset purchase price. (See Note 4)

 

As of August 31, 2012 warrants to purchase 4,080,000 shares of Company common stock remain outstanding.

 

7-b

On May 10, 2012, the Company issued a convertible note to Telperion Holdings LTD. (the “Holder”) in the principal amount of $100,000, and on June 21, 2012 the Company issued a second convertible note for $13,000, to the same Holder both of which are convertible into shares of the Company’s common stock, and warrants to purchase 1,000,000 shares of common stock each with an exercise price of $0.10 per share.

 

The convertible note has a term of twelve months and accrues interest at 8% per annum. The holder of the convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.10 per share. The conversion price and number and kind of shares to be issued upon conversion of the convertible notes are subject to adjustment from time to time as more fully described in the convertible notes.

 

Conversion Feature

 

Due to the fact that these convertible notes have full reset adjustments based upon the issuance of equity securities by the Company in the future, they are subject to derivative liability treatment under ASC No. 815. The convertible notes have been measured at fair value using an option pricing model at period end with gains and losses from the change in fair value of derivative liabilities recognized on the statements of operations.

 

The convertible notes, when issued, gave rise to a derivative liability which was recorded as a discount to the notes of $100,000 and interest expense of 102,557.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

The embedded derivative of the convertible notes was re-measured at May 31, 2012 yielding a gain on change in fair value of the derivatives of $74,949 for the period ended May 31, 2012 with no change at August 31, 2012. The derivative value of the convertible notes at May 31, 2012 yielded a derivative liability at fair value of $127,608 with no change at August 31, 2012.

 

As of August 31, 2012, accrued and unpaid interest under the Note(s) was $$2,476.71 and $202.30.

 

Derivative Warrants

 

Each of the warrants issued to the Holder has a term of three years from May 10, 2012 and June 21, 2012 and was fully vested on the date of issuance. The warrants are exercisable at $0.10 per share. The number of shares of common stock underlying each warrant and the exercise price are subject to certain adjustments as more particularly described in the warrants.

 

The warrants, when issued, gave rise to a derivative liability of which was recorded as interest expense of $237,880. The embedded derivative of the warrants was re-measured at May 31, 2012 yielding a gain on change in fair value of the derivative of $78,411 for the period ended May 31, 2012. There was no change to this measurement at August 31, 2012. The derivative value of these warrants at May 31, 2012 yielded a derivative liability at fair value of $159,469. There was no change to this value at August 31, 2012.

 

As of August 31, 2012 warrants to purchase 2,000,000 shares of Company common stock remain outstanding.

 

7-c

On May 23, 2012, the Company issued a convertible note to Robin Smith (the “Holder”) in the principal amount of $50,000, which is convertible into shares of the Company’s common stock, and warrants to purchase 200,000 shares of common stock with an exercise price of $0.30 per share.

 

The convertible note has a term of twelve months and accrues interest at 10% per annum. In addition, on the maturity date, the Company will pay the Holder the sum of $1,000 as additional interest. The Holder of the convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.10 per share.

 

Beneficial Conversion Feature

 

The intrinsic value of the convertible note, when issued, gave rise to a beneficial conversion feature which was recorded as a discount to the notes of $24,623 to be amortized over the term of the note. On July 18, 2012 the note was converted and the discount was recaptured.

 

As of July 18, 2012 $920.550 in accrued interest was included in the conversion.

 

Warrants

 

Each of the warrants issued to the Holder have a term of five years from May 23, 2012 and were fully vested on the date of issuance. The warrants are exercisable at $0.30 per share.

 

The fair value of the warrants, when issued, were recorded as a discount to the notes of $25,377 to be amortized over the term of the note. On July 18, 2012 the note was converted and the discount was recaptured.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

As of August 31, 2012 warrants to purchase 200,000 shares of Company common stock remain outstanding.

 

7-d

On May 23, 2012, the Company issued a convertible note to David Shamouelian (the “Holder”) in the principal amount of $50,000, which is convertible into shares of the Company’s common stock, and warrants to purchase 200,000 shares of common stock with an exercise price of $0.30 per share.

 

The convertible note has a term of twelve months and accrues interest at 10% per annum. In addition, on the maturity date, the Company will pay the holder the sum of $1,000 as additional interest. The Holder of the convertible note has the right from and after the issuance thereof until such time as the convertible note is fully paid, to convert any outstanding and unpaid principal portion thereof into shares of common stock at a conversion price of $0.05 per share.

 

Beneficial Conversion Feature

 

The intrinsic value of the convertible note, when issued, gave rise to a beneficial conversion feature which was recorded as a discount to the notes of $39,030 to be amortized over the term of the note.

 

As of August 31, 2012, accrued and unpaid interest under the Note was $1,643.84.

 

Warrants

 

Each of the warrants issued to the Holder have a term of five years from May 23, 2012 and were fully vested on the date of issuance. The warrants are exercisable at $0.30 per share.

 

The fair value of the warrants, when issued, were recorded as a discount to the notes of $10,970 to be amortized over the term of the note.

 

As of May 31, 2012 warrants to purchase 200,000 shares of Company common stock remain outstanding.

 

Note 8.

Commitments

 

Employment Agreements

 

On June 1, 2011 we entered into consulting agreements with each of Mr. Douglas Toth and Mr. Gordon Samson, our CEO and CFO, pursuant to which each has agreed to terms with the Company. Both Mr. Toth and Mr. Samson previously provided services to the Company with no agreement. These agreements provide for a base salary of no less than $240,000 and 180,000 per annum respectively.

 

Both agreements provide that Mr. Toth and Mr. Samson are eligible for an annual, performance-based bonus if and when the Company implements an applicable annual incentive plan. The Agreements specified that the Compensation Committee of the Board of Directors would establish such a plan.

