Q LOTUS HOLDINGS INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - Q LOTUS HOLDINGS INC	Financial_Report.xls
EX-31.1 - EXHIBIT 31.1 - Q LOTUS HOLDINGS INC	v358955_ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Q LOTUS HOLDINGS INC	v358955_ex31-2.htm
EX-32.1 - EXHIBIT 32.1 - Q LOTUS HOLDINGS INC	v358955_ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Q LOTUS HOLDINGS INC	v358955_ex32-2.htm

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, 2013

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

For the transition period from __________________ to __________________

Commission File Number 000-52595

Q LOTUS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada		14-1961383
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

20 North Wacker Drive, Suite 4120 Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

(312) 379-1800

____________________________________

Registrant’s telephone number, including area code:

____________________________________

(Former name and former address, if changed since last report)

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large 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 reporting company)	Smaller Reporting Company x

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

As of November 11, 2013 there were 231,506,201 shares of the registrant's common stock outstanding.

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

FORM 10-Q

QUARTERLY PERIOD ENDED SEPTEMBER 30, 2013

INDEX

PART I – FINANCIAL INFORMATION

Forward-Looking Statements	3

Unaudited Financial Statements	4 - 21

Item 2 – Management’s Discussion and Analysis of Financial Condition and results of Operations	22

Item 3 – Quantitative and Qualitative Disclosures about Market Risk	25

Item 4 – Controls and Procedures	25

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings	27

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 3 – Defaults Upon Senior Securities	27

Item 4 – Mine Safety Disclosures	27

Item 5 – Other Information	27

Item 6 – Exhibits	27

Signatures	28

	2

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that are subject to risks and uncertainties. All statements in this Quarterly Report on Form 10-Q other than statements of historical fact are forward-looking statements. Forward-looking statements convey our current expectations and projections relating to our financial condition, results of operations, plans, objectives, business strategy, budgets, projected costs, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current fact. These statements may include words such as “anticipate,” “believe,” “can have,” “continue,” “estimate,” “expect,” “intend,” “likely,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “will,” and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events. The absence of these words does not necessarily mean that a statement is not forward-looking.

For example, all statements we make relating to our estimated and projected costs, cash flow, growth rate, and financial results, our plans, objectives and strategies, for future operations, growth or initiatives are forward-looking statements.

All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect, including:

the effects of competition in the industries we conduct business in today and in the future;

the failure by us to anticipate changes in consumer and business preferences;

the loss of key employees;

changes in general business conditions and other factors which are beyond our control;

our rights and ability to mine, our receipt of the required permits and approvals from governmental authorities;

our substantial indebtedness;

other factors outside our control.

In particular, you should consider the numerous risks described in the “Risk Factors” section of our Annual Report on Form 10-K filed on July 15, 2013 for the fiscal year ended March 31, 2013, and in our periodic reports on Form 10-Q.

Although we believe the expectations reflected in the forward-looking statements are reasonable, in light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur as contemplated and actual results could differ materially from those anticipated or implied by the forward-looking statements.

We derive many of our forward-looking statements from our budgets and forecasts, which are based on many assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of know factors, and it is impossible for us to anticipate all factors that would affect our actual results. Important factors that could cause actual results to differ materially from our expectations or cautionary statements are disclosed under Item 1A. “Risk Factors” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K filed on July 15, 2013 for the fiscal year ended March 31, 2013. All written or oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements as well as other cautionary statements that are made from time to time in our other filings with the Securities and Exchange Commission (the “SEC”) and public communications. You should evaluate all forward-looking statements made in our Annual Report on Form 10-K filed on July 15, 2013 for the fiscal year ended March 31, 2013, and in our periodic reports on Form 10-Q in the context of these risks and uncertainties.

We caution you that the important factors referenced above may not contain all of the factors that are important to you. In addition, we cannot assure you that we will realize the results we expect or anticipate or, even if substantially realized, they will result in the consequences or affect us, or our operations, in the way we expect.

The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date hereof. Unless required by law, we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information or future events or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Quarterly Report.

	3

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30		March 31
	2013		2013
	(unaudited)
Assets
Current Assets
Cash	$	9,607	$	156
Prepaid expenses		25,000		25,000

Total Current Assets		34,607		25,156

Property and Equipment, Net		19,684		22,892

Non-Current Assets
Due from Urban R2 - related party		100,000		180,810
Advances to Southshore Development		152,671		115,000
Advance to MBC LLC		400,000		400,000
Other assets		6,838		4,038

Total Non-Current Assets		659,509		699,848

Total Assets	$	713,800	$	747,896

Liabilities and Stockholders' (Deficit) Equity
Current Liabilities
Accounts payable and accrued expenses	$	917,769	$	712,561
Accrued interest		228,248		71,657
Demand note payable		6,000		6,000
Notes Payable - related parties		164,100		195,949
Convertible note payable, net of debt discount $35,444 and $17,407 as of September 30, 2013 and March 31, 2013 respectively		42,556		64,593
Derivative liability		362,017		100,762
Notes Payable		3,432,436		3,089,936

Total Current Liabilities		5,153,126		4,241,458
Commitments and Contingencies

Stockholders' (Deficit) Equity
Preferred stock, $.001 par value; 100,000,000 shares authorized, no shares issued and outstanding		-		-
Common stock, $.0001 par value; 400,000,000 shares authorized, 195,328,194 and 100,062,234 shares issued and outstanding at September 30, 2013 and March 31, 2013, respectively		19,533		10,006
Additional paid-in-capital		2,280,811		2,105,838
Deferred Compensation		—		(48,370)
Deficit accumulated during development stage		(6,739,670)		(5,561,036)

Total Stockholders' (Deficit) Equity		(4,439,326)		(3,493,562)

Total Liabilities and Stockholders' (Deficit) Equity	$	713,800	$	747,896

See the accompanying notes to these condensed consolidated financial statements.

	4

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

									For the Period from
									March 31, 2010
	- For the Three Months Ended -				- For the Six Months Ended -				(Inception) to
	September 30, 2013		September 30, 2012		September 30, 2013		September 30, 2012		September 30, 2013

Revenue	$	—	$	—	$	—	$	—	$	—

Operating Expenses		(192,691)		(217,295)		(610,324)		(476,423)		(4,945,347)

Other Income/(Expense)
Impairment of Investment		—		—		—		—		(45,250)
Interest Expense		(90,564)		(59,775)		(951,925)		(128,781)		(2,136,282)
Change in fair value of derivative liability		186,805		(56,470)		441,078		(56,470)		552,808
Amortization of debt discount		(28,585)		(35,550)		(57,463)		(35,550)		(165,599)

Total Other Income/(Expense)		67,656		(151,795)		(568,310)		(220,801)		(1,794,323)

Net Loss	$	(125,035)	$	(369,090)	$	(1,178,634)	$	(697,224)	$	(6,739,670)

Net Loss per Common Share:
Basic and diluted	$	(0.00)	$	(0.01)	$	(0.01)	$	(0.01)

Weighted Average Number of Shares Outstanding
Basic and diluted		127,113,833		57,024,676		117,407,459		56,789,957

See the accompanying notes to these condensed consolidated financial statements.

