UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from __________ to ______________

Commission File Number 333-119566

BRAZIL GOLD CORP.

(Exact name of registrant as specified in its charter)

Nevada		98-0430746
State or other jurisdiction of		(I.R.S. Employer
incorporation or organization		Identification No.)

850 3^rd Avenue, NYC, NY 10022

 (Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: 1-212-994-9875

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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X .    No       .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Larger accelerated filer        .                                                                          Accelerated filer        .

Non-accelerated filer           .                                                                           Smaller reporting company   X .

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

Number of shares outstanding of the registrant’s class of common stock as of February 14, 2013: 77,444,072

 

 

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PART I – FINANCIAL INFORMATION	Page
Item 1.   Financial Statements	3
Balance Sheets	4
Statements of Operations	5
Statement of Stockholders’ Deficit	6
Statements of Cash Flows	7
Notes to Financial Statements	8
Item 2.  Management’s Discussion and Analysis	25
Item 3.  Quantitative and Qualitative Disclosure about Market Risk	25
Item 4.  Controls and Procedures	25
Item 4(A) T.  Controls and Procedures	25
PART II – OTHER INFORMATION
Item 1.  Legal Proceedings - Not Applicable	26
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds - Not Applicable	26
Item 3.  Defaults upon Senior Securities – Not Applicable	26
Item 4.  Removed and Reserved	26
Item 5.  Other Information	26
Item 6.  Exhibits	26
SIGNATURES	27

 

 

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PART I - FINANCIAL INFORMATION

ITEM 1.                      FINANCIAL STATEMENTS

BRAZIL GOLD CORP.

INTERIM FINANCIAL STATEMENTS

September 30, 2011

(Unaudited)

	Page
Financial Statements:
Balance Sheets	4
Statements of Operations	5
Statement of Stockholders’ Deficit	6
Statements of Cash Flows	7
Notes to Financial Statements	8

 

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BRAZIL GOLD CORP.

BALANCE SHEETS

					September 30, 2011			June 30, 2011
					(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash				$	2,026		$	1,417
	Related party receivables					-			4,249
	Prepaid expenses					11,061			11,780
	Other current assets					4,082			-
		Total Current Assets				17,169			17,446
PROPERTY AND EQUIPMENT
	Property and equipment					1,524			1,524
	Accumulated depreciation					(583)			(472)
		Property and Equipment, net				941			1,052
			Total Assets		$	18,110		$	18,498
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
	Accounts payable				$	143,760		$	83,562
	Accrued expenses					32,801			33,060
	Advances payable					42,940			42,940
	Related party payables					-			45,621
	Note payable - related party					80,454			78,884
	Derivative liability					159,939			-
	Convertible debentures, net					66,667			-
		Total Current Liabilities				526,561			284,067
STOCKHOLDERS' DEFICIT:
	Preferred stock at $0.001 par value: 10,000,000 shares authorized; none issued or outstanding					-			-
	Common stock at $0.001 par value: 250,000,000 shares authorized, 54,650,159 and 54,200,159 shares issued and outstanding, respectively					54,650			54,200
	Additional paid-in capital					5,490,107			5,427,698
	Accumulated deficit					(6,058,625)			(5,752,884)
	Accumulated other comprehensive income (loss):
	Foreign currency translation gain (loss)					5,417			5,417
		Total Stockholders' Deficit				(508,451)			(265,569)
			Total Liabilities and Stockholders' Deficit		$	18,110		$	18,498

The accompanying notes are an integral part of these statements

 

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BRAZIL GOLD CORP.