 

As an inducement to enter into these Agreements, Mr. Toth and Mr. Samson will be awarded not less than 1,000,000 shares of our common stock under an S-8 plan to be filed. Additionally on the origination of a company stock option plan they are each to be awarded stock options, with a seven year term, in respect of 3,000,000 shares of the Company’s common stock. The exercise price for these stock option’s will be the market price at time of grant or such other amount as established by a plan. The options are scheduled to vest in two equal annual installments. If Mr.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

Toth or Mr. Samson were to terminate their agreements voluntarily without good reason as defined in the agreement, they would forfeit any unvested shares related to this option grant.

 

Additionally, the termination provisions of these agreements, define “Termination for Cause” and “Termination for Good Reason”. Included in the Termination for Good Reason clauses is a triggering event provision pursuant to a “change of control”. A triggering event is defined to include a termination of the agreement by the participant following a reduction in position, pay or other “constructive termination,” or a failure by a new control group to assume or continue any plan awards.

 

The termination benefit provided to Mr. Toth and Mr. Samson upon an involuntary termination by the Company without cause, or a termination by either Mr. Toth or Mr. Samson for good reason, is a cash severance payment in an amount equal to the sum of (a) the then current base salary and (b) the average of the annual bonuses payable (including in such average a zero for any year for which no such bonus is payable) to him with respect to each of the last three completed fiscal years of the Company for which the amount of such bonus has been determined at the date of such termination.

 

To qualify for the cash severance benefit, any applicable bonus amounts and opportunity to vest in unvested equity awards available under a stock option plan following an involuntary termination by the Company without cause, or a termination for good reason, Mr. Toth and/or Mr. Samson must execute a release in favor of the Company and agree to provide the Company with certain consulting services for a period of six months after termination. Additionally, during the period of these consulting services, Mr. Toth and/or Mr. Samson, must also agree not to provide any services to entities that compete with any of the Company’s business.

 

These agreements became effective June 1, 2011 and have stated terms through May 31, 2012.

 

On November 11, 2011, the Company and Douglas Toth amended and superceded the June 1, 2011 consulting agreement with an Employment Agreement in which Douglas Toth will serve as Chairman and Chief Executive Officer of the Company. The term of the Agreement ends May 31, 2012. Compensation under the plan will remain at $240,000 per annum with a right to earn incentive compensation. In addition Mr. Toth will receive a stock award of 2,000,000 shares of common stock on or after January 1, 2012. Further, Mr. Toth will be granted 5,000,000 options to purchase company stock. The options will vest as follows:50% shall vest on June 30, 2011, and the remaining 50% shall vest pro-rata monthly from June 2011 through May 2012.

 

On August 19, 2011, Gordon Samson resigned as Director and CFO of the Company.

 

Joint Venture Agreement

 

On February 9, 2012, the Company entered into Joint Venture Agreement with Sun Enterprises Group, Ltd., a Cayman company. The parties have agreed to establish a Hong Kong joint venture entity, wherein each participant will have an equal equity ownership and ownership rights. The joint venture entity may establish a wholly owned operating company domiciled in the Peoples Republic of China.

 

The purpose of the joint venture is to provide SaaS (Software as a service) products to Chinese businesses by delivering collaborative intranet abilities and connectivity to international businesses through the Bizzingo B2B social networking platform. This operation will be developed in the PRC through the PRC subsidiary.

 

The Company, in addition to other contributions, has agreed to issue a royalty free license to the joint venture for the technology surrounding its B2B social networking platform on an exclusive basis for the territory of PRC, Hong

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

Kong, Macau Special Administrative Zone, and Taiwan. In addition, the joint venture entity may act as non-exclusive agent to market, sell and distribute the Bizzingo technology outside the described territory.

 

Sun Enterprises, among other contributions, has agreed to provide to the joint venture, a management team and the marketing expertise, as well as communications support, and media relationships along established sales channels.

 

Consulting Agreements

 

On December 01, 2010, we entered into a consulting agreement with Groupmark Financial Services Ltd., providing for $10,000 per month for services rendered each month.

 

On September 21, 2011, the Company entered into a two year agreement with Creative Processing, Inc (“CP”) to provide advertising and marketing services. CP is to be compensated for its services with 2,400,000 shares of Company common stock, to be issued over a one year period. In addition the Company will issue CP 2,400,000 stock purchase warrants with an exercise price of $0.20 per share. The parties amended the agreement in March 2012 to include monthly compensation to CP of $5,000 per month, starting March 1, 2012 and ending February 1, 2013.

 

On September 23, 2011, the Company entered into a two year agreement with Wall & Madison, LLC (“Wall”) to provide business development and marketing services. The Company will compensate Wall $10,000 per month relating to this agreement.

 

On October 7, 2011, the Company entered into a two year agreement with David Shamouelian, a Director of the Company, to provide marketing services. Mr. Shamouelian is one of the most respected names in the fashion industry. He is to be compensated for his services with 3,200,000 shares of Company common stock, to be issued over a 18 month period.

 

On October 17, 2011, the Company entered into a services agreement with BPG Worldwide, an award-winning Internet software development firm. BPG will provide technology services to further develop and launch Bizzingo’s B2B search and social media platform. The Company will be billed monthly for these services on a time and material basis.

 

On December 1, 2011, the Company engaged Advance Ventures, LLC (“Advance”), based in Silicon Valley, to provide venture development services, including guidance on recruitment, business development and enhancing strategic relationships in Silicon Valley. The Company will compensate Advance $10,000 per month relating to this agreement. In addition, the parties amended the agreement in March 2012 and May 2012, wherein the Company agreed to issue 100,000 shares of common stock to Advance as per the March amendment and an additional 100,000 shares of common stock as per the May amendment.