	5

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY

(Unaudited)

											Total
											Stockholders'
	Common Stock				Additional		Accumulated		Deferred		(Deficit)
	Shares		Amount		Paid-in-Capital		Deficit		Compensation		Equity

Balances - March 31, 2012		56,349,057	$	5,635	$	1,540,325	$	(3,335,804)	$	(137,500)	$	(1,927,344)

Shares issued for services		5,000,000		500		49,500		-		(50,000)		-

Amortization of compensation for services		-		-		-		-		139,130		139,130

Shares issued as conversion of loan principal		13,163,177		1,316		91,984		-		-		93,300

Warrants issued for services		-		-		54,333		-		-		54,333

Shares issued for cash — $0.01 per share		20,000,000		2,000		198,000		-		-		200,000

Cancellation of shares		(775,000)		(78)		78		-		-		-

Shares issued to directors and consultants		6,325,000		633		171,618		-		-		172,251

Net loss		-		-		-		(2,225,232)		-		(2,225,232)

Balances - March 31, 2013		100,062,234		10,006		2,105,838		(5,561,036)		(48,370)		(3,493,562)

Amortization of compensation for services		-		-		-		-		8,370		8,370

Cancellation of shares		(4,000,000)		(400)		(39,600)		-		40,000		-

Shares issued as conversion of loan principal		59,065,960		5,906		118,594		-		-		124,500

Shares to be issued for cash		40,200,000		4,021		95,979		-		-		100,000

Net loss		-		-		-		(1,178,634)		-		(1,178,634)

Balances - September 30, 2013		195,328,194		19,533		2,280,811		(6,739,670)		—		(4,439,326)

See the accompanying notes to these condensed consolidated financial statements.

	6

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

					For the Period from
	For the Six		For the Six		March 31, 2010
	Months Ended		Months Ended		(Inception) to
	September 30, 2013		September 30, 2012		September 30, 2013

Cash Flows from Operating Activities
Net Loss	$	(1,178,634)	$	(697,224)	$	(6,739,670)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		3,208		5,146		34,262
Amortization of deferred compensation		8,370		137,500		325,000
Loss on disposal of assets		—		—		34,641
Fair value of warrants issued for services		—		11,617		64,372
Default and other financing interest		772,333		53,000		1,599,911
Stock based compensation		—		—		516,291
Investment impairment		—		—		45,250
Amortization of debt discount		57,463		35,550		165,599
Change in fair value of derivative liabilities		(441,078)		56,470		(552,808)
Changes in operating assets and liabilities
Prepaid expenses		—		—		(25,000)
Others assets		(2,800)		—		(6,838)
Accounts payable and accrued expenses		213,759		75,836		926,319
Accrued interest		156,591		75,931		228,248

Net Cash Used in Operating Activities		(410,788)		(246,174)		(3,384,423)

Cash Flows from Investing Activities
Purchase of property and equipment		—		—		(88,588)
Investment and advances		43,139		(602,359)		(697,921)

Cash Used in Investing Activities		43,139		(602,359)		(786,509)

Cash Flows from Financing Activities
Proceeds from demand note payable		—		—		6,000
Proceeds from convertible notes payable		75,500		75,000		285,000
Proceeds from notes payable - related parties		1,600		36,710		254,049
Repayment of notes payable - related parties		—		(21,875)		(56,500)
Proceeds from short term notes payable		200,000		760,000		2,587,108
Proceeds from the issuance of common stock		100,000		—		1,104,882

Cash Provided by Financing Activities		377,100		849,835		4,180,539

Net (Decrease) Increase in Cash and Cash Equivalents		9,451		1,302		9,607

Cash and Cash Equivalents - Beginning		156		14		—

Cash and Cash Equivalents - Ending	$	9,607	$	1,316	$	9,607

Supplemental Disclosure of Cash Flow Information
Cash paid for interest		—		—	$	102,743
Cash paid for taxes		—		—		—
Supplemental Disclosure of Non-Cash Information
Conversion of promissory note to stock	$	82,500		27,500	$	210,000
Conversion of related party debt to stock	$	42,000		—	$	42,000

See the accompanying notes to these condensed consolidated financial statements.

	7

Q LOTUS HOLDINGS, INC.

(A Development Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Organization and liquidity

Organization

Q Lotus Holdings, Inc. (“Q Lotus” or the “Company”) is a Nevada Corporation formed to operate as a resource company with an important focus on natural resources and mining, and interests in finance and real estate. As of September 30, 2013, the Company had two wholly owned subsidiaries, Q Lotus, Inc. (“QLI”), a Nevada corporation whose operations through such date have consisted of the acquisition of certain mining claims, and Midwest Business Credit, Inc. (“MBC”), a Nevada corporation that was formed in order to acquire the assets of Midwest Business Credit LLC (“MBC LLC”), an asset based lending company which provides secured financing.

Currently, our business consists solely of holding mineral rights in a portfolio of minerals and our activities to date have been limited to formation of the legal and business structure, business planning, the pursuit of capital and the exploration of possible acquisitions and investments.

We are a development stage company and are in our early stage of operations. The Company has funded its operations to date from proceeds received from the sale of its common stock, advances made by the Company’s Chairman, related parties, other advances from unaffiliated third parties and issuance of notes payable all totaling approximately $4,185,530.

The Company was originally incorporated as Extreme Home Staging, Inc. in 2006. The primary revenue-generating activity of this business until June 11, 2010 was home staging, which is the art and process of preparing a house, a condominium, or any private residence to be as visually and aesthetically pleasing as possible prior to going up for sale in the real estate marketplace. On June 11, 2010, Extreme Home Staging, Inc. entered into and closed an Agreement and Plan of Share Exchange with QLI and its sole shareholder, Marckensie Theresias, pursuant to which Extreme Home Staging, Inc. acquired 100% of the issued and outstanding capital stock of QLI in exchange for the issuance of 30,000,000 shares of Extreme Home Staging, Inc. common stock, par value $0.0001 (the “Exchange”). The 30,000,000 shares issued to Marckensie Theresias constituted 57.6% of our issued and outstanding capital stock on a fully diluted basis. The acquisition was accounted for as a recapitalization effected by a share exchange, wherein QLI was considered the acquirer for accounting and financial reporting purposes. As a result of the Exchange, QLI became a wholly owned subsidiary of Extreme Home Staging, Inc.

Liquidity and Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Since Q Lotus was created on March 31, 2010, the Company has had no revenue and has generated losses from operations. At September 30, 2013, the Company had negative working capital of approximately $5,133,000 and an accumulated deficit of approximately $6,740,000. The Company needs to raise additional capital from external sources through different funding initiatives or equity placements in order to sustain operations while executing its business plan. The Company cannot provide any assurance that it will be able to raise additional capital. If the Company is unable to secure additional capital, it may be required to reduce its current operating expenses, modify its existing business plan and take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.

	8

There can be no assurance that such funding initiatives will be successful and any equity placement could result in substantial dilution to current stockholders. The above factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern. As of September 30, 2013, the Company’s activities have been limited to its formation, business planning, pursuing capital and the exploration of possible acquisitions and investments.

As of November 14, 2013, the Company had minimal available cash balances. Our primary sources of liquidity to date have been limited to the sale of our securities and other financing activities. We will need to raise additional funds to continue to meet ongoing operating requirements through fiscal year 2014.

Note 2 – Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and the instructions to Form 10-Q. Accordingly, they do not include all of the information and footnotes required by United States generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included. The Company has evaluated subsequent events through the issuance date of this Form 10-Q. Operating results for the six-month period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the fiscal year ending March 31, 2014. For further information, refer to the financial statements and footnotes thereto for the Company included in the Company’s Form 10-K filed on July 15, 2013 for the fiscal year ended March 31, 2013.