Statements of Operations and Comprehensive Income (Loss)

				For the Three Months			For the Three Months
				Ended			Ended
				September 30, 2011			September 30, 2010
				(Unaudited)			(Unaudited)
NET REVENUES				$	-		$	-
OPERATING EXPENSES:
	Bad debt of note receivable				-			160,114
	Compensation				26,859			1,075,165
	Consulting fees				81,365			90,000
	Professional fees				8,986			62,371
	General and administrative expenses				22,820			20,321
		Total operating expenses			140,030			1,407,971
LOSS FROM OPERATIONS					(140,030)			(1,407,971)
OTHER (INCOME) EXPENSE:
	Amortization of beneficial conversion feature				-			2,182
	Change in fair value of derivative liability				59,939			-
	Interest income				-			(40,114)
	Interest expense				105,808			49,777
	Other (income) expense				(36)			-
		Other (income) expense, net			165,711			11,845
LOSS FROM OPERATIONS
	BEFORE INCOME TAX PROVISION				(305,741)			(1,419,816)
INCOME TAX PROVISION					-			-
NET LOSS					(305,741)			(1,419,816)
OTHER COMPREHENSIVE INCOME (LOSS):
	Foreign currency translation gain (loss)				-			(114)
COMPREHENSIVE LOSS				$	(305,741)		$	(1,419,930)
NET LOSS PER COMMON SHARE
	- BASIC AND DILUTED:			$	(0.01)		$	(0.04)
	Weighted common shares outstanding
		- basic and diluted			54,615,914			38,250,000

The accompanying notes are an integral part of these statements

 

 

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BRAZIL GOLD CORP.

Statement of Stockholders' Deficit

For the Three Months Ended September 30, 2011

(Unaudited)

The accompanying notes are an integral part of these statements

 

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BRAZIL GOLD CORP.

Statements Of Cash Flows

				For the Three Months			For the Three Months
				Ended			Ended
				September 30, 2011			September 30, 2010
				(Unaudited)			(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss				$	(305,741)		$	(1,419,816)
Adjustments to reconcile net loss to net cash used in operating activities
	Depreciation expense				111			111
	Bad debt of note receivable				-			160,114
	Amortization of discount on convertible debt				66,667			-
	Beneficial conversion feature				-			19,122
	Stock based compensation				26,859			1,075,165
	Change in fair value of derivative liabilities				59,939			-
	Common stock issued for interest				36,000			-
	Changes in operating assets and liabilities:
		Prepaid expenses			719			(14,544)
		Notes receivable			-			(160,114)
		Other current assets			(4,082)			-
		Accounts payable			60,198			-
		Accrued expenses			(259)			192
		Accrued interest on convertible debentures			-			49,644
NET CASH USED IN OPERATING ACTIVITIES					(59,589)			(290,126)
CASH FLOWS FROM INVESTING ACTIVITIES:
	Collection of related party receivables				4,249			(29,192)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES					4,249			(29,192)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Amounts received from (paid to) related parties				(45,621)			32,829
	Note payable - related party				1,570			-
	Proceeds from convertible debentures				100,000			280,000
NET CASH PROVIDED BY FINANCING ACTIVITIES					55,949			312,829
EFFECT OF EXCHANGE RATE CHANGES ON CASH					-			(115)
NET CHANGE IN CASH					609			(6,604)
Cash at beginning of period					1,417			8,125
Cash at end of period				$	2,026		$	1,521
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
	Interest paid			$	-		$	-
	Income tax paid			$	-		$	-
NON-CASH INVESTING AND FINANCING ACTIVITIES:
	Beneficial conversion feature			$	-		$	2,182

The accompanying notes are an integral part of these statements

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Brazil Gold Corp.

September 30, 2011 and 2010

Notes to the Financial Statements

(Unaudited)

Note 1 - Organization and Operations

Brazil Gold Corp. (Formerly " Dynamic Alert Limited")

Dynamic Alert Limited (“the Company”) was incorporated in the State of Nevada, on June 17, 2004.  On December 22, 2009, as amended February 25, 2010, pursuant to the provisions of Articles of Merger, Dynamic Alert Limited, and its wholly-owned subsidiary, Brazil Gold Corp., a Nevada Corporation which was incorporated on November 3, 2009, were merged, with Dynamic Alert Limited being the surviving entity. In connection with such merger, on March 15, 2010, the Company’s name was changed from Dynamic Alert Limited to Brazil Gold Corp.  