 

On February 5, 2012 the Company entered into a two year agreement with SB Acquisiton #1 (“SB”) to provide advertising and marketing services. SB is to be compensated for its services with 1,550,000 shares of Company common stock, to be issued over a one year period.

 

On March 28, 2012 the Company entered into a two year agreement with Var Growth (“VG”) to provide business development and marketing services. VG is to be compensated for its services with 3,600,000 shares of Company common stock, to be issued immediately.

 

On May 25, 2012 the Company entered into a one year agreement with Joby Capital, LLC (“Joby”) to provide business development and marketing services. Joby is to be compensated for its services with 1,000,000 shares of Company common stock.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

On May 31, 2012 the Company entered into a one year agreement with MidAtlantic Capital Associates SL (“MidAtlantic”) to provide general business consulting services and business development in Europe. MidAtlantic is to be compensated for its services with up to 3,000,000 stock purchase warrants with an exercise price of $0.17 per share. 500,000 warrants will be earned immediately and the remaining warrants shall be earned upon MidAtlantic attaining certain benchmarks as stipulated in the consulting agreement.

 

In addition, the Company will pay MidAtlantic a finder’s fee equal to eight percent on all cashed received by the Company from the sale of its equity securities to investors that were directly introduced to the Company by MidAtlantic, and five percent on cashed received by the Company from the sale of its debt securities to investors that were directly introduced to the Company by MidAtlantic, provided that each such investor will not be a “US Person” as that term is defined under Rule 902 of Regulation S promulgated under the Securities Act of 1933, as amended.

 

Advisory Board Agreement

 

In April and May 2012, the Company entered into Advisory Board agreements with Mark Waxman and Ranjith Kumaran (the “Advisors”), respectively. The term of the agreements is for a period of between one to three years unless either party provides a 30-day advance written notice of termination. As compensation for their services, each Advisor shall receive stock options to acquire 100,000 shares of common stock of the Company. As of August 31, 2012 100,000 stock options to Ranjith Kumaran were granted.

 

Celebrity Endorsement Agreement

 

On March 14, 2012, the Company entered into Celebrity Endorsement Agreement with Joseph Theismann. Mr. Theismann is a Hall of Fame, National Football League quarterback.

 

The term of the agreement is for a period of one year, during which the Company is authorized to utilize Mr. Theismann’s name and likeness in the promotion of its B2B Network. In addition, Mr. Theismann has agreed to make himself available for a number of photo sessions and promotional appearances. Mr. Theismann will receive certain stock purchase warrants in the Company in exchange for the rights granted and services provided to the Company.

 

On March 15, 2012 the Company entered into a Finder’s Fee Agreement which provides for payment of a finder’s fee equal to 10% of the consideration paid under the above referenced Celebrity Endorsement Agreement.

 

Placement Agent and Advisory Services

 

On September 15, 2011 the Company entered into a one year agreement with Ocean Business Solutions Group, LLC (“Ocean”) and Ocean Cross Capital Markets, LLC (“OCCM”) to provide business consulting and capital placement services. The Company will pay Ocean a monthly management fee of $3,000 starting on October 1st 2011 for a period of twelve months. In addition the Company issued 275,000 stock purchase warrants to Ocean at the execution of the agreement. The Company will pay OCCM ten percent (10%) of any gross proceeds received by the Company in connection with the portion of any Financing placed by OCCM in which securities are issued by the Company.

 

On May 2, 2012, the Company terminated its agreement with OCCM.

 

On February 10, 2012 the Company entered into a one year agreement with Brean Murray, Carret & Co., a FINRA registered broker-dealer (“BMC”),as its exclusive corporate finance advisor and investment banker. Upon execution of the agreement, the Company is to issue BMC a non-refundable retainer consisting of 650,000 shares of Company Common Stock. to provide business consulting and capital placement services. The Company shall also pay BMC

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

seven percent (7%) of any gross proceeds received by the Company in connection with a public or private offering of equity including convertible debt and convertible preferred equity. In the event of a private offering of debt BMC’s fee will be based on a percentage of the gross proceeds raised or commitments provided as follows: three percent (3%) with respect to senior debt and five percent (5%) with respect to nonconvertible subordinated debt. BMC will receive three percent (3%) of the consideration received or paid in a sale or merger transaction involving the Company. In addition BMC will receive a warrant allowing it to purchase, at its options, identical securities to those purchased by and/or issued or granted to investors in such transactions, in an amount equal to 7% of equity offerings and 5% of subordinated debt.

 

On February 29, 2012 the Company entered into an agreement with Monarch Bay Associates, LLC., a FINRA registered broker-dealer (“MBA”),as its non-exclusive placement agent, on a non-exclusive basis, with respect to finding investors. The Company shall compensate MBA nine percent (9%) of gross proceeds received by the Company in connection with a public or private offering of equity including convertible debt and convertible preferred equity (the “Financing”). In addition MBA will receive a warrant allowing it to purchase nine percent (9%) of the total number of shares of common stock issued and issuable by the Company to investors under and in connection with the Financing. In addition the Company will issue 200,000 stock purchase warrants at the successful completion of a financing at $0.15 per share.

 

Note 9.

Options

 

During the period ended August 31, 2012, the Company issued Directors, Officers and Consultants a total of 12,950,000 stock options under the 2011 Stock Option Plan. The Company valued the options utilizing an option pricing model and are expensing the options over the vesting periods. The exercise price of the options were issued at fair market value on the date of grant and range from $0.16 to $0.33. All options have a term of 10 years. The Company recorded an expense of $1,742,949 during the year ended May 31, 2012. For the period June 1, 2012 to August 31, 2012 the Company recorded an additional expense of $199,857.