Note 3 - Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s wholly owned subsidiaries QLI and MBC. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets, (ii) liabilities at the dates of the financial statements and (iii) the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities, share based payment arrangements, deferred taxes and related valuation allowances. Certain of our estimates could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could have an effect on our estimates that could cause actual results to differ from our estimates. The Company re-evaluates all of its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with accounting guidance, which requires that such equity instruments be recorded at their fair value on the date of grant, using the Black-Scholes Option Valuation Model method for stock options and the quoted price of its common stock for unrestricted shares and are amortized over the vesting period of the award. For non-employee stock-based awards, the Company calculates the fair value of the award on the date of a grant in the same manner as employee awards. The Company recognizes the compensation costs over the requisite period of the award, which is typically the date the services are performed. Stock-based compensation is reflected within operating expenses. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in the Company’s consolidated financial statements for certain of its assets and expenses. For historic fiscal years when there was not an observable active, liquid market for the Company’s common stock, the valuation of the shares issued in a non-cash share payment transaction relies on observation of arms-length transactions where cash was received for its shares, before and after the non-cash share payment.

	9

Income Taxes

The Company determines income taxes using the asset and liability approach which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of those assets and liabilities, as well as operating loss and tax credit carry-forwards, using enacted tax rates in effect in the years in which the differences are expected to reverse. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the 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 income in the period that includes the enactment date.

The Company follows the provisions of ASC 740, “Income Taxes”, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken, or expected to be taken in a tax return. The interpretation requires that the Company recognize the impact of a tax position in its financial statements if it is more likely than not that the position will be sustained on audit, based on the technical merits of the position. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods and disclosure. The Company has no material uncertain tax positions that would require recognition in the financial statements as of September 30, 2013 and 2012.

The Company’s policy is to classify assessments, if any, for tax related interest as interest expense and penalties as selling, general and administrative expenses.

Common Stock Purchase Warrants and Derivative Financial Instruments

The Company classifies all of its common stock purchase warrants and other derivative financial instruments as equity if the contracts (1) require physical settlement or net-share settlement or (2) give the Company a choice of net-cash settlement or settlement in its own shares (physical settlement or net-share settlement). The Company classifies as assets or liabilities any contracts that (1) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the control of the Company), (2) give the counterparty a choice of net-cash settlement or settlement in shares (physical settlement or net-share settlement), or (3) contracts that contain reset provisions. The Company assesses classification of its common stock purchase warrants and other derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Fair Value Measurements

The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.

The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our long-term credit obligations approximate fair value because the effective yields on these obligations are comparable to rates of returns for instruments of similar credit risk.

ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:

Level 1 — quoted prices in active markets for identical assets or liabilities

	10

Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable

Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)

Financial liabilities measured at fair value on a recurring basis are summarized below:

Fair value measurements

Quoted prices in

active markets for

Significant

unobservable

other

observable

September 30,

identical assets

inputs

2013

(Level 1)

(Level 2)

(Level 3)

Derivative liability

362,017

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors based on historical quoted market prices for the Company’s common stock, and are classified within Level 3 of the valuation hierarchy.

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities that are measured at fair value on a recurring basis:

	September 30,		March 31,
	2013		2013
	(unaudited)
Beginning Balance	$	100,762	$	—
Aggregate fair value of derivative issued	$	75,500	$	126,754
Issuance charge in excess of note proceeds	$	626,833	$	85,738
Change in fair value of derivative included in results of operations	$	(441,078)	$	(111,730)

Ending Balance	$	362,017	$	100,762

Net Loss Per Common Share

Basic net loss per share is computed by dividing net loss per share available to common stockholders by the weighted average shares of common stock outstanding for the period and excludes any potentially dilutive securities. Diluted earnings per share reflect the potential dilution that would occur upon the exercise or conversion of all dilutive securities into common stock. The computation of loss per share for the three and six month periods ended September 30, 2013 excludes potentially dilutive securities, including warrants of 97,956,000 and convertible securities of 65,308,123, because their inclusion would be anti-dilutive. The computation of loss per share for the three and six month periods ended September 30, 2012 excludes potentially dilutive securities, including warrants of 4,663,000 and convertible securities of 3,014,706, because their inclusion would be anti-dilutive.

Recent Accounting Pronouncements

In July 2013, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists ("ASU 2013-11"). ASU 2013-11 amends Accounting Standards Codification ("ASC") 740, Income Taxes, by providing guidance on the financial statement presentation of an unrecognized benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The ASU does not affect the recognition or measurement of uncertain tax positions under ASC 740. ASU 2013-11 will be effective for the Company for interim and annual periods beginning after December 15, 2013, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.

	11

We reviewed new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to us, we have not identified any standards that we believe merit further discussion. We expect that none of the new standards will have a significant impact on our consolidated financial statements.

Note 4 – Commitments and Contingencies

Facility Lease

The Company is not currently leasing any office space.

Mineral Rights

The Company holds mining rights of properties located in Utah, Arizona and Oregon. As consideration for the mining rights, the Company entered into a Revenue Sharing Agreement that would provide the transferors with a percentage of the net revenue realized from the sale of minerals that have been extracted and mined from each respective claim. In valuing such consideration (rights to receive fees in the future) the Company considered many factors in determining an appropriate fair value of the consideration/rights. Since the Company did not exchange any monetary consideration for the acquired mining rights, the Company will account for the mining rights in accordance with the guidance described with respect to “Nonmonetary Transactions”. The assets acquired provide no further support of fair values since there appears to be an absence of objective support to measure the value of the rights within reasonable limits that any value can be realized. It should be noted that the Company has not begun any mining operations as of September 30, 2013. No studies have been performed as to the magnitude of the cost necessary to extract any value and at present, based on the information available, no reliable estimates as to the realizable nature of the assets can be determined. Given that no monetary consideration was paid, and that no minimum payments have been guaranteed, and given that the Company does not currently have the means to pay for such rights, the fair value of the consideration was determined to be de minimus and therefore valued at zero. Payments to the transferors for future revenue from said minerals will be charged to expense when incurred. There were no transactions relating to these mineral rights through September 30, 2013. In June 2011, the Company entered into an agreement to swap four of its mining claims, representing approximately one-third of such claims, with an unrelated third party in exchange for four equivalent claims.

In the fiscal year ended March 31, 2013 Q Lotus paid $4,038 to secure rights to silica mining claims that will be used as collateral for asset backed notes to bring financing into the Company to fund operations.

Litigation, Claims and Assessments

From time to time, in the normal course of business, the Company may be involved in litigation. The Company’s management has determined any asserted or unasserted claims to be immaterial to the consolidated financial statements at this time.

Note 5 – Advances

During the fiscal year ended March 31 2013, the Company made advances to Southshore Real Estate Development, LLC, in the amount of $115,000 and during the six months ended September 30, 2013 an additional $37,671 was advanced bringing the total of the advances to $152,671 to secure development rights for a real estate project to revitalize the downtown commercial district of Lake Zurich Illinois and is refundable by September 30, 2013. The Company is in negotiation to extend the refund date documentation should be finalized by the end of the third quarter. Q Lotus also advanced funds to MBC LLC in the amount of $400,000. Monies advanced to MBC LLC are to be converted to capital as part of the Company’s desire to acquire MBC LLC. If the acquisition is ultimately not consummated within one year (June 1, 2014), MBC LLC is required to repay such advances to Q Lotus upon its request.

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Note 6 – Debt

Demand Note Payable

In April 2011, the Company received an advance of $6,000 from an unaffiliated third party that was used to pay operating expenses. This note is non-interest bearing and payable on demand.

Notes Payable – Related Parties

In July 2010 the Company received an advance totaling $22,500 from a minority shareholder of the Company that was used to pay operating expenses. In October 2010, the Company entered into a loan agreement with this shareholder and was advanced $140,000 to pay operating expenses. Both the advance and the note are non-interest bearing and payable on demand. The total amount due to this lender was $162,500 at September 30, 2013.