Since inception up until November, 2009 the Company engaged in the business of providing its customers with security professionals, who in turn would provide personal protection as needed, as well as selling a selection of personal security products. The Company changed its status from a development stage company to an operating company on June 30, 2008. Management realized that the results of operations from security products and services were lack-luster, and it was decided to change the Company’s business focus and plan for other strategic opportunities and discontinue the security operations with effect from January 1, 2010. Accordingly, the Company has disclosed these activities as discontinued operations in the accompanying financial statements. Effective January 1, 2010, the Company started reviewing mineral exploration and other opportunities with the objective of generating revenue for the Company.

On May 19, 2010, the Company entered into an acquisition agreement (the “Acquisition Agreement”) with Rusheen Handels AG, a Swiss corporation ("Rusheen") whereby the Company was to acquire all of Rusheen’s ownership units in “Amazonia” (ACP). The acquisition of all of Rusheen’s ownership units in Amazonia was to be in exchange for 44 million shares of the Company’s common stock.  

On September 15, 2010, the Company, effective as of June 1, 2010, entered into a Mutual Rescission Agreement and General Release between the Company and Rusheen, pursuant to which the parties agreed that all agreements constituting and comprising the acquisition of Amazonia entered into on May 19, 2010, were rescinded.  As a result of such rescission, the 44,000,000 shares of the Company’s common stock that were issued in connection with the Acquisition Agreement were returned to the Company and cancelled.

There were no revenues generated from these business activities and operations for the interim period ended September 30, 2011. Currently the Company is evaluating possible new ventures and acquisitions.  As of September 30, 2011, the Company does not have any firm target and is in the process of arranging additional equity and debt financing.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation – Unaudited Interim Financial Information

The accompanying unaudited interim financial statements and related notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) to Form 10-Q and Article 8 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  The unaudited interim financial statements furnished reflect all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented.  Interim results are not necessarily indicative of the results for the full year.  These unaudited interim financial statements should be read in conjunction with the financial statements of the Company for the fiscal year ended June 30, 2011 and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the SEC on October 9, 2012.

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation.   These reclassifications had no effect on reported losses.

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Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

The Company’s significant estimates and assumptions include the fair value of financial instruments; income tax rate, income tax provision, deferred tax assets and the valuation allowance of deferred tax assets, and the assumption that the Company will continue as a going concern.  Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.

Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

Management regularly evaluates the key factors and assumptions used to develop the estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such evaluations, if deemed appropriate, those estimates are adjusted accordingly.

Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 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, Paragraph 820-10-35-37 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 Paragraph 820-10-35-37 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 observable 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.

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

The Company’s Level 3 financial liabilities consist of the derivative warrant issued in connection with the Company’s secured convertible promissory notes issued to Southridge Partners II, LP on July 6, 2011, July 29, 2011 and August 25, 2011 (the "Notes"), 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 automatic conditional conversion, re-pricing/down-round, change of control; default and follow-on offering provisions using a lattice model, with the assistance of a valuation specialist, for which management understands the methodologies.  These models incorporate transaction details such as Company 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.

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It is not, however, practical to determine the fair value of related party receivables, related party payables and note payable - related party, if any, due to their related party nature.

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

Level 3 Financial Liabilities – Derivative Financial Instruments

The Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative convertible note and warrant liabilities 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 convertible notes and warrant liabilities.

Carrying Value, Recoverability and Impairment of Long-Lived Assets

The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets, which include property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.  Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.  When long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.

The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes.  The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.

The key assumptions used in management’s estimates of projected cash flow deal largely with forecasts of sales levels, gross margins, and operating costs of the manufacturing facilities.  These forecasts are typically based on historical trends and take into account recent developments as well as management’s plans and intentions.  Any difficulty in manufacturing or sourcing raw materials on a cost effective basis would significantly impact the projected future cash flows of the Company’s manufacturing facilities and potentially lead to an impairment charge for long-lived assets.  Other factors, such as increased competition or a decrease in the desirability of the Company’s products, could lead to lower projected sales levels, which would adversely impact cash flows.  A significant change in cash flows in the future could result in an impairment of long lived assets.