 

Note 10.

Warrants

 

The value of the warrants have been calculated using an option pricing model as of the date of grant based on the following assumptions: a risk free rate (range .21%-2.96%); a dividend yield of 0.00%; a volatility factor of (range 90%-200%); and an expected life (range 2-10 years).

 

On May 20, 2010, we entered into a Unit Purchase Agreement with a single accredited investor (the May 20th Purchaser) pursuant to which the May 20th Purchaser purchased 10.74074 Units (“Units”) at a purchase price of $27,000 per Unit, for an aggregate purchase price of $290,000. Each Unit purchased consisted of: (a) one hundred eighty thousand (180,000) shares of the Company’s common stock; (b) a Series A Warrant to purchase ninety thousand (90,000) shares of common stock at an exercise price of $0.30 per share; and (c) a Series B Warrant to purchase ninety thousand (90,000) shares of common stock at an exercise price of $0.60 per share. Accordingly, the May 20th Purchaser received 1,933,333 shares of common stock; a Series A Warrant to purchase 966,667 shares of common stock; and a Series B Warrant to purchase 966,666 shares of common stock.

 

On May 31, 2010, we entered into Unit Purchase Agreements with nine (9) accredited investors (the May 31st Purchasers) pursuant to which the May 31st Purchasers purchased 33.0425 Units at a purchase price of $27,000 per Unit, for an aggregate purchase price of $892,147.34. The purchase price for the Units were paid via assignment of certain outstanding promissory notes originally issued by our subsidiaries UDM and Phreadz. In addition, one May 31st Purchaser also received the “right” with their note to receive the equivalent amount of the face amount of such note in Units with the consideration of the original note. Each Unit purchased consisted of: (a) one hundred eighty thousand (180,000) shares of the Company’s common stock; (b) a Series A Warrant to purchase ninety thousand

 

  

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

(90,000) shares of common stock at an exercise price of $0.30 per share; and (c) a Series B Warrant to purchase ninety thousand (90,000) shares of common stock at an exercise price of $0.60 per share. Accordingly, in total, the May 31st Purchasers received 6,514,310 shares of common stock; a Series A Warrant to purchase 3,257,154 shares of common stock; and a Series B Warrant to purchase 3,257,154 shares of common stock.

 

On June 8, 2010, we entered into a Unit Purchase Agreement with a single accredited investor pursuant to which the Purchaser purchased 7.4074 Units at a Purchase Price of $27,000 per Unit for an aggregate purchase price of $200,000. Each Unit purchased consisted of (a) one hundred eighty thousand (180,000) shares of the Company’s common stock, par value $0.001 per share (“Common Stock”); (b) a Series A Warrant (the “Series A Warrants”) to purchase ninety thousand (90,000) shares of Common Stock at an exercise price of $0.30 per share; and (c) a Series B Warrant (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”) to purchase ninety thousand (90,000) shares of Common Stock at an exercise price of $0.60 per share. Accordingly, Purchaser received 1,333,333 shares of Common Stock (the “Shares”); a Series A Warrant to purchase 666,666 shares of Common Stock and a Series B Warrant to purchase 666,667 shares of Common Stock.

 

On July 16, 2010, we entered into a Unit Purchase Agreements with 13 accredited investors pursuant to which the Purchasers purchased 14 Units at a Purchase Price of $27,000 per Unit for an aggregate purchase price of $378,000. Each Unit purchased consisted of (a) one hundred eighty thousand (180,000) shares of the Company’s common stock, par value $0.001 per share (“Common Stock”); (b) Series A Warrant (the “Series A Warrants”) to purchase ninety thousand (90,000) shares of Common Stock at an exercise price of $0.30 per share; and (c) a Series B Warrant (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”) to purchase ninety thousand (90,000) shares of Common Stock at an exercise price of $0.60 per share. Accordingly, in total, purchasers received 2,520,000 shares of Common Stock (the “Shares”); a Series A Warrant to purchase 1,260,000 shares of Common Stock and a Series B Warrant to purchase 1,260,000 shares of Common Stock

 

Southridge Investment Group LLC., a SEC Registered Broker/Dealer, Member FINRA/SIPC (“Southridge”) acted as placement agent in connection with the sale of the 13 Units referred to above in the preceding paragraph. Southridge received $22,140 in commissions and expenses and 54,000 Series A Warrants and 54,000 Series B Warrants. We also paid $3,500 in escrow fees. The net proceeds of the offering after payments of the commissions and expenses and escrow fees were approximately $352,360.

 

In April 2010, the Company entered into an Exchange Agreement with Professional Capital Partners, Ltd.(“PCP”), pursuant to which the Company and PCP agreed to exchange 5,325,824 shares of the Company’s common stock (the “Original Shares”) for $1,000,000 worth of Units in its next financing. The Company has offered and sold Units in a financing, with each Unit consisting of: (i) 180,000 shares of the Company’s common stock; (ii) a Series A Warrant to purchase 90,000 shares of common stock at an exercise price of $0.30 per share; and (iii) a Series B Warrant to purchase 90,000 shares of common stock at an exercise price of $0.60 per share. On June 22, 2010, PCP exercised this Exchange Agreement and exchanged its Original Shares for 37 Units. As a result, PCP received 6,660,000 shares of common stock; a Series A Warrant to purchase 3,330,000 shares of common stock; and a Series B Warrant to purchase 3,330,000 shares of common stock in exchange of 5,325,824 and net of shares of common stock of the company. A financing expense of $1,000,632 was recorded as of May 31, 2010 as a stock issuance liability with the exercise of the exchange agreement on June 22, 2010 as this cost became known. The financing cost was determined using the last price of $0.75 as reported on OTCBB.com on June 11, 2010 prior to the June 22, 2010 exercise date, on the additional 1,334,176 shares of common stock issued to PCP pursuant to the Exchange Agreement.