In March 2012, the Company received an advance of $25,000 from an officer of the Company to pay operating expenses. This note is non-interest bearing and payable on demand. The Company subsequently received $34,278 and repaid $30,278. The balance of $29,000 was converted into 2,900,000 shares of common stock at $0.01 per share in June 2013.

In August and September of 2012 the Company received an advance of $6,020 from an officer of the Company to pay operating expenses. This note is non-interest bearing and payable on demand. During the quarter ended June 30, 2013 the Company received an additional $580, of which $100 was repaid in cash. The balance of $6,500 was converted into 650,000 shares of common stock at $0.01 per share in June 2013.

In August 2013 the Company received an advance of $1,600 from an officer of the Company to pay operating expenses. This note is non-interest bearing and payable on demand.

Notes Payable

Notes payable consist of the following:

	September 30,
	2013		March 31,
	(unaudited)		2013

Bellcourt Note		500,000		425,000

Husain Note		317,500		280,000

Urso Note		150,000		150,000

Powers Note		230,000		230,000

MBC LLC Note		328,000		298,000

Goldstein Family Note		1,906,936		1,706,936

Total notes payable	$	3,432,436	$	3,089,936

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Bellcourt Note

On September 12, 2011, the Company issued a note to Timothy Bellcourt, in the principal amount of $125,000 that matured on March 7, 2012. Upon maturity, the Company agreed to pay Mr. Bellcourt $250,000. In the event that certain conditions of the note are not satisfied, Mr. Bellcourt may demand repayment of the original principal amount, which may be paid in shares of the Company's common stock, valued at the date of repayment. The maturity date of the note was extended to May 31, 2012, and further extended to June 30, 2013. As of September 30, 2013, the principal balance as recorded was $500,000 including default interest of $375,000. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. There can be no assurance that the Company will be successful in its effort to obtain an amendment.

Husain Note

On September 12, 2011, the Company issued a note to Matloob Husain, in the principal amount of $125,000 that matured on March 7, 2012. Upon maturity, the Company agreed to pay Mr. Husain $187,500. In the event that certain conditions of the note are not satisfied. Mr. Husain may demand repayment of the original principal amount, which may be paid in shares of the Company's common stock, valued at the date of repayment. The maturity date of the note was extended to May 31, 2012, and further extended to June 30, 2013. As of September 30, 2013, the principal balance as recorded was $317,500 including default interest of $192,500. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. There can be no assurance that the Company will be successful in its effort to obtain an amendment.

Urso Note

On September 12, 2011, the Company issued a note to Estefania Urso, in the principal amount of $150,000 that matured on January 10, 2012 and was extended to June 30, 2012. Upon maturity, the Company will pay Ms. Urso $150,000. In the event that certain conditions of the note are not satisfied and escrowed funds are not returned to the Company, then the Company will be obligated to repay the principal amount of the loan, plus interest ($180,000 in the aggregate) to Ms. Urso in shares of the Company's common stock, valued at the date of repayment. At March 31, 2012, accretion to the note was $35,000 and is recorded as a charge to interest expense. On March 14, 2012, the Company provided 350,000 shares of Company common stock to Ms. Urso valued at $.10 per share to compensate her for $35,000 accrued interest. As of September 30, 2013, the principal balance as recorded was $150,000. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. There can be no assurance that the Company will be successful in its effort to obtain an amendment.

Powers Note

In December 2011, the Company entered into a $100,000 note agreement with an unaffiliated third party. These funds were used to pay operating expenses. The note bears interest at the rate of 10% per annum, matured on May 31, 2012, and was extended to August 31, 2012. In January 2012, the principal amount of this note was increased to $130,000, and in March 2012, the principal amount of the note was further increased to $230,000. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. There can be no assurance that the Company will be successful in its effort to obtain an amendment.

MBC LLC Note

In April 2012, the Company received $180,000 from MBC LLC. The funds were used to pay operating expenses. A $16,000 loan fee was recorded to interest expense at the original maturity date of June 21, 2012. On June 21, 2012 the loan was extended to July 6, 2012 for an additional loan fee of $16,000 that was recorded to interest expense. On July 6, 2012 the maturity date of the note was extended to August 31, 2012 for an additional $16,000 loan fee. On August 31, 2012 the maturity of the note was further extended to January 31, 2013 for an additional loan fee of $50,000. On January 31, 2013 the maturity of the note was further extended to June 30, 2013 for an additional loan fee of $50,000. As of September 30, 2013, the principal balance was $328,000, including loan fees of $148,000. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. There can be no assurance that the Company will be successful in its effort to obtain an amendment.

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Goldstein Family Note

In January 2013, The Company entered into a promissory note agreement with Goldstein Family Partnership, LP (“Goldstein”) whereby certain promissory notes in the aggregate of $796,884 including principle and accrued interest issued to individuals and entities related to Goldstein during the year were consolidated in a single 15% promissory note. In addition, the Southshore note in the amount of $650,052 was consolidated into the note as well. Pursuant to the terms of the note agreement and as amended, the Company received proceeds in the amount of $360,000. In May 2013 the Goldstein Family Partnership, LP agreed to loan an additional $200,000 to the Company, $100,000 was transferred to the Company in May 2013, $50,000 was transferred in July 2013 and a final advance of $50,000 was transferred in August 2013.The principal balance as of September 30, 2013 was $1,906,936 and bears interest at a rate of 15% per annum. The note matures September 1, 2013. The note is in default and accordingly is classified as a current liability. The Company is in discussion with the note holder to amend the maturity date of the note. As part of the note agreement with Goldstein, the Company agreed to purchase a 51% interest in Southshore Real Estate Development, LLC (“Southshore”) whereby the Company will be responsible to pay a total of $5.2 million including an additional $3.2 million as defined in the original note agreement. The Company has yet to consummate and execute the asset purchase agreement and transfer title of the interest in Southshore.

Convertible Note Payable

The Company has entered into several financing transaction with Asher Enterprises, Inc., ("Asher") pursuant to which the Company issued convertible notes to Asher in the aggregate amount of $285,000. The notes have been unsecured, and provide for the conversion of all principal and interest outstanding under the notes into shares of the Company's common stock beginning six months after the issuance date of the respective notes (“conversion date”), at a rate of 35%-50% of the market price (no lower than $0.01) of the Company's common stock for the six lowest trading days during the ten day period prior to such conversion; provided, however, that the notes require 61 days prior written notice of conversion to the Company if such conversion would put Asher and/or its affiliates over 4.99% beneficial ownership in the Company.

The conversion price of the notes is subject to adjustment in the event of stock splits, dividends, distributions and similar adjustments to our capital stock. The number of shares of common stock subject to the Note may be adjusted in the event of mergers, distributions, a sale of substantially all of the Company's assets, tender offers and dilutive issuances. In connection with the financings, the Company entered into a Securities Purchase Agreement that grants Asher a limited right of first refusal in the event the Company wishes to obtain additional working capital loans that are under $150,000. During the six months ended September 30, 2013, Asher converted $82,500 of convertible notes and accrued interest into 54,865,960 shares of common stock of the Company at variable conversion prices as defined in the note agreement.

As of September 30, 2013, convertible notes totaled $42,556, net of a $35,444 debt discount. Any amount of principal or interest on these notes that is not paid when due shall bear interest at a rate of 22% per annum from the due date until paid. The notes mature on, , December 26, 2013, March 12, 2014 and March 13, 2014.