The impairment charges, if any, is included in operating expenses in the accompanying statements of operations.

Cash Equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Property and Equipment

Property and equipment is recorded at cost. Expenditures for major additions and betterments are capitalized.  Maintenance and repairs are charged to operations as incurred. Depreciation of property and equipment is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of three (3) to five (5) years.  Upon sale or retirement of furniture and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in statements of operations.

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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 Paragraph 810-10-05-4 of the Codification and Paragraph 815-40-25 of the Codification. 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.

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the Related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. adescription of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the  financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Commitment and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the  financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur.  The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment.  In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements.  If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

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Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed.  Management does not believe, based upon information available at this time that these matters will have a material adverse effect on the Company’s financial position, results of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, financial position, and results of operations or cash flows.

Revenue Recognition

The Company follows paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition.  The Company will recognize revenue when it is realized or realizable and earned.  The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.

Stock-Based Compensation for Obtaining Employee Services

The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

·

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding.  Pursuant to Paragraph 718-10-50-2 of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

·

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

·

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected contractual life of the option and similar instruments.

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·	Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option and similar instruments.

The Company’s policy is to recognize compensation cost for awards with only service conditions and a graded vesting schedule on a straight-line basis over the requisite service period for the entire award.

Equity Instruments Issued to Parties other than Employees for Acquiring Goods or Services

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Subtopic 505-50 of the FASB Accounting Standards Codification (“Subtopic 505-50”).

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  If shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

The fair value of option or warrant award is estimated on the date of grant using a Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

·

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

·

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

·

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected contractual life of the option and similar instruments.

·	Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option and similar instruments.

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Pursuant to Paragraphs 505-50-25-8, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a stock option that the counterparty has the right to exercise expires unexercised.

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

Income Tax Provision

The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns.  Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the fiscal year in which the differences are expected to reverse.  Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the fiscal years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.

The Company adopted section 740-10-25 of the FASB Accounting Standards Codification (“Section 740-10-25”) with regards to uncertainty income taxes.  Section 740-10-25 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements.  Under Section 740-10-25, the Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.  The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.

The estimated future tax effects of temporary differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides valuation allowances as management deems necessary.

Management makes judgments as to the interpretation of the tax laws that might be challenged upon an audit and cause changes to previous estimates of tax liability. In addition, the Company operates within multiple taxing jurisdictions and is subject to audit in these jurisdictions. In management’s opinion, adequate provisions for income taxes have been made for all years. If actual taxable income by tax jurisdiction varies from estimates, additional allowances or reversals of reserves may be necessary.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to unrecognized income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the interim period ended September 30, 2011 or 2010.

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It is not practicable to determine amounts of interest and/or penalties related to income tax matters that will be due as of June 30, 2011 as a result of non-filing of federal and state income tax returns and examination that may be conducted by federal and state tax authorities in the future. Accordingly, the Company had no accrual for interest or penalties on the Company’s balance sheet at June 30, 2011, and has not recognized interest and/or penalties in the accompanying statement of operations for the year ended June 30, 2011. However, management believes that the Company will not have a significant impact on its financial position and results of its operations and cash flows as a result of this uncertainty.

Net Income (Loss) per Common Share

Net income (loss) per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification.  Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period.  Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock and potentially outstanding shares of common stock during the period to reflect the potential dilution that could occur from common shares issuable through stock options and warrants.

The following table shows the potentially outstanding dilutive common shares excluded from the diluted net loss per share calculation for the interim period ended September 30, 2011 and 2010 as they were anti-dilutive:

		September 30, 2011				September 30, 2010
Convertible debentures			2,040,816				20,209,468
Warrants issued with convertible debentures			1,153,845				-
Stock options			3,250,000				3,250,000
Total			6,444,661				23,459,468

Cash Flows Reporting

 

The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments.  The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.

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 were 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.

Recently Issued Accounting Pronouncements

FASB Accounting Standards Update No. 2011-08

In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”). This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.