 

The Company analyzed the beneficial nature of the 10,479,488 Series A Warrants and 10,479,488 Series B Warrants based on the conversion terms described above and determined that no material beneficial conversion feature exists.

 

On August 5, 2011, 900,000 Series A warrants were granted to the Holder of a note.

 

 

For certain of the Purchasers described above the Unit Purchase Agreement granted Registration Rights which contained certain rights which included Liquidated Damages. “The Company will be obligated to pay investor a fee equal to 1.0% (which will increase to 2.0% after the first 30 days) of such investor’s purchase price for each 30 day period (pro-rated for partial periods); provided that such damages shall be capped at 12% of such investor’s total purchase price. If the Company fails to pay any partial liquidated damages pursuant to paragraph 2) b) & c) of the Registration Rights Agreement in full within 7 days after the date payable, the Company will pay interest thereon at a rate of 18% per annum (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such partial liquidated damages are due until such amounts, plus all such interest thereon, are paid in full. We have not yet filed a Registration Statement, we have a certain number of the Purchaser’s who are entitled to Liquidated Damages as described herein. Accordingly, we have accrued an interest expense as Liquidated Damages for those Purchaser’s that this applies to. We expect to file a Registration Statement in the near term.

 

On August 01, 2011, the Company issued a public relations firm 150,000 stock purchase warrants with a 5 year term and a strike price of $0.65. The Company valued the warrants using an option pricing model and is expensing the $51,779 fair value over the vesting term of the warrant.

 

On September 21, 2011, the Company issued a public relations firm 2,400,000 stock purchase warrants with a 2 year term and a strike price of $0.20. The Company valued the warrants using an option pricing model and is expensing the $407,778 fair value over the vesting term of the warrant.

 

On October 29, 2011, the Company issued a consulting firm 275,000 stock purchase warrants with a 5 year term and a strike price of $0.33. The Company valued the warrants using an option pricing model and is expensing the $33,805 fair value over the vesting term of the warrant.

 

On March 14, 2012, as per the terms of a celebrity endorsement agreement the Company issued 1,000,000 stock purchase warrants with a 5 year term and a strike price of $0.15. The Company valued the warrants using an option pricing model and is expensing the $228,474 fair value over the vesting term of the warrant.

 

On March 14, 2012, as per the terms of a finders fee agreement the Company issued 100,000 stock purchase warrants with a 5 year term and a strike price of $0.15. The Company valued the warrants using an option pricing model and is expensing the $22,847 fair value over the vesting term of the warrant.

 

On May 31, 2012, the Company issued a consulting firm 500,000 stock purchase warrants with a 3 year term and a strike price of $0.17. The Company valued the warrants using an option pricing model and is expensing the $66,292 fair value over the vesting term of the warrant.

 

Note 11.

Common Stock

 

The acquisition of Phreadz LLC and UDM by the Company on April 27, 2010 was accounted for as a recapitalization by the Company. The recapitalization was the merger of two private LLCs into a non-operating public shell corporation (the Company) with nominal net assets and as such is treated as a capital transaction, rather than a business combination. The transaction is the equivalent to the issuance of stock by the private company for the net monetary assets of the shell corporation. The pre-acquisition consolidated financial statements of Phreadz LLC and UDM are treated as the historical financial statements of the consolidated Company. Therefore the capital structure of the consolidated enterprise, being the capital structure of the legal parent, is different from that appearing in the financial statements of Phreadz LLC and UDM in earlier periods due to the recapitalization.

 

 

	1.	On April 3, 2009, 1,920,000 shares were issued for property.
	2.	On May 28, 2009, 12,480,000 shares were issued for cash.

3.

On August 25, 2009, 23,136,000 shares were issued for cash.

4.

On March 10, 2010, 5,782,400 shares were issued for cash.

5.

On April 27, 2010, 42,700,000 were issued and 32,712,176 shares were cancelled upon recapitalization due to the reverse merger.

6.

On May 20, 2010 1,933,333 shares were issued at $0.15 for cash of $290,000

7.

On May 31, 2010, 6,514,310 shares were issued in settlement of $892,147.34 in notes assigned to the Company with one note-holder also receiving the “right” with their settled note to receive the equivalent amount of the face amount of their note in consideration of their note.

8.

On June 8, 2010 1,333,333 shares were issued at $0.15 for cash of $200,00

9.

On June 22, 2010 1,334,176 net shares were issued on account of an April 27, 2010 Exchange Agreement

10.

On July 16, 2010 2,520,000 shares were issued at $0.15 for cash of $378,000

11.

On November 1, 2010 1,080,000 shares were issued at $0.15 for cash of $162,000.

12.

On December 3, 2010 720,000 shares were issued at $0.15 for cash of $108,000.

13.

On January 31, 2010 by resolution the Board caused 2,000,000 shares to be issued for services

14.

On March 15, 2011 2,500,000 shares were issued for an asset acquisition (Zonein2 code)

15.

On July 27, 2011 6,460,800 shares were surrendered to the Company by a former CEO and cancelled.

16.

On September 7, 2011, the Company issued 611,512 shares to a vendor to settle an accounts payable in the amount of $91,726.85.

17.

On December 7, 2011 2,500,000 shares were issued at $0.10 for cash of $250,000

18.

On December 7, 2011 800,000 shares were issued for services

19.

On December 7, 2011 1,643,719 shares were issued to settle notes and accrued interest in the amounts of $225,000 and $21,558, respectively.