Total interest expense including default interest on all notes payable for the three and six month periods ended September 30, 2013, was approximately $1,500 and $3,500, respectively. Total interest expense including default interest on all notes payable for the three and six month periods ended September 30, 2012, was approximately $0 and $0, respectively.

Derivative Financial Instrument

The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815, Derivatives and Hedging which requires issuers of financial statements to make a determination as to whether (1) an embedded conversion meets the definition of a derivative in its entirety and (2) the derivative would qualify for a scope exception to derivative accounting, which includes evaluating whether the embedded derivative would be considered indexed to the issuer’s own stock.

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ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as separate derivatives in the event such derivatives would not be classified in stockholders’ equity if they were free standing. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other applicable US GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides for an exception to this rule if a debt host instrument is deemed to be a conventional debt instrument.

The Company evaluated the conversion option embedded in its Convertible Notes in accordance with the provisions of ASC 815 and determined that on the conversion date, the conversion option will have all of the characteristics of a derivative in its entirety and does not qualify for an exception to the derivative accounting rules. Specifically, the exercise price of the conversion option is not fixed at any time during the term of the note. The Company also issued warrants that provide for an adjustment of the exercise price in the event that the Company subsequently issue equity securities or equity linked securities at prices more favorable than the exercise price of the warrant. Accordingly, the embedded conversion option in the convertible notes and common stock purchase warrants are classified as derivative liabilities at the issuance dates and are marked to market through earnings at the end of each reporting period. The fair value of the conversion option was determined using the intrinsic value method that the Company believes approximate the results obtained using the Binomial Lattice model. The fair value of common stock purchase warrant was determined using the Black Sholes Model. At September 30, 2013 the fair value of the derivative liability was $362,017 of which $183,200 is attributed to the fair value of approximately 92 million common stock purchase warrants. The change in the fair value of the derivative liability for the three and six month periods ended September 30, 2013 was $186,805 and $441,078, respectively, and is recorded in the Condensed Consolidated Statements of Operations. The change in the fair value of the derivative liability for the three and six month periods ended September 30, 2012 was $(56,470) and $(56,470), respectively, and is recorded in the Condensed Consolidated Statements of Operations.

Note 7 – Stockholders’ Deficit

Common Stock

The Company has authorized 400,000,000 shares of common stock, $0.0001 par value per share, and as of September 30, 2013, adjusted for the stock split, 195,328,194 shares were issued and outstanding. The holders of the Company’s common stock are entitled to one vote per share. The holders of common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of legally available funds. However, the current policy of the Board of Directors is to retain earnings, if any, for the operation and expansion of the business. Upon liquidation, dissolution or winding-up of the Company, the holders of common stock are entitled to share ratably in all assets of the Company, which are legally available for distribution and after payment of or provision for all liabilities. The holders of common stock have no preemptive, subscription, redemption or conversion rights.

Preferred Stock

The Company has authorized 100,000,000 shares of preferred stock, $0.001 par value per share, and as of September 30, 2013, no shares were issued and outstanding.

Reverse Merger

On April 16, 2010, in contemplation of the reverse merger described below, the sole shareholder of QLI (now our wholly owned subsidiary), Marckensie Theresias, acquired 26,550,000 shares of our common stock for $266,620, primarily from its former CEO, Milka Fixler.

On June 11, 2010, QLI entered into and completed an Agreement and Plan of Share Exchange with the Company.

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The Company had 22,019,994 common shares par value $0.0001 outstanding at the time of the merger.

The Company agreed to acquire all of the QLI common stock from the QLI stockholder in exchange for 30,000,000 newly issued shares of common stock. As a condition of the exchange agreement, the 26,550,000 shares as referred to above were cancelled. The name of the Company was subsequently changed to Q Lotus Holdings, Inc. After the exchange was completed, a total of 52,019,994 common shares were outstanding.

The completion of the transactions as described above was accounted for as a “reverse merger” and recapitalization since the stockholder of QLI gained control over the Company following the completion of the transactions.

Common Stock Issued

In August 2010, the Company issued 1,250,000 shares of common stock with an ascribed value of $50,000 (based on the value of the services) to Real Holdings Capital, LLC (“RHC”) in exchange for $125 and services that related to the formation and establishment of the Company and its business operations. The Company’s Chairman, President and Chief Executive Officer, Mr. Rosenberg, is a beneficiary under a trust that owns RHC.

In September 2010, the Company issued 300,000 shares of common stock with an ascribed value of $150,000 (based on the value of the services) in exchange for web marketing services. This amount was fully amortized as operating expenses during the fiscal ended March 31, 2011.

In December 2010, the Company issued 8,000 shares of common stock with a value of $15,040, in exchange for services, based on the closing price of the Company’s common stock on the date of issuance.

In March 2011, the Company issued 150,000 shares of its common stock valued at $150,000 based on the closing price of the Company’s common stock on the date of issuance in exchange for investment banking services. This amount is being amortized over the twelve-month period of the service agreement and was fully amortized in the year ended March 31, 2012.

In December 2011, the Company issued 84,246 shares of common stock with a value of $10,000, based on the average of the ten (10) day historical closing price of the Company’s common stock, in exchange for professional fees. This amount was expensed in the quarter ended December 31, 2011.

In February and March 2012, the Company issued 836,817 shares of common stock with an aggregate value of $37,000 as partial conversion of the Asher notes payable. These amounts were recorded as stockholders equity in the quarter ended March 31, 2012.

In February 2012, the Company issued 500,000 shares of common stock with a value of $165,000, in exchange for professional fees to be amortized over six months. The stock price was based on the closing price of the Company’s common stock on the date of issuance.

In March 2012, the Company issued a total of 850,000 shares of common stock. The Company issued 25,000 shares of common stock to each of four independent Directors. The shares were valued at $3,500 to each Director based on the closing price ($0.14) on the date the shares were granted. The Company issued 250,000 shares each to three consultants as compensation for services. The shares were valued at $35,000 to each consultant based on the closing price on the date the shares were granted. These amounts were expensed in the quarter ended March 31, 2012. In December 2012, the issuance of 775,000 of these shares was rescinded, returned to the Company and cancelled. In February 2013 the Company issued 500,000 shares of common stock valued at $25,000 based on the closing price ($0.05) on the date the shares were granted to each of three consultants, and issued 25,000 shares to one independent Director valued at $1,250.

In March 2012, the Company issued 350,000 shares valued at $35,000 ($0.14 per share) on the date of issuance as payment of interest on the Urso note.

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In April 2012, the Company issued 234,528 shares of common stock with an aggregate value of $5,500 ($0.02 per share) as partial conversion of the Asher notes payable.

In July and August 2012, the Company issued 606,177 shares of common stock with an aggregate value of $22,000 ($0.04 per share) as partial conversion of the Asher notes payable, based on three lowest trading days during the ten (10) day historical period prior to conversion.

In October 2012, the Company issued 1,061,947 shares of common stock with an aggregate value of $12,000 ($0.01 per share) as partial conversion of the Asher notes payable.

During December 2012, the Company sold 14,000,000 shares of the Company’s common stock for $140,000 to investors pursuant to a stock purchase agreement at $0.01 per share.

In December 2012, the Company authorized the return and cancellation of 750,000 shares of common stock issued to three consultants and 25,000 shares issued to one director in March of 2012. The fair value of these shares was $15,000.

In January 2013, the Company issued 2,000,000 shares of the Company’s common stock with an aggregate value of $40,000 ($.02 per share) as compensation for services rendered in 2012.

In January 2013, the Company sold 6,000,000 shares of the Company’s common stock for $60,000 to investors pursuant to a stock purchase agreement at $0.01 per share.