The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.

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FASB Accounting Standards Update No. 2011-11

In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.

The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.

FASB Accounting Standards Update No. 2012-02

In July 2012, the FASB issued the FASB Accounting Standards Update No. 2012-02 “Intangibles—Goodwill and Other (Topic 350) Testing Indefinite-Lived Intangible Assets for Impairment” (“ASU 2012-02”).

This Update is intended to reduce the cost and complexity of testing indefinite-lived intangible assets other than goodwill for impairment. This guidance builds upon the guidance in ASU 2011-08, entitled Testing Goodwill for Impairment. ASU 2011-08 was issued on September 15, 2011, and feedback from stakeholders during the exposure period related to the goodwill impairment testing guidance was that the guidance also would be helpful in impairment testing for intangible assets other than goodwill. 

The revised standard allows an entity the option to first assess qualitatively whether it is more likely than not (that is, a likelihood of more than 50 percent) that an indefinite-lived intangible asset is impaired, thus necessitating that it perform the quantitative impairment test. An entity is not required to calculate the fair value of an indefinite-lived intangible asset and perform the quantitative impairment test unless the entity determines that it is more likely than not that the asset is impaired.

This Update is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012.  Earlier implementation is permitted.

Other Recently Issued, but not yet Effective Accounting Pronouncements

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

Note 3 – Financial Conditions

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.

As reflected in the accompanying financial statements, the Company had an accumulated deficit at September 30, 2011, a net loss and net cash used in operating activities for the interim period then ended, respectively.

While the Company is attempting to commence operations and generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations.  Management intends to raise additional funds by way of a public or private offering.  Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern.  While the Company believes in the viability of its strategy to increase revenues and in its ability to raise additional funds, there can be no assurances to that effect.  The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.

The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

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Note 4 – Property and Equipment

Property and equipment, stated at cost, less accumulated depreciation consisted of the following:

	Estimated Useful Life (Years)		September 30, 2011				June 30, 2011
Computer equipment	5		$	1,042			$	1,042
Furniture and fixture	7			482				482
				1,524				1,524
Less accumulated depreciation				(583	)			(472	)
			$	941			$	1,052

Depreciation Expense

Depreciation expense for the interim period ended September 30, 2011 and 2010 was $111.

Note 5 – Related Party Transactions

Related Party Receivables

As of September 30, 2011 and June 30, 2011, the Company had a total of $0 and $4,249, respectively, in other receivables from a related party.  This balance was a result of overpayment to the related party in relation to expenses paid on behalf of the Company.  This balance is non-interest bearing and due on demand.

Related Party Payables

From time to time, officers of the Company advance funds to the Company for working capital purpose and are owed consulting fees from the Company. The advances and consulting fees are non-interest bearing and due on demand.

Related party payables consisted of the following:

		September 30,  2011				June 30, 2011
Advances		$	-			$	45,621
		$	-			$	45,621

Note Payable - Related Party

Between April 1, 2011 and June 24, 2011, the former President and Chief Operating Officer of the Company, Phillip Jennings, advanced the Company $77,884 in eight installments in the form of a promissory note.  The Note is due upon demand and bears interest at 8% per annum.

As of September 30, 2011, the balance of the Note including accrued interest was $80,454.

Note 6 – Advances Payable

As of September 30, 2011, the Company had a total of $42,940, in advances payable to unrelated third parties for expenses paid on behalf of the Company in conjunction with the rescinded acquisition agreement.  These balances are non-interest bearing and due on demand.

Note 7 – Note Payable – Related Party

Between April 1, 2011 and June 24, 2011, the former President and Chief Operating Officer of the Company, Phillip Jennings, advanced the Company $77,884 in eight installments in the form of a promissory note.  The Note is due upon demand and bears interest at 8% per annum.

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As of September 30, 2011, the balance of the Note including accrued interest was $80,454.