20.

On December 7, 2011 50,000 shares were issued in connection with a note extension

21.

On February 1, 2012 1,250,000 shares were issued at $0.10 for cash of $125,000

22.

On March 2, 2012 500,000 shares were issued at $0.20 for cash of $100,000

23.

On March 2, 2012 5,350,000 shares were issued at $0.10 for cash of $535,000

24.

On March 2, 2012 800,000 shares were issued for services

25.

On March 6, 2012 500,000 shares were issued at $0.10 for cash of $50,000

26.

On March 6, 2012 500,000 shares were issued for services

27.

On March 6, 2012 4,130,970 shares were issued to settle notes and accrued interest in the amounts of $385,000 and $28,075, respectively.

28.

On April 12, 2012 447,915 shares were issued under an anti-dilution clause

29.

On April 12, 2012 3,700,000 shares were issued for services

30.

On May 3, 2012 650,000 shares were issued for services

31.

On May 3, 2012 1,500,000 shares were issued at $0.10 for cash of $150,000

32.

On July 18, 2012 14,719,833 shares were issued services, accrued stock liabilities for services and conversion of notes.

33.

On August 21, 2012 6,000,000 shares were issued for services

 

Note 12.

Preferred Stock

On July 14, 2011, we amended our Articles of Incorporation to authorize 100,000,000 shares of preferred stock, $0.001 par value. The amendment was approved by a majority of our shareholders. The preferred stock can be created in one or more classes having such designations, preferences, and relative, participating, optional, or other rights (including preferential voting rights), and qualifications, limitations, and/or restrictions thereof, all as may be determined by from time to time by the Board of Directors of the Corporation (the “Charter Amendment”). This type of preferred stock is known as “blank check” preferred.

 

 

BIZZINGO, INC.

(A Development Stage Company)

Notes to Financial Statements

For the period from April 3, 2009 (Inception) to August 31, 2012

(Expressed in U.S. Dollars)

 

Note 13.

Contingencies

 

There is currently a dispute that arose approximately August 14, 2010, between former Phreadz-division President Jonathan Kossmann and Phreadz, regarding certain intellectual property and confidential information of the Company. Mr. Kossmann has claimed that $30,000 is owed to him pursuant to his 2009-2010 Consulting Agreement with the Company. The Company has conducted an investigation into Mr. Kossmann’s claim with the assistance of counsel and does not believe any money is due to him. Management believes it is unlikely that the outcome of this matter will have an adverse impact on its result of operations and financial condition.

 

Note 14.

Subsequent Events

 

The Company has evaluated all events that occurred after the balance sheet date through the date when the consolidated financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follow.

 

Consulting Agreements

 

In September 2012, the Company engaged Real Media Group (“RMG”) to provide Open Adstream Service (the “Service”) consisting of the delivery and management of digital advertisements. The term of the agreement is for a period of three years starting October 01, 2012. Initially the Company will compensate RMG a one time training and setup fee of $3,000. Thereafter the fees for the service are based on monthly impressions (Advertisements) at a rate of $0.07 per thousand on the 100 hundred million Impressions and $0.05 per thousand on all monthly impressions

beyond the first 100 hundred million. Minimum monthly service fees are $500 through April 2013, then $1,000 monthly for the remainder of the term.

 

Placement Agent and Advisory Services

 

On July 11, 2012 the Company entered into an agreement with Garden State Securities, Inc. (“GSS”) as its selling/placement agent. GSS will also assist the Company in financial planning and proposed mergers and acquisitions. Upon execution of the agreement, the Company is to issue GSS an advisory fee of 500,000 shares of Company Common Stock. The Company shall also pay GSS ten percent (10%) of any gross proceeds received by the Company in connection any equity of debt financing, convertible debt financing, debt conversion or any instrument convertible into the Company’s common stock (“the Securities Financing”). In addition GSS will receive warrants (the “Warrants”) with “piggy back” registration rights, equal to ten percent (10%) of the stock issued in the Securities Financing at an exercise price equal to the investor’s warrant exercise price of the Securities Financing or the price of the Securities Financing if no warrants are issued to investors. The Company will also pay, at closing, the expense of GSS’s legal counsel pursuant to the Securities Financing equal to $25,000.

 

 

Item 2. Management’s Discussion and Analysis or Plan of Operation.

 

FORWARD-LOOKING STATEMENTS

 

Certain matters discussed herein are forward-looking statements. Such forward-looking statements contained in this Form 10-Q involve risks and uncertainties, including statements as to:

 

1.

our future operating results;

2.

our business prospects;

3.

any contractual arrangements and relationships with third parties;

4.

the dependence of our future success on the general economy;

5.

any possible financings; and

6.

the adequacy of our cash resources and working capital.

 

These forward-looking statements can generally be identified as such because the context of the statement will include words such as we “believe,” “anticipate,” “expect,” “estimate” or words of similar meaning. Similarly, statements that describe our future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which could cause actual results to differ materially from those anticipated as of the date of filing of this Form 10-Q. Shareholders, potential investors and other readers are urged to consider these factors in evaluating the forward-looking statements and are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included herein are only made as of the date of filing of this Form 10-Q, and we undertake no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

 

Corporate History

 

We were incorporated in the State of Nevada on May 12, 2005.

 

From May 2005 through May 2009, we were in the mineral exploration stage during which time we never realized any revenues.