In January 2013, the Company issued 1,562,500 shares of common stock with an aggregate value of $5,000 ($.0032 per share) as partial conversion of the Asher notes payable.

In January 2013, the Company issued 1,300,000 shares of common stock with an aggregate value of $26,000 ($0.02 per share) to Marckensie Theresias as part of a severance package.

In January 2013, the Company issued 1,500,000 shares of common stock with an aggregate value of $30,000 ($0.02 per share) to a consultant for services rendered.

In February 2013, the Company issued 1,094,891 shares of common stock with an aggregate value of $15,000 ($0.0137 per share) as partial conversion of the Asher notes payable.

In February 2013, the Company issued a total of 1,525,000 shares of common stock. The Company issued 25,000 shares of common stock to one independent Director. The shares were valued at $1,250 based on the closing price ($0.05) on the date the shares were granted. The Company issued 500,000 shares each to three consultants as compensation for services. The shares were valued at $25,000 to each consultant based on the closing price on the date the shares were granted. These amounts were expensed in the quarter ended March 31, 2013.

In February 2013, the Company issued 4,200,000 shares of common stock with an aggregate value of $14,700 ($0.0035 per share) as partial conversion of the Asher notes payable.

In March 2013, the Company issued 1,518,519 shares of common stock with an aggregate value of $4,100 ($0.0027 per share) as partial conversion of the Asher notes payable.

In March 2013, the Company issued 2,884,615 shares of common stock with an aggregate value of $15,000 ($0.0052 per share) as partial conversion of the Asher notes payable.

In March 2013, the Company issued 5,000,000 shares of common stock with an aggregate value of $50,000 ($.01 per share) for services rendered in preparing an Equity Incentive Plan. The value of the services is to be amortized over a six-month period. The Equity Incentive Plan agreement was cancelled effective May 31, 2013. As a result 4,000,000 of the 5,000,000 shares of common stock issued as compensation for creation of the plan are to be returned and cancelled.

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In April 2013, the Company issued 3,571,429 shares of common stock with an aggregate value of $15,000 ($0.0042 per share) as partial conversion of the Asher notes payable.

In May 2013, the Company issued 4,210,526 shares of common stock with an aggregate value of $8,000 ($0.0019 per share) as partial conversion of the Asher notes payable.

In May 2013, the Company issued 555,556 shares of common stock with an aggregate value of $1,000 ($0.0018 per share) as partial conversion of the Asher notes payable.

In May 2013, the Company issued 3,500,000 shares of common stock with an aggregate value of $6,300 ($0.0018 per share) as partial conversion of the Asher notes payable.

In June 2013, the Company issued 4,222,222 shares of common stock with an aggregate value of $7,600 ($0.0018 per share) as partial conversion of the Asher notes payable.

In June 2013, the Company issued 4,200,000 shares of common stock with an aggregate value of $8,400 ($0.002 per share) as partial conversion of the Asher notes payable.

In June 2013 the Board authorized the issuance of 10,000,000 shares of $.01 per share common stock to raise short term capital for operations. The CEO and Chairman of the Company, and an affiliate, purchased 8,000,000 of these shares by converting $42,000 in receivables to common stock and purchasing the balance with $38,000 in cash.

In July 2013, the Company issued 5,785,714 shares of common stock with an aggregate value of $8,100 ($0.0014 per share) as partial conversion of the Asher notes payable.

In August 2013 the Company issued 6,000,000 shares of common stock with an aggregate value of $6,600 ($0.0011 per share) as partial conversion of the Asher notes payable.

In August 2013 the Company issued 1,538,462 shares of common stock with an aggregate value of $2,000 ($0.0013 per share) as partial conversion of the Asher notes payable.

In August 2013 the Company issued 3,384,615 shares of common stock with an aggregate value of $4,400 ($0.0013 per share) as partial conversion of the Asher notes payable.

In September 2013 the Company issued 6,000,000 shares of common stock with an aggregate value of $6,000 ($0.001 per share) as partial conversion of the Asher notes payable.

In September 2013 the Company authorized the issuance of 400,000 shares of common stock to Jeffrey R. Davis for $2,000 cash ($0.005 per share).

In September 2013 the Company authorized the issuance of 36,000,000 shares of common stock to The Goldstein Family Partnership, LP for $60,000 cash ($0.0016666 per share).

In September 2013 the Company issued 5,897,436 shares of common stock with an aggregate value of $4,600 ($0.00078 per share) as partial conversion of the Asher notes payable.

In September 2013 the Company issued 6,000,000 shares of common stock with an aggregate value of $4,500 ($0.00075 per share) as partial conversion of the Asher notes payable.

Warrants Issued

In February 2011, the Company issued a two-year warrant to an individual affiliated with Southshore to purchase an aggregate of 150,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The Company recorded a charge for the fair value totaling $16,659 that was included in interest expense in the fiscal year ended March 31, 2011. This warrant was subsequently cancelled and reissued on May 20, 2011 at $.50 per share having a fair value of $4,368 and was charged to interest expense during the year ended March 31, 2012. In January 2013 these warrants were cancelled per the Goldstein Family note payable.

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In connection with a series of amendments to the Southshore Note during the fiscal year ended March 31, 2012, the Company issued two year warrants to purchase an aggregate 357,000 shares of the Company’s common stock at an exercise price of $.05 per share. The Company recorded a charge for the fair value totaling $5,654 that was included in interest expense in the fiscal year ended March 31, 2012. In January 2013 these warrants were cancelled per the Goldstein Family Note payable.

On March 16, 2012, the Company issued a five-year warrant to a note-holder to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $1.75 per share as an added inducement for additional advances from the note-holder. On the same date, the Company also issued a five-year warrant to a related party note holder to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $1.75 per share. The Company recorded a charge for the fair value totaling $16 that was included in interest expense in the fiscal year ended March 31, 2012.

On August 1, 2012 the Company issued a warrant to Jorge Gonzalez, the Company’s Chief Financial Officer, to purchase up to 156,000 shares of common stock at an exercise price equal to $1.00. The warrant expires August 1, 2014. The Company recorded a charge for the fair value totaling $11,617 that was included in compensation expense in the fiscal year ended March 31, 2013.

On October 4, 2012 the Company issued a two-year warrant to Joshua Goldstein to purchase 212,500 shares of the Company’s common stock at an exercise price of $.10 per share as an added inducement for additional advances from the note-holder. On the same date, the Company also issued a two-year warrant to the Goldstein Limited Partnership to purchase 697,000 shares of the company’s common stock at an exercise price of $.10 per share. The Company recorded a charge for the fair value totaling $42,715 that was included in interest expense in the quarter ended December 31, 2012. In January 2013 these warrants were cancelled per the Goldstein Family Note payable.

On November 12, 2012, in conjunction with a convertible note agreement, the Company issued to Asher warrants to purchase 2,200,000 shares of common stock at an exercise price of $.01 per share for a period of five years that expire on November 12, 2017. The warrants were determined to be a derivative instrument. The Company computed the fair value of the warrants to be $43,954 and is included in derivative liabilities.

In April 2013, in conjunction with a convertible note agreement, the Company issued to Asher warrants to purchase 6,600,000 shares of common stock at an exercise price of $.005 per share for a period of five years that expire on May 19, 2018. The warrants were determined to be a derivative instrument. The Company computed the fair value of the warrants to be $79,200 and is included in derivative liabilities.

On June 10, 2013, in conjunction with a convertible note agreement, the Company issued to Asher warrants to purchase 45,000,000 shares of common stock at an exercise price of $.0005 per share for a period of five years that expire on June 10, 2018. The warrants were determined to be a derivative instrument. The Company computed the fair value of the warrants to be $261,000 and is included in derivative liabilities.