Note 8 – Convertible Debentures

Coach

On April 1, 2011, the Company terminated its agreement with Coach.  As full consideration for the funds advanced by Coach, the Company assigned the previously written off Note from Armadillo to Coach and granted Coach 10 million restricted shares of Company common stock.

Southridge Partners II, LP Agreement

The Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with Southridge Partners II, LP (“Southridge”) on July 6, 2011.  Pursuant to the Equity Purchase Agreement, Southridge committed to purchase up to $10,000,000 of the Company’s common stock, over a period of time terminating on the earlier of: (i) 24 months from the effective date of a registration statement to be filed in connection therewith or (ii) the date on which Southridge has purchased shares of common stock pursuant to this agreement for an aggregate maximum purchase price of $10,000,000; such commitment is subject to certain conditions. The purchase price to be paid by Southridge will be 92% of the price of the common stock on the date the purchase price is calculated under the Equity Purchase Agreement.

The maximum amount that the Company is entitled to put in any one notice is such number of shares of common stock as equals the lesser of $500,000 or 250% of the average of the dollar volume of Company common stock for the 20 trading days preceding the put, provided that the number of put shares to be purchased by Southridge shall not exceed the number of such shares that, when aggregated with all other shares and securities of the Company then owned by Southridge beneficially or deemed beneficially owned by Southridge, would result in Southridge owning more than 9.99% of all of the Company’s common stock as would be outstanding on such closing date.

The Company will not be entitled to put shares to Southridge:

 

·

unless there is an effective registration statement under the Securities Act to cover the resale of the shares by Southridge;

·

unless the common stock continues to be quoted on the OTC Bulletin Board and has not been suspended from trading;

·

if an injunction shall have been issued and remain in force, or action commenced by a governmental authority which has not been stayed or abandoned, prohibiting the purchase or the issuance of the shares to Southridge;

·

if the Company has not complied with their obligations and are otherwise in breach of or in default under, the Equity Purchase Agreement, our registration rights agreement (the “Registration Rights Agreement”) with Southridge or any other agreement executed in connection therewith with Southridge;

·

since the date of the filing of the Company’s most recent filing with the Securities and Exchange Commission no event that had or is reasonably likely to have a Material Adverse Effect (as defined in the Equity Purchase Agreement) has occurred; and

·

to the extent that such shares would cause Southridge’s beneficial ownership to exceed 9.99% of our outstanding shares.

The Equity Purchase Agreement further provides that Southridge is entitled to customary indemnification from the Company for any losses or liabilities it suffers as a result of any breach of any provisions of the Equity Purchase Agreement or the Registration Rights Agreement, or as a result of any lawsuit brought by a third-party arising out of or resulting from Southridge's execution, delivery, performance or enforcement of the Equity Purchase Agreement or the Registration Rights Agreement or from material misstatements or omissions in the prospectus accompanying the registration statement for the resale of the shares issued to Southridge.

As a condition for the execution of the Equity Purchase Agreement, the Company issued to Southridge, 450,000 shares of its restricted common stock pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.

On July 7, 2011 Company issued to Southridge, and Southridge purchased from the Company a Series of five (5) 8% Convertible Promissory Notes each in the principal amount of Fifty Thousand Dollars ($50,000) (the “Note”, or collectively the “Notes”) and a stock warrant for each note in the amount of 384,615 shares of the Company’s common stock in consideration for up to Two Hundred Fifty Thousand Dollars ($250,000). The Company may draw up to $50,000 per month and each Note shall have a maturity date of one hundred (100) days. The Company has received $100,000 in Note proceeds. The Principal plus any interest shall be convertible into common stock of the Company at seventy percent (70%) of the average of two (2) low closing bid prices for the five (5) trading days prior to conversion of the Notes. The Notes bear interest at 8% payable quarterly in cash or in Company common stock at a 50% discount to the average of the closing prices for the five (5) trading days prior to the interest payment being due. The Notes are collateralized with shares on the Company’s common stock having a Market Value equivalent to two hundred fifty percent (250%) of the principal amounts of the Notes. Such shares have been pledged by Philip Jennings, the Company’s former President pursuant to a bona fide pledge agreement. The Company may redeem the Notes at rates from one hundred percent (100%) to one hundred thirty (130%) of the principal amount of the Notes beginning ninety (90) days after the date of original issuance of such Notes.