 

On April 27, 2010, pursuant to share purchase agreements (the “Purchase Agreements”), Phreadz, Inc. (f/k/a Atwood Minerals & Mining Corp.), completed the acquisitions of Phreadz USA LLC and Universal Database of Music USA, LLC. The acquisitions were accounted for as a recapitalization effected by a reverse merger, wherein Phreadz and UDM were considered the acquirer for accounting and financial reporting purposes. The pre-merger assets and liabilities of the acquired entities have been brought forward at their book value and no goodwill has been recognized. The consolidated accumulated deficit of Phreadz and UDM has been brought forward, and common stock and additional paid-in-capital of the combined Company have been retroactively restated to give effect to the exchange rates as set forth in the Purchase Agreements.

 

As a result of our acquisitions of Phreadz and UDM referred to in the paragraph above, we experienced a change in control and ceased to be a “shell” company as defined in Rule 12b-2 promulgated under the Exchange Act.

 

Overview

 

Social Media is often misconstrued as a medium for business-to-consumer or B2C engagement and discounted as a viable communications network for those companies focused on business-to-business or B2B engagement transactions. However, B2B, as in any other field is impacted by online activity and is faced with a prime opportunity to not only cultivate communities in social networks and other social channels, but also amplify awareness, increase lead generation, reduce sales cycles, and perhaps most importantly, learn and adapt to market dynamics in real-time.

 

 

The development of Phreadz and UDM since our acquisition described in our Corporate History above has evolved into Bizzingo. This development has culminated in www.bizzingo.com and www.Bizz.net. We intend to be a social network designed for business and commerce. We are currently finalizing with a number of business’s which we intend to launch on a limited alpha basis. We think of it as an “internet hub” where social networking, e-commerce and marketing will converge within one domain. It is commonly accepted that B2B and B2C social media marketing will focus on three key areas: video, mobile and engagement.

 

Bizzingo Applications

 

The Bizzingo social platform is based on several layers of data storage, processing and accessibility. At its core, the platform is a set of data storage repositories, and access to this data is controlled via a custom Application Programming Interface (API) that manages incoming and outgoing requests through a sophisticated security layer.

 

The API provides universal access to the data behind Bizzingo. Utilizing an API layer allows for efficient deployment of user interfaces for multiple devices and platforms without the need to re-tool data connections. It also allows Bizzingo to build and deploy partner-specific functionality with case-specific access parameters. The Company’s first utilization of the API is for their mobile application, Bizzingo Connect.

 

The Company is currently developing several other tools for the Bizzingo Connect mobile application, including the ability for users to create virtual business (“Bizz”) cards and exchange them remotely through the application. Other future uses for the application include the “Meeting” tool, which enables users to organize and archive private meeting and will allow meeting hosts to virtually distribute documents, such as non-disclosure agreements and meeting terms and conditions; and for participants to sign these documents without the hassle and associated costs of printing. Bizzingo has a renowned marketing team that is aggressively pursuing opportunities to increase the number of revenue streams from the Bizzingo Connect application.

 

Results of Operations

 

We are in the development stage and consequently is subject to the risks associated with development stage companies, including the need for additional financing; the uncertainty of our technology and intellectual property resulting in successful commercial products or services as well as the marketing and customer acceptance of such products or services; competition from larger organizations; dependence on key personnel; and dependence on corporate partners and collaborators. To achieve successful operations, we will require additional capital to continue research and development and marketing efforts. No assurance can be given as to the timing or ultimate success of obtaining future funding.

 

Comparison of the three months ended August 31, 2011 with the three months ended August 31, 2010

We had no revenues from operations for the periods ended August 31, 2011 and August 31, 2012.

Operating expenses for the three month period ending August 31, 2012 was ($1,136,327), compared to the same three month period in 2011 of ($526,185). This difference results from increases in product development and marketing expenses in the current period and a corresponding a large increase in our consulting fees during the current period. We do expect product development and marketing expenses to continue and increase further as more focus is placed on the development of operations.

 

Operating Activities

 

Cash use in operating activities for the period from June 1, 2012 to August 31, 2012 was ($214,628), and from June 1, 2011 to August 31, 2011 ($494,867). The consolidated Company expects net cash used in operating activities to increase going forward as the Company pursues its business plan, continues in its development and markets its services.

 

 

Financing Activities

 

Net cash provided by financing activities for the period from June 1, 2012 to August 31, 2012 was approximately $211,746, and from June 1, 2011 to August 31, 2012 was approximately $495,000. This consisted of net proceeds received from the issuance of notes payable and shares issued for cash.

 

Liquidity and Capital Resources

 

As of August 31, 2012, we had a working capital deficit of ($1,995,147) compared to a working capital deficit of ($2,690,673) as of August 31, 2011. Cash and cash equivalents at August 31, 2012 was $14,222 compared to a balance of $17,104 as at August 31, 2011. Our current level of operations does not generate sufficient cash to fund our working capital needs. Accordingly, we will have to raise capital to fund our short-term working capital needs. No assurance can be made that we will have access to the capital markets in future, or that financing will be available on acceptable terms to satisfy our future and on-going cash requirements that we need to implement its business strategies. Our inability to access the capital markets or obtain acceptable financing could have a material adverse affect on its results of operations and financial condition, and could severely threaten our ability to continue as a going concern.

 

Plan of Operation and Funding

 

We expect that working capital requirements will continue to be funded through a combination of note payables and further issuances of securities.

 

We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: (i) developmental expenses associated with a start-up business; and (ii) marketing expenses. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations. We will have to raise additional funds in the next twelve months in order to sustain and expand our operations. We currently do not have a specific plan of how we will obtain such funding; however, we anticipate that additional funding will be in the form of equity financing from the sale of our common stock.

 

Off-Balance Sheet Arrangements

 

As of the date of this Quarterly Report on Form 10-Q, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

Going Concern

 

The independent auditors’ report accompanying our audited financial statements for the year ended May 31, 2012 contained an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K

 

 

Item 4. Controls and Procedures

 

Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining disclosure controls and procedures for the Company.