On June 11, 2013, in conjunction with a convertible note agreement, the Company issued to Asher warrants to purchase 40,000,000 shares of common stock at an exercise price of $.0005 per share for a period of five years that expire on June 11, 2018. The warrants were determined to be a derivative instrument. The Company computed the fair value of the warrants to be $184,000 and is included in derivative liabilities.

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Note 8 – Related Party Transactions

The Company conducts its operations from office space in Chicago, Illinois, that is leased by Urban R2 Development Company, LLC ("Urban R2"). Urban R2 is controlled by Mr. Rosenberg, the Company's Chief Executive Officer, and during the three months ended June 30, 2013, the Company agreed to reimburse Urban R2 for one hundred percent of its monthly occupancy expenses. For the three and six month periods ended September 30, 2013, the Company's share of these expenses totaled approximately $96,700 and $194,200, respectively. For the three and six month periods ended September 30 2012, the Company's share of these expenses totaled approximately $28,900 and $99,300, respectively. As of September 30, 2013 and 2012 amounts owed to Urban R2 included in accounts payable was approximately $64,491 and $0, respectively. Over the period April 1, 2012 through March 31, 2013 the Company advanced funds to Urban R2 totaling $113,310 for use in investing and operations. Urban R2 has repaid all of these outstanding advances. In the fiscal year ended March 31, 2013, on behalf of Urban R2, the Company also paid $100,000 to SL Civic Wacker, LLC as a security deposit for office space at 20 North Wacker Drive, Suite 4120, Chicago, IL 60606. The balance is included in the amounts due from Urban R2.

Note 9 - Capital Structure

On June 17, 2010, the Company filed a Schedule 14C Information Statement disclosing the following actions, to be effective on July 16, 2010, that had been approved by the shareholders of the Company:

the Company’s Articles of Incorporation was amended to change the name to Q Lotus Holdings, Inc.;

the authorized capital stock of the Company was increased to 500,000,000 shares, of which 400,000,000 shares will be Common Stock par value $0.0001 per share, and 100,000,000 shares will be Preferred Stock par value $0.001 per share; and

The outstanding common shares of the Company were split so that each outstanding share on the books of the Company was split into three outstanding common shares.

Note 10 – Subsequent Events

In October 2013 the Company issued 3,116,883 shares of common stock with an aggregate value of $2,400 ($0.00077 per share) as partial conversion of the Asher notes payable.

In October 2013 the Company issued 4,389,610 shares of common stock with an aggregate value of $3,380 ($0.00077 per share) as partial conversion of the Asher notes payable.

In October 2013 the Company issued 7,500,000 shares of common stock with an aggregate value of $7,500 ($0.001 per share) as partial conversion of the Asher notes payable.

In October 2013 the Company issued 7,448,980 shares of common stock with an aggregate value of $7,300 ($0.00098 per share) as partial conversion of the Asher notes payable.

In October 2013 the Company entered into a convertible note payable with Asher for $28,000 commencing on October 3, 2013 and maturing July 7, 2014. In conjunction with this note a Common Stock Warrant purchase agreement was issued for 56,000,000 shares of common stock at an exercise price of $0.0005 per share for a period of five years expiring on October 3, 2018.

In October 2013 the Company issued 7,526,882 shares of common stock with an aggregate value of $7,000 ($0.00093 per share) as partial conversion of the Asher notes payable.

In November 2013 the Company issued 6,195,652 shares of common stock with an aggregate value of $5,700 ($0.00092 per share) as partial conversion of the Asher notes payable.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDTION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition of Q Lotus Holdings, Inc. (the “Company”) for the three and six month periods ended September 30, 2012 and 2021 should be read in conjunction with our financial statements and the notes to those financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. References in this Management’s Discussion and Analysis of Financial Condition and Results of Operations or Plan of Operations to “ us,” “ we,” “ our,” and similar terms refer to the Company. This Form 10-Q contains forward-looking statements that are not statements of historical fact and may involve a number of risks and uncertainties. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements may also relate to our future prospects, developments and business strategies. We have used the words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project” and similar terms and phrases, including references to assumptions, in this Form 10-Q to identify forward-looking statements. These forward-looking statements are made based on expectations and beliefs concerning future events affecting us and are subject to uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control, that could cause our actual results to differ materially from those matters expressed in or implied by these forward-looking statements. You should keep in mind that any forward-looking statement made by us in this Form 10-Q and/or elsewhere speak only as of the date on which we make them. New risks and uncertainties come up from time to time, and it is impossible for us to predict these events or how they may affect us. We have no duty to, and do not intend to, update or revise the forward-looking statements in this Form 10-Q after the date of this Form 10-Q, except as may be required by law. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may be disclosed from time to time in our SEC filings or otherwise, including the factors discussed in Item 1A, Risk Factors, of our Annual Report on Form 10-K filed on July 15, 2013 for the fiscal year ended March 31, 2013, and in our periodic reports on Form 10-Q.

OVERVIEW

We are a Nevada corporation formed to operate as a natural resource company with an important focus on natural resources and mining, and interests in finance and real estate. As of September 30, 2013 the Company had two wholly owned subsidiaries, QLI whose operations through such date have consisted of the acquisition of certain mining claims, and MBC which was formed in order to acquire the assets of MBC LLC an asset based lending company which provides secured financing.

We are a development stage company and are in our early stage of operations. The Company has funded its operations to date from proceeds received from the sale of its common stock and advances made by the Company’s Chairman, related parties, and unaffiliated third parties.

The Company anticipates that the primary revenue sources will come from revenues from acquired operations, and interest, dividends, rents, royalties and capital gains (from both loans and equity investments) in both (a) startup companies with proprietary technology and (b) medium sized businesses with an established operating history. Currently, our business has consisted solely of holding mineral rights in a portfolio of minerals and our activities have been limited to the formation of the legal and business structure, business planning, the pursuit of capital and the exploration of possible acquisitions and investments.

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On July 16, 2010, Extreme Home Staging, Inc. underwent a name change to Q Lotus Holdings, Inc. On July 16, 2010, the Company also executed a 3 for 1 common stock split. Accordingly, all common share and per common share information has been restated within this Form 10-Q to reflect this stock split.

PLAN OF OPERATIONS

Our Plan of Operations and Planned Operating Segments

In June 2013, after completing an internal study of the Mining Claims and following significant discussions among members of our Board of Directors and our industry consultants, we have decided to continue our effort towards the development of our natural resource and mining business and to pursue the realization of our current mining interests and to seek new investment opportunities. We remain committed to our interests in finance and real estate.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based on the consolidated financial statements of the Company, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and related disclosures. We review our estimates on an ongoing basis.

We consider an accounting estimate to be critical if it requires assumptions to be made that were uncertain at the time the estimate was made but also recognize that if changes in the estimate or different estimates had been made originally that could have had a material impact on our results of operations or financial condition. Our critical accounting policies include the following:

Stock-Based Compensation

The Company accounts for equity instruments issued to employees in accordance with accounting guidance, which requires that such equity instruments be recorded at their fair value on the date of a grant, using the Black-Scholes Option Valuation Model method for stock options and the quoted price of its common stock for unrestricted shares that are amortized over the vesting period of the award. For non-employee stock-based awards, the Company calculates the fair value of the award on the date of a grant in the same manner as employee awards. The Company recognizes the compensation costs over the requisite period of the award, which is typically the date the services are performed. Stock-based compensation is reflected within operating expenses. These are non-cash transactions that require management to make judgments related to the fair value of the shares issued, which affects the amounts reported in the Company’s consolidated financial statements for certain of its assets and expenses. For historic fiscal years when there was not an observable active, liquid market for the Company’s common stock, the valuation of the shares issued in a non-cash share payment transaction relies on observation of arms-length transactions where cash was received for the Company’s shares, before and after the non-cash share payment date.

Common Stock Purchase Warrants and Derivative Financial Instruments

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Results of Operations

Comparison of Results of Operations for the three and six months ended September 30, 2013 and 2012.

Operating Income/Loss

We have no operating income. As of September 30, 2013, our operating losses amounted to approximately $1,178,634 compared with $697,000 at September 30, 2012.

Operating Expenses

Through September 30, 2013, the Company’s activities have been limited to formation of the legal and business structure, business planning, the pursuit of capital and the exploration of possible acquisitions and investments.

Operating expenses for the three months ended September 30, 2013 of approximately $192,700 were incurred relating to travel expenses of approximately $1,400, consulting fees of approximately $27,800, professional fees of approximately $63,300, payroll expense of approximately $59,500, and supplies and services of approximately $40,700. Operating expenses for the three months ended September 30, 2012 of approximately $217,000 were incurred relating to consulting fees of approximately $18,200, professional fees of approximately $74,500, promotional expenses of approximately $55,000, payroll expense of approximately $20,600, and supplies and services of approximately $49,000.

Operating expenses for the six months ended September 30, 2013 of approximately $610,300 were incurred relating to travel expenses of approximately $4,400, consulting fees of approximately $108,100, promotional expenses of approximately $15,600, professional fees of approximately $279,000, payroll expense of approximately $120,600, and supplies and services of approximately $82,300. Operating expenses for the six months ended September 30, 2012 of approximately $476,400 were incurred relating consulting fees of approximately $53,000, promotional expenses of approximately $137,800, professional fees of approximately $137,600, payroll expense of approximately $27,300,and supplies and services of approximately $120,700.

Interest Expenses

The Company’s interest expenses amounted to approximately $90,500 and $59,600 for the three month periods ended September 30, 2013 and 2012, respectively, and approximately $951,900 and $128,600 for the six month periods ended September 30, 2013 and 2012, respectively. The increase is the result of additional costs incurred in connection with note extensions and convertible notes payable.

Net Loss

As of September 30, 2013 we have cumulative net losses of $6,739,670 due to the factors noted above.

Liquidity and Capital Resources

As of September 30, 2013 the Company had minimal available cash balances. Our primary sources of liquidity to date have been limited to the sale of our securities and other financing activities. We will need to raise additional funds in order to continue funding our ongoing operations through fiscal year 2014, as we do not believe that cash generated through operations and our current financing arrangements will be sufficient to meet our current expenses, capital requirements, anticipated capital expenses and scheduled debt payments.

We also may initiate corporate bond offerings to raise capital for our planned investments. There can be no assurance that the Company will be successful in raising these funds or executing its business plans.

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Liquidity and Going Concern

The accompanying unaudited condensed financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. Since Q Lotus was created on March 31, 2010, the Company has had no revenue and has generated losses from operations. At September 30, 2013, the Company had negative working capital of approximately $5,133, 000 and an accumulated deficit of approximately $6,740,000. Since its formation on March 31, 2010 through September 30, 2013, the Company raised approximately $1,105,000 in cash from the issuance of common stock and approximately $3,134,000 in proceeds from the issuance of notes payable. These funds were primarily used in ongoing operations, to formulate business plans and explore investment opportunities. The Company needs to raise additional capital from external sources in order to sustain operations while executing its business plan. The Company cannot provide any assurance that it will be able to raise additional capital. If the Company is unable to secure additional capital, it may be required to reduce its current operating expenses, modify its existing business plan and take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

ITEM 4. Controls and Procedures

Disclosure Controls and Procedures

Management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Principal Executive and Financial Officers concluded that, as of the Evaluation Date, our disclosure controls and procedures are not effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported, within the time periods specified in the SEC rules and forms and (ii) is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Notwithstanding the conclusion that our disclosure controls and procedures were not effective as of the end of the period covered by this Quarterly Report, the Principal Executive and Financial Officers believe that the condensed consolidated financial statements and other information contained in this Quarterly Report present fairly, in all material respects, our business, financial condition and results of operations.

Our management, including our Principal Executive and Financial Officers, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.

In connection with the audit of our annual 2013 consolidated financial statements, our independent auditors identified certain significant deficiencies that together constitute a material weakness in our disclosure controls and procedures. These significant deficiencies primarily relate to our lack of formalized written policies and procedures in the financial accounting area, our lack of appropriate resources to handle the accounting for complex equity and other transactions, our lack of sophisticated financial reporting systems, due in part to the small size of our Company prior to the merger, and our lack of a formalized disaster recovery plan in the information technology area. These significant deficiencies together constitute a material weakness in our disclosure controls and procedures.

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We continue to work towards bringing our disclosure controls and procedures up to public-company standards. Due to the early development stage of the Company, we have been unable to upgrade our disclosure controls and procedures to the level required of a public company prior to the end of the period covered by this quarterly report. Nevertheless, we have performed additional analyses and other post-closing procedures to ensure that our financial statements contained in this Quarterly Report were prepared in accordance with U.S. GAAP and applicable SEC regulations. Our planned remediation includes formalizing written policies and procedures, determining the appropriate resources to handle complex transactions as they arise in the future, upgrading our financial reporting systems, and developing and documenting a formalized IT disaster recovery plan.

Internal Control over Financial Reporting

The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s 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:

pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions of the registrant;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.

Changes in Internal Control over Financial Reporting.

The Company maintains a system of internal controls designed to provide reasonable assurance that transactions are executed in accordance with management's general or specific authorization; transactions are recorded as necessary to (1) permit preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, and (2) maintain accountability for assets. Access to assets is permitted only in accordance with management's general or specific authorization.

There was no change in the Company’s internal control over financial reporting during the Company’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

It is the responsibility of the Company’s management to establish and maintain adequate internal control over financial reporting. However, due in part to the small size of our Company, we lack formalized written policies and procedures in the financial accounting area, we lack the appropriate resources to handle the accounting for complex equity and other transactions and lack a sophisticated financial reporting systems.

Our independent auditors have reported to our Board of Directors certain matters involving internal controls that our independent auditors considered to be a material weakness as of the Evaluation Date, under standards established by the Public Company Accounting Oversight Board. As previously stated, the material weakness relates to our lack of formalized written policies and procedures in the financial accounting area, our lack of appropriate resources to handle the accounting for complex equity and other transactions and our lack of sophisticated financial reporting systems.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Our management knows of no material existing or pending legal proceeding, litigation or claim against us, nor are we involved as a plaintiff in any material existing legal proceeding or pending legal proceeding, litigation or claim. To our knowledge, none of our directors, officers or affiliates, and no owner of record or beneficial owner of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder, is a party adverse to us or has a material interest adverse to us in reference to a material existing or pending legal proceeding, litigation or claim.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following is a list of exhibits filed as part of this Quarterly Report on Form 10-Q.

Exhibit No.	Description

31.1	Chief Executive Officer’s Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer’s Certificate pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer’s Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer’s Certificate pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Q LOTUS HOLDINGS, INC.
	(A Development Stage Company)

November 14, 2013		/s/ Gary A. Rosenberg
		Gary A. Rosenberg
		Chief Executive Officer

November 14, 2013		/s/ Jorge Gonzalez
		Jorge Gonzalez
		Chief Financial Officer

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