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Note 9 – Derivative Financial Instruments

The Company accounts for derivative financial instruments in accordance with ASC 815, which requires that all derivative financial instruments be recorded in the balance sheets either as assets or liabilities at fair value.

As of September 30, 2011, the Company’s derivative financial instruments are embedded derivatives associated with the Company’s convertible promissory notes. The Company’s secured convertible promissory notes issued to Southridge Partners II, LP on July 6, 2011, July 29, 2011 and August 25, 2011 (the "Notes"), are hybrid instruments which contain an embedded derivative feature which would individually warrant separate accounting as a derivative instrument under Paragraph 815-10-05-4.  The embedded derivative feature includes the conversion feature and the warrants attached to the Notes. Pursuant to Paragraph 815-10-05-4, the value of the embedded derivative liability have been bifurcated from the debt host contract and recorded as a derivative liability resulting in a reduction of the initial carrying amount (as unamortized discount) of the notes, which are amortized as debt discount to be presented in other (income) expenses in the statements of operations using the effective interest method over the life of the notes.

The compound embedded derivatives within the notes have been valued using a layered discounted probability-weighted cash flow approach, recorded at fair value at the date of issuance; and marked-to-market at each reporting period end date with changes in fair value recorded in the Company’s statements of operations as “change in the fair value of derivative instrument”.

As of September 30, 2011, the estimated fair value of derivative liabilities for the conversion feature was $69,988.

As of September 30, 2011, the estimated fair value of derivative liabilities for the warrants was $89,951.

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

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

						Fair Value Measurement Using
		Carrying Value				Level 1					Level 2					Level 3				Total
Derivative liabilities on conversion feature		$	69,988				$	-				$	-			$	69,988				$	69,988
Derivative liabilities on warrants			89,951					-					-				89,951					89,951
Total derivative liabilities		$	159,939				$	-				$	-			$	159,939				$	159,939

Summary of the Changes in Fair Value of Level 3 Financial Liabilities

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 interim period ended September 30, 2011:

		Fair Value Measurement Using Level 3 Inputs
							Derivative warrants									Total
Balance, June 30, 2011								$	-								$	-
Total gains or losses (realized/unrealized)
Included in net (income) loss									-									-
Included in other comprehensive income									-									-
Purchases, issuances and settlements									159,939									159,939
Transfers in and/or out of Level 3									-									-
Balance, September 30, 2011								$	159,939								$	159,939

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Note 10 – Stockholders’ Deficit

Shares Authorized

Upon formation the total number of shares of all classes of stock which the Company is authorized to issue is Two Hundred and Sixty Million (260,000,000) shares of which Ten Million (1,000,000) shares shall be Preferred Stock, par value $0.001 per share, and Two Hundred and Fifty Million (250,000,000) shares shall be Common Stock, par value $0.001 per share.

Common Stock

On September 30, 2010, the Company issued 3,000,000 shares of its common stock for compensation of $1,200,000.

On April 8, 2011, the Company issued 1,000,000 shares of common stock to a consultant for $19,600 in services and $200 in cash. The common stock was issued at its fair market value of $0.0198 on the date of issuance.

On April 14, 2011, the Company issued 3,370,000 shares of its common stock for compensation of $984,480.

On April 14, 2011, the Company issued 675,000 shares of its common stock for related party debt of $141,750.

On May 6, 2011, the Company issued 155,159 shares of its common stock at $0.11 per share, in conformity with the defined conversion formula in the term sheet, for legal and due diligence services.

During the interim period ended September 30, 2011, in connection with convertible debenture the Company issued 450,000 shares of common stock which was valued at $0.08 per share, the price of the Company’s common stock on the date of issuance or $36,000 recorded as interest expense.