 

(a) Evaluation of Disclosure Controls and Procedures

 

Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) are not effective to ensure that information required to be disclosed by us in report that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s (“SECs”) rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining internal control over financial reporting and disclosure controls. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

1.	Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of assets;
2.	Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
3.	Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

 Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed by us under the Exchange Act is appropriately recorded, processed, summarized and reported within the specified time periods.

 

Management has conducted an evaluation of the effectiveness of our internal control over financial reporting as of August 31, 2012 based on the framework established in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

Based on this assessment, management concluded that as of August 31, 2012 we had material weaknesses in its internal control procedures.

 

A material weakness is a control deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

 

We have concluded that our internal control over financial reporting was ineffective as of August 31, 2012.

 

Our assessment identified certain material weaknesses which are set forth below:

 

 

Financial Statement Close Process

 

1.

There are insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

2.

There is insufficient supervision and review by our corporate management, particularly relating to complex transactions requiring analysis of equity and debt instruments.

 

3.

We currently have an insufficient level of monitoring and oversight controls for review and recording of stock issuances, agreements and contracts, including insufficient documentation and review of the selection and application of US GAAP to significant non-routine transactions. In addition this has resulted in a lack of controls over the issuance of our stock which resulted in names of holders being spelt incorrectly.

 

These weaknesses restrict our ability to timely gather, analyze and report information relative to the financial statements.

 

Entity Level Controls

 

1.

While we have adopted corporate governance policies, activities and processes are not always formally documented. Specifically, decisions made by the Board of Directors to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management.

 

2.

We currently haveinsufficient resources and an insufficient level of monitoring and oversight, which may restrict our ability to gather, analyze and report information relative to the financial statements in a timely manner, including insufficient documentation and review of the selection and application of US GAAP to significant non-routine transactions. In addition, the limited size of the accounting department makes it impractical to achieve an optimum segregation of duties.

 

3.

There are limited processes and limited or no documentation in place for the identification and assessment of internal and external risks that would influence the success or failure of the achievement of entity-wide and activity-level objectives.

 

Functional Controls and Segregation of Duties

 

1.

There is an inadequate segregation of duties consistent with control objectives. Our management is composed of a small number of individuals resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duties is feasible.

2.

There is a lack of top level reviews in place to review targets, product development, joint ventures or financing. All major business decisions are carried out by our officers with Board of Directors approval when needed.

 

Accordingly, as the result of identifying the above material weaknesses, we have concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.

Management believes that the material weaknesses set forth above were the result of the scale of our operations and are intrinsic to our small size. Management believes these weaknesses did not have a material effect on our financial results and intends to take remedial actions upon receiving funding for our business operations.

 

Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report herein.

 

 

Plan of Remediation

 

We are committed to improving our financial organization. As part of this commitment, we intend to create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us by preparing and implementing sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

Management believes that preparing and implementing sufficient written policies and checklists will remedy the material weaknesses pertaining to insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties and provide more checks and balances within the department. These personnel will provide the depth of knowledge and time commitment to provide a greater level of review for corporate activities. The appointment of additional outside directors with industry expertise will greatly decrease any control and procedure issues the company may encounter in the future.

 

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

 

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies, including:

 

1)	We will revise processes to provide for a greater role of independent board members in the oversight and review until such time that we are adequately capitalized to permit hiring additional personnel to address segregation of duties issues, ineffective controls and insufficient supervision and review by our corporate management.
2)	We will continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes
3)	Consolidate all books and records into one accounting system
4)	Commence the development of internal controls and procedures surrounding the financial reporting process, primarily through the use of account reconciliations, and supervision.

 

(c) Changes in Internal Controls over Financial Reporting

 

We intend to undertake a number of measures to remediate the material weaknesses discussed under “Management’s Report on Internal Control Over Financial Reporting” above. Those measures, described under “Plan of Remediation,” will be implemented by us in accordance with its plan of remediation, and when implemented, will materially affect, or are reasonably likely to materially affect, our internal control over financial reporting. Other than as described above, there have been no changes in our internal control over financial reporting during the period ended August 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Item 5. Other

 

None

 

Part II- Other Information

 

Item 1. Legal Proceedings

 

We are not a party to any material legal proceedings However, from time to time, we may become subject to claims and litigation generally associated with any business venture operating in the ordinary course.

 

  

Item 1A. Risk Factors

 

Not applicable to a “smaller reporting company” as defined in Item 10(f)(1) of SEC Regulation S-K

 

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

 

During the three month period ended August 31, 2012, we completed the following transactions

 

1.

On July 18, 2012, 14,719,833 shares were issued services, accrued stock liabilities for services and conversion of notes.

2.

On August 21, 2012, 6,000,000 shares were issued for services.

 

The transactions described above was exempt under Section 4(2) and 3(b) of the Securities Act of 1933, as amended, and the rules and regulations promulgated there under, including Regulations D, due to the facts that recipient of the shares had acquired the shares for investment purposes and not with a view for re-distribution, had access to sufficient information concerning the Company, and the certificate(s) representing such shares will bear a restrictive legend.

 

Item 3. Defaults upon Senior Securities

 

No report required.

 

Item 4. (Removed and Reserved)

 

No report required.

 

Item 5. Other Information

 

N/A

 

Item 6. Exhibits

 

Exhibit Index

 

Exhibit No.		Exhibit
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

 

---

 

* Filed herewith.

 

 

SIGNATURES

 

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

 

		BIZZINGO, INC.
Date:  October 22, 2011	By:	/s/ Douglas Toth
		Douglas Toth
		Chief Executive Officer