2010 Stock Incentive and Compensation Plan as Amended

Adoption of 2010 Stock Incentive and Compensation Plan

On January 7, 2010, the Board of Directors of the Company adopted the 2010 Stock Incentive and Compensation Plan, whereby the Board of Directors authorized 8,000,000 shares of the Company’s common stock to be reserved for issuance (the “2010 Stock Incentive Plan”). The purpose of the 2010 Stock Incentive Plan is to advance the interests of the Company by providing an incentive to attract, retain and motivate highly qualified and competent persons who are important to us and upon whose efforts and judgment the success of the Company is largely dependent. Grants to be made under the 2010 Stock Incentive Plan are limited to the Company’s employees, including employees of the Company’s subsidiaries, the Company’s directors and consultants to the Company. The recipient of any grant under the 2010 Stock Incentive Plan, and the amount and terms of a specific grant, are determined by the board of directors.  Should any option granted or stock awarded under the 2010 Stock Incentive Plan expire or become un-exercisable for any reason without having been exercised in full or fail to vest, the shares subject to the portion of the option not so exercised or lapsed will become available for subsequent stock or option grants.

2011 Amendment to the 2009 Stock Incentive Plan

On May 19, 2011, the Company’s Board of Directors adopted and approved the Amended and Restated 2009 Stock Incentive Plan to increase the number of shares of the Company’s common stock available for issuance thereunder by 1,000,000 shares to 2,200,000 shares of the Company’s common stock, subject to stockholder approval at the Annual Meeting.  At the 2011 Annual Meeting of Stockholders (the “2011 Annual Meeting”) of the Company held on July 9, 2011, the Company’s stockholders approved the amendment and restatement of the Company’s 2009 Stock Incentive Plan (the “Amended and Restated 2009 Stock Incentive Plan”).

January 7, 2010 Issuance

On January 7, 2010, the board approved and granted options for employees to purchase 2,750,00 shares of the Company's common stock with exercise price at $0.56 per share expiring two (2) years from the date of grant exercisable, in whole or in part, according to the following vesting schedule:

·

Twenty five percent (25%) of the total number of shares granted under the option scheme vested immediately as January 7, 2010, the date they were approved at the board meeting; a further twenty-five percent (25%) were vested on July 6, 2010.

·

The remaining Fifty percent (50%) of the shares granted under the option scheme shall vest pro rata every six (6) months, on the same date of the month as the date of grant of the option, over the following twelve (12) months of continuous service as a director, employee or consultant.

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The Company estimated the fair value of option granted, estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:

						January 7, 2010
Expected life (year)							2.00
Expected volatility (*)							196.02	%
Risk-free rate(s)							0.5	%
Expected dividends							0.00	%

*

Volatility was determined by using the average daily annual volatility during the quarter as provided by Bloomberg LLP.

July 1, 2010 Issuance

On July 1, 2010, the board approved and granted options for a director to purchase 500.000 shares of the Company's common stock with exercise price at $0.56 per share expiring two (2) years from the date of grant exercisable, in whole or in part, according to the following vesting schedule:

·

Twenty five percent (25%) of the total number of shares granted under the option scheme vested immediately as July 1, 2010, the date they were approved at the board meeting; a further twenty-five percent (25%) on January 1, 2011.

·

The remaining fifty percent (50%) of the shares granted under the option scheme shall vest pro rata every six (6) months, on the same date of the month as the date of grant of the option, over the following twelve (12) months of continuous service as a director.

The Company estimated the fair value of option granted, estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions:

						July 1, 2010
Expected life (year)							1.99
Expected volatility (*)							196.02	%
Risk-free rate(s)							0.5	%
Expected dividends							0.00	%

*

Volatility was determined by using the average daily annual volatility during the quarter as provided by Bloomberg LLP.

The Company used the Black-Scholes Pricing Model to determine expenses associated with the January 7, 2010 and July 1, 2010 grant issuances. The Company amortized $-0- and $1,075,165 of stock option grants during the quarter ended September 30, 2011 and 2010, respectively.

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Summary of the Company’s Stock Option Activities

The table below summarizes the Company’s stock option activities: