SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-Q





x
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF


THE
SECURITIES EXCHANGE ACT OF 1934





For The
Quarterly Period Ended June 30, 2010





Commission
File Number 333-143845





GetFugu,
Inc.


(Exact
name of registrant issuer as specified in its charter)





Nevada
              
              20-8658254(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)





8560
      West Sunset Boulevard, 7th Floor, West Hollywood, California
      90069(Address
      of principal executive offices, including zip
  code)





Registrant’s phone number, including area
      code    424
354-4800





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 such shorter period that the
registrant was required to submit and post such files).


Yes  ̈ No x





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




Large
      Accelerated Filer  ̈
              Accelerated
      Filer  ̈
              Non-accelerated
      Filer  ̈
              
              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




Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date.





Class
              
              Outstanding at September 1,
      2010Common
      Stock, $.001 par value
              
              484,594,623








GetFugu,
Inc.


(A
Development Stage Company)


(Formally
Known as Madero, Inc.)





INDEX





Table
      of ContentsPART I.
              FINANCIAL
      INFORMATIONITEM 1.
              FINANCIAL
      STATEMENTS:Condensed
      Consolidated Balance Sheets — June 30, 2010 (Unaudited) and December 31,
      2009
              3Condensed
      Consolidated Statements of Operations (Unaudited) — Three and Six
      Months ended June 30, 2010 and 2009 and Inception to June 30,
      2010
              4Condensed
      Consolidated Statements of Shareholders’ Deficiency (Unaudited)
      — June 30, 2010
              5Condensed
      Statements of Cash Flows (Unaudited) — Six  Months ended June
      30, 2010 and 2009 and Inception to June 30, 2010
              6Notes
      to Condensed Consolidated Financial Statements (Unaudited)
              7ITEM 2.
              MANAGEMENT'S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
              19ITEM 3.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              24ITEM 4.
              CONTROLS
      AND PROCEDURES
              24PART II.
              OTHER
      INFORMATION
              26ITEM 1.
              LEGAL
      PROCEEDINGSITEM 1A.
              RISK
      FACTORSITEM 2.
              UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF PROCEEDSITEM 3.
              DEFAULTS
      UPON SENIOR SECURITIESITEM 4.
              REMOVED
      AND RESERVEDITEM 5.
              OTHER
      INFORMATION
              26ITEM 6.
              EXHIBITS
              26SIGNATURES


2


GetFugu,
Inc. and Subsidiaries
 (A
Development Stage Company)
 (Formally
Known as Madero, Inc.)
 Condensed
Consolidated Balance Sheets
 
 June
      30,
                  
                  
                  December
      31,2010
                  
                  
                  2009(unaudited)ASSETSCurrent
      assetsCash
                  
                  $
                  762
                  
                  
                  $
                  500Advances
      to employees
                  
                  
                  17,516
                  
                  
                  
                  30,000Prepaid
      expenses and other current assets
                  
                  
                  36,040
                  
                  
                  
                  61,769Total
      current assets
                  
                  
                  54,318
                  
                  
                  
                  92,269Property
      and equipment, net
                  
                  
                  195,320
                  
                  
                  
                  278,287Total
      assets
                  
                  $
                  249,638
                  
                  
                  $
                  370,556LIABILITIES
      AND SHAREHOLDERS' DEFICIENCYCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  2,359,452
                  
                  
                  $
                  1,429,968Accrued
      payroll tax liabilities
                  
                  
                  2,329,660
                  
                  
                  
                  932,267Accrued
      expenses
                  
                  
                  997,072
                  
                  
                  
                  759,590Advances
      from related parties
                  
                  
                  799,685
                  
                  
                  
                  865,542Accrued
      stock issuance for compensation
                  
                  
                  708,333
                  
                  
                  
                  458,333Accrued
      stock issuance for in-process research and development
                  
                  
                  2,000,000
                  
                  
                  
                  2,000,000Deferred
      revenue
                  
                  
                  160,000
                  
                  
                  
                  -Derivative
      liability
                  
                  
                  159,848
                  
                  
                  
                  229,635Short
      term notes payable
                  
                  
                  450,000
                  
                  
                  
                  300,000Short
      term convertible notes payable, net of debt discount of $303,333 as of
      June 30, 2010
                  
                  
                  21,667
                  
                  
                  
                  -Total
      current liabilities
                  
                  
                  9,985,717
                  
                  
                  
                  6,975,335Deferred
      revenue, less current portion
                  
                  
                  139,583
                  
                  
                  
                  -TOTAL
      LIABILITIES
                  
                  
                  10,125,300
                  
                  
                  
                  6,975,335Shareholders'
      deficiencyCommon
      stock, 500,000,000 shares authorized; $0.001 par value; 474,594,635 and
      191,523,525 shares issued and outstanding as of June 30, 2010 and December
      31, 2009, respectively
                  
                  
                  474,595
                  
                  
                  
                  191,524Additional
      paid-in capital
                  
                  
                  56,613,116
                  
                  
                  
                  33,947,518Shares
      issuable, net
                  
                  
                  3,806,250
                  
                  
                  
                  12,109,000Deficit
      accumulated during development stage
                  
                  
                  (70,769,623
                  )
                  
                  
                  (52,852,821
                  )Total
      shareholders’ deficiency
                  
                  
                  (9,875,662
                  )
                  
                  
                  (6,604,779
                  )Total
      liabilities and shareholders’ deficiency
                  
                  $
                  249,638
                  
                  
                  $
                  370,556
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  3
  GetFugu,
Inc. and Subsidiaries
 (A
Development Stage Company)
 (Formally
Known as Madero, Inc.)
 Condensed
Consolidated Statements of Operations
 (Unaudited)
 
 Inception(March
      14, 2007)Three
      Months Ended June 30
                                          
                                          
                                          Six
      Months Ended June 30
                                          
                                          
                                          through2010
                                          
                                          
                                          2009
                                          
                                          
                                          2010
                                          
                                          
                                          2009
                                          
                                          
                                          June 30,
      2010Revenue
                                          
                                          $
                                          22,486
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          22,486
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          22,486Operating
      expensesCompensation
      and related benefits
                                          
                                          
                                          6,103,700
                                          
                                          
                                          
                                          2,626,738
                                          
                                          
                                          
                                          9,131,249
                                          
                                          
                                          
                                          2,626,738
                                          
                                          
                                          
                                          18,136,270Legal
      and professional fees
                                          
                                          
                                          123,964
                                          
                                          
                                          
                                          590,262
                                          
                                          
                                          
                                          127,464
                                          
                                          
                                          
                                          809,425
                                          
                                          
                                          
                                          1,262,665Marketing
                                          
                                          
                                          12,531
                                          
                                          
                                          
                                          36,777
                                          
                                          
                                          
                                          91,689
                                          
                                          
                                          
                                          36,777
                                          
                                          
                                          
                                          1,089,091Occupancy
      related costs
                                          
                                          
                                          23,772
                                          
                                          
                                          
                                          39,926
                                          
                                          
                                          
                                          94,430
                                          
                                          
                                          
                                          39,926
                                          
                                          
                                          
                                          285,533Consulting
      and outside services
                                          
                                          
                                          1,920,801
                                          
                                          
                                          
                                          614,634
                                          
                                          
                                          
                                          6,969,279
                                          
                                          
                                          
                                          614,634
                                          
                                          
                                          
                                          43,791,565Travel
      and entertainment
                                          
                                          
                                          14,788
                                          
                                          
                                          
                                          111,725
                                          
                                          
                                          
                                          59,637
                                          
                                          
                                          
                                          129,412
                                          
                                          
                                          
                                          725,771Research
      and development
                                          
                                          
                                          858,502
                                          
                                          
                                          
                                          1,114,333
                                          
                                          
                                          
                                          2,211,014
                                          
                                          
                                          
                                          9,000,583
                                          
                                          
                                          
                                          6,571,958Office
      and other
                                          
                                          
                                          34,571
                                          
                                          
                                          
                                          37,179
                                          
                                          
                                          
                                          150,803
                                          
                                          
                                          
                                          37,179
                                          
                                          
                                          
                                          641,583Depreciation
                                          
                                          
                                          41,482
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          82,966
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          100,178Total
      operating expenses
                                          
                                          
                                          9,134,111
                                          
                                          
                                          
                                          5,171,574
                                          
                                          
                                          
                                          18,918,531
                                          
                                          
                                          
                                          13,294,674
                                          
                                          
                                          
                                          72,604,614Loss
      from operations
                                          
                                          
                                          (9,111,625
                                          )
                                          
                                          
                                          (5,171,574
                                          )
                                          
                                          
                                          (18,896,045
                                          )
                                          
                                          
                                          (13,294,674
                                          )
                                          
                                          
                                          (72,582,128
                                          )Other
      income (expense)Interest
      expense
                                          
                                          
                                          (301,383
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (364,862
                                          )
                                          
                                          
                                          -
                                          
                                          
                                          
                                          (364,862
                                          )Change
      in fair value of derivative financial instruments
                                          
                                          
                                          744,216
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          1,344,105
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          2,160,342Forgiveness
      of debt
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          17,025Total
      other expense
                                          
                                          
                                          442,833
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          979,243
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          1,812,505Net
      Loss
                                          
                                          $
                                          (8,668,792
                                          )
                                          
                                          $
                                          (5,171,574
                                          )
                                          
                                          $
                                          (17,916,802
                                          )
                                          
                                          $
                                          (13,294,674
                                          )
                                          
                                          $
                                          (70,769,623
                                          )Loss
      per share:Basic
      and dilutive loss per share
                                          
                                          $
                                          (0.02
                                          )
                                          
                                          $
                                          (0.03
                                          )
                                          
                                          $
                                          (0.05
                                          )
                                          
                                          $
                                          (0.10
                                          )Basic
      and diluted weighted average shares outstanding (1)
                                          
                                          
                                          464,726,274
                                          
                                          
                                          
                                          153,541,484
                                          
                                          
                                          
                                          356,414,464
                                          
                                          
                                          
                                          127,712,680
 
 (1)
              Weighted
      average shares outstanding for the three and six months ended June 30,
      2010 includes the underlying shares exercisable with respect to the
      issuance of 1,500,000 warrants exercisable at $0.01 per share. In
      accordance with Accounting Standards Codification (“ASC”) 260 "Earnings
      Per Share", the Company has given effect to the issuance of these warrants
      in computing basic net loss per
share.
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  4
  GetFugu,
Inc. and Subsidiaries
 (A
Development Stage Company)
 (Formally
Known as Madero, Inc.)
 Condensed
Consolidated Statements of Shareholders' Deficiency
 From
The Six Months Ended June 30, 2010
 (Unaudited)
 
 DeficitAccumulatedAdditional
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          duringCommon
      Stock
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Paid
      in
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Shares
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Development
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Shareholders'Shares
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Amount
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Capital
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Issuable,
      net
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          Stage
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          DeficiencyBalance
      as of December 31, 2009 (Audited)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          191,523,525
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          191,524
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          33,947,518
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          12,109,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          (52,852,821
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          $
                                                                                                                                          (6,604,779
                                                                                                                                          )Amortization
      of employee stock option compensationaward
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,040,662
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,040,662Amortization
      of director stock option compensationaward
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          943,212
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          943,212Amortization
      of Director stock compensation award
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,040,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,040,000Amortization
      of consulting stock compensationaward
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,589,763
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,589,763Issuance
      of share issued previously accrued(December
      29, 2009 at $0.15)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,333,333
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,333
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          644,667
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (650,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of shares issued previously accrued(December
      18, 2009 at $0.18)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          50,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          50
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          8,950
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (9,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of shares issued previously accrued(December
      8, 2009 at $0.225)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,111,110
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,111
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          248,889
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (250,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of shares previously accrued for payment ofconsulting
      services (October 1, 2009 at $0.62)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          6,190,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (6,200,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of shares issued previously accrued(September
      18, 2009 at $0.50)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,297,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (1,300,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of shares previously accrued for payment ofconsulting
      services (November 5, 2009 at $0.12)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          20,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          20,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,380,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (2,400,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Shares
      issued for services related to an investment ina
      joint venture (January 14, 2010 at $0.16)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          477,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          480,000Shares
      issued for asset acquisition, in-processresearch
      and development (January 15, 2010 at$0.16)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          7,580,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          7,580
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,205,220
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,212,800Options
      granted to consultants for services (February15,
      2010, 20,000,000 at $0.13)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,454,608
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,454,608Shares
      issued for asset acquisition, in-processresearch
      and development (March 2009 at $0.04)*
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          200,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          200,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (200,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of stock resulting from modification ofemployee
      stock option award (March 11, 2010 at$0.08))
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,844,742
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,854,742Issuance
      of stock to employee for services (March11,
      2010 at $0.08)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          79,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          80,000Issuance
      of stock for consulting services (March 17,2010
      at $0.06)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          100
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,900
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          6,000Issuance
      of stock to employee for services (March 9,2010
      at $0.09)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          180,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          180
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16,020
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          16,200Return
      and retirement of shares previously issued
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (10,000,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (10,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          10,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Return
      and retirement of shares previously issued
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (3,000,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (3,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Issuance
      of stock to employee for services (March12,
      2010 at $0.08)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          50,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          50
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,950
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          4,000Reclassification
      of fully vested warrants to derivative liability
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (804,318
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (804,318
                                                                                                                                          )Issuance
      of shares previously accrued for settlement of a breech of a securitiespurchase agreement (April 9, 2010 at $0.03)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          40,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          40,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,160,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (1,200,000
                                                                                                                                          )Shares
      obligated to the former Chief Executive Officer under a separation
      agreement
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,706,250
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,706,250Shares
      issued for services (May 6, 2010 at $0.02)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,000,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          19,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          20,000Shares
      issued to a former note holder (May 13, 2010 at $0.003)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          666,667
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          667
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          1,333
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,000Shares
      returned and retired from employees previously issued (April
      12,2010)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (5,000,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (5,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          5,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Shares
      returned and retired from consultants previously issued (April
      12,2010)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (2,000,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (2,000
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          2,000
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -Net
      Loss
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          -
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (17,916,802
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (17,916,802
                                                                                                                                          )Balance
      as of June 30, 2010 (Unaudited)
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          474,594,635
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          474,595
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          56,613,116
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          3,806,250
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (70,769,623
                                                                                                                                          )
                                                                                                                                          
                                                                                                                                          
                                                                                                                                          (9,875,662
                                                                                                                                          )
 
 *
              In
      consideration for the transfer of in-process research and development
      patents from Mobile Search Technologies, Inc. and Cellular Software
      Corporation. Oscar Holdings, LLC is a shareholder of these entities and is
      beneficially owned by the President of the Company, Carl Freer. The
      Company recorded a deemed dividend of $8,000,000. See Note
    4
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  5
  GetFugu,
Inc. and Subsidiaries
 (A
Development Stage Company)
 (Formally
Known as Madero, Inc.)
 Consolidated
Statements of Cash Flows
 (Unaudited)
 
 From
      InceptionSix
      Months
                            
                            
                            (MarchEnded
                            
                            
                            14,2007)June
      30,
                            
                            
                            through2010
                            
                            
                            2009
                            
                            
                            June 30,
      2010Cash
      flows from operating activities:Net
      loss
                            
                            $
                            (17,916,802
                            )
                            
                            $
                            (13,294,674
                            )
                            
                            $
                            (70,769,625
                            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock-based
      compensation expense
                            
                            
                            14,235,437
                            
                            
                            
                            11,485,546
                            
                            
                            
                            56,325,226Amortization
      of loan discount
                            
                            
                            166,667
                            
                            
                            
                            -
                            
                            
                            
                            166,667Accrued
      stock based compensation for future issuance of equityinstruments
      for services
                            
                            
                            250,000
                            
                            
                            
                            208,333
                            
                            
                            
                            708,333Stock
      based compensation issued inacquisition
      of in-process research and development
                            
                            
                            1,212,800
                            
                            
                            
                            -
                            
                            
                            
                            3,212,800Change
      in fair value of derivative financial instruments
                            
                            
                            (1,344,105
                            )
                            
                            
                            -
                            
                            
                            
                            (2,160,342
                            )Stock
      based compensation - interest expense
                            
                            
                            2,000
                            
                            
                            
                            
                            
                            
                            
                            2,000Depreciation
                            
                            
                            82,966
                            
                            
                            
                            -
                            
                            
                            
                            100,178Changes
      in current assets and liabilities:Employees
      advances
                            
                            
                            12,484
                            
                            
                            
                            -
                            
                            
                            
                            (17,516
                            )Prepaid
      expenses and other current assets
                            
                            
                            25,729
                            
                            
                            
                            (19,920
                            )
                            
                            
                            (36,040
                            )Accounts
      payable
                            
                            
                            929,484
                            
                            
                            
                            528,116
                            
                            
                            
                            2,969,454Accrued
      payroll tax liabilities
                            
                            
                            1,397,393
                            
                            
                            
                            -
                            
                            
                            
                            1,719,660Deferred
      revenue
                            
                            
                            299,583
                            
                            
                            
                            -
                            
                            
                            
                            299,583Accrued
      expenses
                            
                            
                            217,483
                            
                            
                            
                            448,273
                            
                            
                            
                            1,792,073Net
      cash used in operating activities
                            
                            
                            (428,881
                            )
                            
                            
                            (644,326
                            )
                            
                            
                            5,687,549Cash
      flows used in investing activities:Purchase
      of property and equipment
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            (295,499
                            )Cash
      flows from financing activitiesProceeds
      from short term notes
                            
                            
                            150,000
                            
                            
                            
                            -
                            
                            
                            
                            550,000Repayment
      of short term notes
                            
                            
                            (150,000
                            )
                            
                            
                            -
                            
                            
                            
                            (250,000
                            )Proceeds
      from short term convertible notes
                            
                            
                            495,000
                            
                            
                            
                            -
                            
                            
                            
                            495,000Advances
      from related parties
                            
                            
                            258,900
                            
                            
                            
                            141,826
                            
                            
                            
                            (1,909,249
                            )Repayment
      of advances from related parties
                            
                            
                            (324,757
                            )
                            
                            
                            -
                            
                            
                            
                            1,109,564Proceeds
      received from shares issuable, net
                            
                            
                            -
                            
                            
                            
                            502,500
                            
                            
                            
                            2,300,000Proceeds
      received from sale of common stock, net
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            
                            2,042,500Capital
      contribution from related parties
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            46,625Net
      cash provided by financing activities
                            
                            
                            429,143
                            
                            
                            
                            644,326
                            
                            
                            
                            5,983,810Increase
      in cash
                            
                            
                            262
                            
                            
                            
                            -
                            
                            
                            
                            762Cash
      - beginning balance
                            
                            
                            500
                            
                            
                            
                            -
                            
                            
                            
                            -Cash
      - ending balance
                            
                            $
                            762
                            
                            
                            $
                            -
                            
                            
                            $
                            762
 
 The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
  6




GETFUGU,
INC. AND SUBSIDIARIES


(Formally
Known as Madero, Inc.)


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(A
Development Stage Company)


(Unaudited)




NOTE
1 - DESCRIPTION OF BUSINESS


GetFugu,
Inc, (“We”, “Our”, “GetFugu,” or “Company”), is developing next generation
mobile search tools. The Company’s technology is designed to play on the
strengths of mobile handheld devices (mobile phones) and assist consumers in
retrieving content more expediently. Consumers will be able to download GetFugu
application tools to their mobile phone device.  The GetFugu
applications will allow consumers to retrieve content and eliminate the need to
type website addresses or search terms into the device’s Internet
browser.




The
Company currently has four products under development.




1.See It (ARL): “Vision recognition” This
GetFugu application recognizes logos and products through any mobile phone
camera. Consumers simply point their phone at a logo and retrieve content from
the brand owner.


2.Say It (VRL): “Voice recognition” The
consumer can simply speak into the phone to retrieve content. In addition to
brand names, the consumer can say generic keywords such as “best pizza” or
“ATM”.


3.Find It (GRL): “Location recognition”
For local content, GetFugu is designed to work with the Global Positioning
Systems (“GPS”) in mobile phones. The application will return content, based on
the proximity to the user. A keyword of “pizza” will return the closest pizza
parlors.  Local businesses can pay for voice-activated key words to
position themselves at the top of the search list within a geographic
area.


4.Get it (Hot-Spotting): GetFugu provides
advertisers with a way to monetize their marketing efforts through a mobile
ecommerce tool called Hot-Spotting.  Hot-Spotting enables the consumer
to purchase or retrieve information on any item featured in a video simply by
touching products as displayed on the screen.




NOTE
2 - BASIS OF PRESENTATION AND GOING CONCERN, LIQUIDITY AND FINANCIAL
CONDITION




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”) and to the rules and regulations of the
Securities and Exchange Commission (“SEC”) for interim financial information.
Accordingly, these interim financial statements do not include all of the
information and footnotes required for annual financial statements. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary to make the financial statements not misleading have been
included.




The
operating results for the six months ended June 30, 2010, are not necessarily
indicative of the results that may be expected for the year ending December 31,
2010. These interim financial statements should be read in conjunction with the
audited financial statements and footnotes thereto for the year ended December
31, 2009, included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2009, filed with the SEC on April 16, 2010.




The
accompanying condensed consolidated financial statements have been prepared in
accordance with Accounting Standards Codification (“ASC”) 915, “Development
Stage Entities.” The Company's condensed consolidated statements of operations
and cash flows from inception (March 14, 2007 through June 30, 2010) represent
the financial information cumulative from inception as required by ASC
915.


7




Going
Concern, Liquidity and Financial Condition


The
Company incurred a net loss of approximately $17.9 million and $13.3 million for
the six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010,
the Company’s accumulated deficit from inception amounted to approximately $71
million and the Company’s working capital deficit amounted to approximately $9.9
million.  During the six months ended June 30, 2010, net cash used in
operating activities amounted to approximately $429,000. During the six months
ended June 30, 2010, cash provided by financing activities amounted to
approximately $429,000. As of June 30, 2010, the Company’s cash position was
$762.




The
Company needs to raise additional capital from external sources in order to
sustain its operations while continuing the longer term efforts contemplated
under its business plan. The Company expects to continue incurring losses for
the foreseeable future and must raise additional capital to pursue its product
development initiatives, to penetrate markets for the sale of its products and
to continue as a going concern. The Company cannot provide any assurance that it
will raise additional capital. If the Company is unable to secure additional
capital, it may be required to curtail its research and development initiatives,
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. These measures could cause significant delays in the
Company’s efforts to commercialize its products, which is critical to the
realization of its business plan and the future operations of the Company. These
matters raise substantial doubt about the Company’s ability to continue as a
going concern.    The accompanying condensed consolidated
financial statements do not include any adjustments that may be necessary should
the Company be unable to continue as a going concern.




NOTE
3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Use
of Estimates


The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period.




Management
bases its estimates on historical experience and on various assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources.  The most
significant estimates, among other things, are used in accounting for allowances
for deferred income taxes, expected realizable values for long-lived assets
(primarily property and equipment and intangibles), and contingencies, as well
as the recording, presentation and valuation of its common stock, related
warrants, option issuances and derivative liabilities.  Estimates and
assumptions are periodically reviewed and the effects of any material revisions
are reflected in the consolidated financial statements in the period that they
are determined to be necessary.  Actual results could differ from
those estimates and assumptions.




Principle
of Consolidation


The
condensed consolidated financial statements of GetFugu, Inc. include accounts of
the Company and its wholly-owned subsidiaries.  Intercompany
transactions and balances are eliminated in consolidation.




Revenue
Recognition




The
Company recognizes revenue when it is realized or realizable and earned. The
Company considers revenue realized or realizable and earned when it has
persuasive evidence of an arrangement, delivery has occurred, the sales price is
fixed or determinable, and collectability is reasonably assured and client
acceptance has been obtained.




The
Company may enter into multiple-element revenue arrangements, which may include
any combination of software and services. Accordingly, the Company allocates the
fair value of the service with software according to the authoritative guidance
on revenue arrangements with multiple deliverables. To the extent that a
deliverable(s) in a multiple-element arrangement is subject to specific guidance
on whether and/or how to separate multiple-deliverable arrangements into
separate units of accounting (separability) and how to allocate value among
those separate units of accounting (allocation), that deliverable(s) is
accounted for in accordance with such specific guidance.


8




Revenue
from services and maintenance is typically recognized on a straight-line basis
over the term of the contract. The Company's revenue is derived primarily from
the sale of keywords used in internet searches. The revenue is recorded
over the life of the contract with the unearned portion classified as deferred
revenue on the condensed consolidated balance sheet.





Stock-Based
Compensation


The
Company reports stock-based compensation under ASC 718 “Compensation - Stock
Compensation”.  ASC 718 requires all share-based payments to
employees, including grants of employee stock options and warrants to
non-employee directors and consultants to be recognized in the consolidated
financial statements based on their fair values over the requisite service
periods.




The
Company accounts for stock option and warrant grants issued to non-employees for
goods and services using the guidance of ASC 718 and ASC 505 “Accounting for
Equity Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services”, whereby fair value of such option
and warrant grants is determined using the Black Scholes option
valuation  model at the earlier of the date at which the
non-employee’s performance is completed or a performance commitment is
reached.




The
Black-Scholes option valuation model is used to estimate the fair value of the
warrants or options granted.  The model includes subjective input
assumptions that can materially affect the fair value estimates.  The
model was developed for use in estimating the fair value of traded options or
warrants.  The expected volatility is estimated based on the most
recent historical period of time equal to the weighted average life of the
warrants or options granted.




The
Company’s determination of fair value of share-based payment awards to employees
and directors on the date of grant uses the Black Scholes model, which is
affected by the Company’s stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include but are not
limited to the risk free interest rate, the expected term, expected volatility,
and actual projected employee stock option exercise behaviors.  The
risk free interest rate is based on the U.S. Treasury zero-coupon yield curve
over the expected term of the option.  The expected term assumption
represents the average period the stock options are expected to remain
outstanding and is based on the expected term calculated using the approach
prescribed by SEC Staff Accounting Bulleting (“SAB”) 110 for “plain vanilla”
options.  Since the Company has limited historical volatility
information, it bases its expected volatility on the historical volatility of
similar entities whose share prices are publicly available.  In making
its determination as to similarity, the Company considered the industry, stage
of life cycle, size, and financial leverage of such other
entities.  The Company’s model includes a zero dividend yield
assumption, as the Company has not historically paid nor does it anticipate
paying dividends on its common stock. The periodic expense is then determined
based on the valuation of the options, and at that time an estimated forfeiture
rate is used to reduce the expense recorded.  The Company’s estimate
of pre-vesting forfeitures is primarily based on the Company’s historical
experience and is adjusted to reflect actual forfeitures as the options
vest.




The
following assumptions were used to estimate the fair value of options granted
for the six months ended June 30, 2010 and 2009, using the Black-Scholes option
valuation model:





June
      30,2010
                    
                    
                    2009Risk
      free interest rate
                    
                    
                    2.35
                    %
                    
                    
                    1.65
                    %Expected
      term (years)
                    
                    
                    4.9
                    
                    
                    
                    6.25Expected
      volatility (based on peer companies)
                    
                    
                    171
                    %
                    
                    
                    170
                    %Expected
      dividend yield
                    
                    
                    -
                    %
                    
                    
                    -
                    %


9


The
effect of recording stock-based compensation expense for the six months ended
June 30, 2010 and 2009, in accordance with the applicable provisions of ASC 718
is as follows:




Six
      Months EndedJune
      30,2010
                    
                    
                    2009Compensation
      and related benefits
                    
                    $
                    7,828,324
                    
                    
                    $
                    781,250Consulting
      and outside services
                    
                    
                    6,657,113
                    
                    
                    
                    10,912,629Research
      and development
                    
                    
                    1,212,800
                    
                    
                    
                    -Interest
      Expense
                    
                    
                    2,000
                    
                    
                    
                    -Total
      stock based compensation
                    
                    $
                    15,700,237
                    
                    
                    $
                    11,693,879




Loss
Per Common Share




The
Company computes loss per common share in accordance with ASC 260, “Earnings Per
Share.” ASC 260 requires dual presentation of basic and diluted loss per
share.  Basic loss per common share is computed by dividing net loss
by the weighted average number of common shares outstanding (including vested
restricted stock awards) during the period.  Diluted loss per common
share is computed by dividing net loss by the weighted average number of common
shares outstanding, plus the issuance of common shares, if dilutive, resulting
from the exercise of outstanding stock options and stock awards. These
potentially dilutive securities were not included in the calculation of loss per
common share for the six months ended June 30, 2010 and 2009, respectively,
because, due to the loss incurred during such periods, their inclusion would
have been anti-dilutive. Accordingly, basic and diluted losses per common share
are the same for all periods presented.




In
accordance with ASC 260 the Company has given effect to the issuance of
1,500,000 warrants issued in conjunction with the Company’s September 2009
financing and exercisable at $0.01 per share in computing basic net loss per
share classified as a derivative liability.




Total
shares issuable upon the exercise of warrants, options and conversion option for
the six months ended June 30, 2010and 2009, were comprised as
follows:





As
      of June 30,2010
                  
                  
                  2009Warrants
                  
                  
                  15,083,392
                  
                  
                  
                  4,000,000Stock
      options
                  
                  
                  46,689,583
                  
                  
                  
                  -Convertible
      promissory notes
                  
                  
                  90,714,286
                  
                  
                  
                  -Unvested
      restricted stock grants
                  
                  
                  1,250,000
                  
                  
                  
                  -Total
      common stock equivalents
                  
                  
                  *153,737,261
                  
                  
                  
                  4,000,000





*
              As
      of June 30, 2010, the Company does not have sufficient authorized shares
      available for the settlement of these financial
  instruments


10




Derivative
Financial Instruments




The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks.  The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives.  For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the consolidated
statements of operations.  For stock-based derivative financial
instruments, the Company uses the Black-Scholes option valuation model to value
the derivative instruments at inception and on subsequent valuation
dates.  The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period.  Derivative instrument
liabilities are classified in the condensed consolidated balance sheet as
current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the balance sheet
date.




As
further discussed in Note 8, the Company was required under accounting guidance
prescribed by ASC 815 to reclassify certain fully vested warrants held by
consultants as a derivative liability.  The Company was not able to
determine that it had enough authorized shares of common stock to settle the
warrants.  As a result, the Company reclassified $804,318 of warrants
to derivative liability.  The derivative financial instruments were
revalued at June 30, 2010, with the change of $924,103 reflected as a component
of the gain on derivative financial instruments.  The warrants will
continue to be marked to market through earning at the end of each reporting
period.




As of
June 30, 2010, the derivative liability included warrants valued at $109,848 and
the intrinsic value of the embedded conversion option related to convertible
promissory notes valued at $50,000. The derivative liability related to the
warrant was valued using the Black-Scholes option valuation model with the
following assumptions on the following dates:





June
      30,
                                                
                                                
                                                December
      31,2010
                                                
                                                
                                                20092.49%
      toRisk-free
      interest rate
                                                
                                                
                                                3.21
                                                %
                                                
                                                
                                                2.49
                                                %170%
      toExpected
      volatility
                                                
                                                
                                                171
                                                %
                                                
                                                
                                                171
                                                %Expected
      life (in years)
                                                
                                                3
      to 4.47
                                                
                                                
                                                
                                                4.7Expected
      dividend yield
                                                
                                                
                                                n/a
                                                
                                                
                                                
                                                n/aNumber
      of warrants
                                                
                                                
                                                16,583,392
                                                
                                                
                                                
                                                1,500,000Fair
      value
                                                
                                                $
                                                109,848
                                                
                                                
                                                $
                                                229,635




The
risk-free interest rate was based on rates established by the Federal
Reserve.  The Company’s expected volatility was based on the
historical volatility of similar entities whose share prices are publicly
available.  The expected life of the warrants was determined by the
expiration date of the warrants.  The expected dividend yield was
based upon the fact that the Company has not historically paid dividends, and
does not expect to pay dividends in the future.




Subsequent
Events


Management
has evaluated subsequent events or transactions occurring through the date the
condensed consolidated financial statements were issued, to determine if such
events or transactions require adjustment or disclosure.


11




Recent
Accounting Pronouncements




The
FASB has issued Accounting Standards Update (ASU) No. 2010-06, Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements. This ASU requires some new disclosures and clarifies some existing
disclosure requirements about fair value measurement as set forth in
Codification Subtopic 820-10. ASU 2010-06 amends Codification Subtopic 820-10
and now requires a reporting entity to use judgment in determining the
appropriate classes of assets and liabilities and to provide disclosures about
the valuation techniques and inputs used to measure fair value for both
recurring and nonrecurring fair value measurements. ASU 2010-06 is effective for
interim and annual reporting periods beginning after December 15, 2009. As this
standard relates specifically to disclosures, the adoption will not have an
impact on the Company’s consolidated financial position and results of
operations.
  In
February 2010, the FASB issued ASU 2010-09, "Subsequent Events (Topic 855) -
Amendments to Certain Recognition and Disclosure Requirements." ASU 2010-09
requires an entity that is an SEC filer to evaluate subsequent events through
the date that the financial statements are issued and removes the requirement
that an SEC filer disclose the date through which subsequent events have been
evaluated. ASC 2010-09 was effective upon issuance. The adoption of this
standard had no effect on our (consolidated) financial position or results of
operations.
  In
April 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2010-13, “Effect of Denominating the Exercise Price
of a Share-Based Payment Award in the Currency of the Market in Which the
Underlying Equity Security Trades” (“ASU 2010-13”). ASU 2010-13 addresses the
classification of a share-based payment award with an exercise price denominated
in the currency of a market in which the underlying equity security trades. FASB
Accounting Standards Codification (“ASC”) Topic 718 was amended to clarify that
a share-based payment award with an exercise price denominated in the currency
of a market in which a substantial portion of the entity’s equity securities
trade shall not be considered to contain a market, performance or service
condition. Therefore, such an award is not to be classified as a liability if it
otherwise qualifies for equity classification. The amendments in ASU 2010-13 are
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2010, with early application permitted. The
adoption of this standard did not have any impact on the Company’s consolidated
financial position and results of operations.
  In
March 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17,
Revenue Recognition— Milestone Method (Topic 605): Milestone Method of Revenue
Recognition. This standard  provides that the milestone method is a valid
application of the proportional performance model for revenue recognition if the
milestones are substantive and there is substantive uncertainty about whether
the milestones will be achieved. Determining whether a milestone is substantive
requires judgment that should be made at the inception of the arrangement. To
meet the definition of a substantive milestone, the consideration earned by
achieving the milestone (1) would have to be commensurate with either the level
of effort required to achieve the milestone or the enhancement in the value of
the item delivered, (2) would have to relate solely to past performance, and (3)
should be reasonable relative to all deliverables and payment terms in the
arrangement. No bifurcation of an individual milestone is allowed and there can
be more than one milestone in an arrangement. The new standard is effective for
interim and annual periods beginning on or after June 15, 2010. Early adoption
is permitted. The adoption of this standard did not have any impact on the
Company’s consolidated financial position and results of
operations.


12




NOTE
4- EQUITY TRANSACTIONS




Shares
for Services


On March
9, 2010 the Company issued 180,000 shares of common stock for services to an
employee. The shares were fully vested on the date of issuance. The fair value
of the shares was calculated to be $16,200 based on the share price on the date
of the issuance and accordingly, the Company recorded a stock based compensation
charge to the condensed consolidated financial statements for the six months
ended June 30, 2010.




On March
11, 2010 the Company issued 1,000,000 shares of common stock for services to an
employee. The shares were fully vested on the date of issuance. The fair value
of the shares was calculated to be $80,000 based on the share price on the date
of the issuance and accordingly, the Company recorded a stock based compensation
charge to the condensed consolidated financial statements for the six months
ended June 30, 2010.




On March
12, 2010 the Company issued 50,000 shares of common stock for services to an
employee. The shares were fully vested on the date of issuance. The fair value
of the shares was calculated to be $4,000 based on the share price on the date
of the issuance and accordingly, the Company recorded a stock based compensation
charge to the condensed consolidated financial statements for the six months
ended June 30, 2010.




On March
11, 2010, the Company accepted the resignation of a consultant and the
simultaneous agreement to enter into a master sales agreement.  The
Company agreed to terminate the 10,000,000 options previously granted and issued
10,000,000 shares of the Company’s common stock to the consultant. The shares
fully vested on the date of issuance. Accordingly, the Company accounted for the
transaction as a modification of a stock based compensation award under ASC
718.  The Company recorded a charge of $1,854,742 for stock based
compensation with respect to the modification of the original
award.




On March
17, 2010, the Company entered into a consulting agreement pursuant to which
100,000 shares of the Company’s common stock were issued, the shares were fully
vested on the date of issuance.  The Company recorded the fair value
of the shares as stock based compensation expense of $6,000 based on the share
price of $0.06 per share.




On April
2, 2010 the Company entered into a separation agreement with its former Chief
Executive Officer for 10,000,000 shares of the Company’s common
stock.  As of June 30, 2010 the shares have been accrued for and are a
component of shares issuable, net.  The shares were fully vested on
the date of issuance.  The Company accounted for the transaction as a
modification of a stock based compensation award under ASC 718.  The
Company recorded a charge of $3,706,250 for stock based compensation with
respect to the modification of the original award.  The Company issued
these shares on July 22, 2010.




On April
12, 2010 certain employees and consultants returned in the aggregate 7,000,000
shares of the Company’s common stock.  Accordingly, the Company
retired 5,000,000 shares of the Company's common stock previously issued to
employees for compensation and 2,000,000 shares of the Company's common stock
previously issued to consultants for services provided.




On May 6,
2010, the Company entered into a consulting agreement pursuant to which
1,000,000 shares of the Company’s common stock were issued, the shares were
fully vested on the date of issuance.  The Company recorded the fair
value of the shares as stock based compensation expense of $20,000 based on the
share price of $0.02 per share.


13




Other





On
January 14, 2010, the Company entered into an agreement for services related to
establishing a joint venture and operating entity in Japan.  Under the
terms of the agreement the Company will obtain a 75% interest in the joint
venture. Pursuant to this agreement the Company issued 3,000,000 shares of its
common stock. The shares were fully vested on the date of the issuance and
accordingly the Company recorded a stock based compensation charge of $480,000,
which represented the fair value of the shares on the date of the
agreement.




On
January 15, 2010, the Company, through GetFugu Research Inc, its wholly-owned
subsidiary, entered into an agreement  with Health Matrix,
Inc.  Under the terms of the agreement, 7,580,000 shares of the
Company’s common stock were issued in  exchange for all of the
ownership interest in Health Matrix. The former owners of Health Matrix also
entered into employment  agreements which included six-month
non-competition provisions.  The Company evaluated the transaction and
determined  that the transaction was an asset acquisition of
in-process research and development comprising of trademarks and trade
names.


The
Company was unable to determine alternate future uses of the trademark and trade
names and determined that the employment agreements and the non-compete
agreements had no intrinsic value.  Accordingly, the Company recorded
a charge of $1,212,800 for the six months ended June 30, 2010, for in-process
research and development.




On March
24, 2010, the Company entered into an agreement with each of Mobile Search
Technologies, Inc. and Cellular Software Corporation, pursuant to which the
Company acquired both companies as wholly-owned subsidiaries in exchange for
100,000,000 shares of common stock each. Mobile Search Technologies, Inc. and
Cellular Software Corporation was owned by Oscar Holdings, LLC, which is
beneficially owned by the President of the Company, Carl Freer. The primary
assets of each company are intellectual property rights relating to next
generation mobile search technology. Each of the principals alsoexecuted a
standard form confidentiality and intellectual property assignment agreement.
The Company evaluated the transaction and determined that the transaction was an
asset acquisition of in-process research and development comprising ofpatent
pending algorithms with no alternate future uses. Through Carl Freer’s role as
co-founder and one of the single largest indirect shareholders of the Company,
Carl Freer is considered to have management control in accordance with ASC 850,
“Related Party Disclosures.” The principals were determined to be affiliates and
accordingly the Company recorded the transaction as a deemed dividend of
$8,000,000.




On May
12, 2010, the Company issued 666,667 shares of common stock to a former note
holder in consideration of the deflated stock price.  The shares were
fully vested on the date of issuance and accordingly the Company recorded a
charge to interest expense of $2,000 for the fair value of the
shares.




Stock
Options


On
February 15, 2010, the Company entered into consulting agreements with two
individuals including monthly fees totaling $25,000
and the issuance of 20,000,000 non-qualified stock options. On the date of the
grant 25% of the options vest Immediately;
and the remaining will vest over a term of 5 years. The options granted are
exercisable at $0.13 per share and have a contractual life of 5
years.  The fair value of the awards based on the Black Scholes option
valuation model totaled $2,454,608.  The Company recorded a charge to
operations for $2,454,608 for the six months ended June 30, 2010, which
represented the service period of the awards.




Nonvested
Shares


A summary
of the status of the Company’s nonvested shares of common stock as of
June  30, 2010, and changes during the six months then ended is
presented below:





WeightedAverageGrant
      DateNonvested
      Shares
                    
                    Shares
                    
                    
                    Fair ValueNonvested
      at January 1, 2010
                    
                    
                    10,312,500
                    
                    
                    $
                    0.52Granted
                    
                    
                    -
                    
                    
                    
                    -Vested
                    
                    
                    (1,750,000
                    )
                    
                    
                    0.47Cancelled
                    
                    
                    (7,312,500
                    )
                    
                    
                    -Nonvested
      at June, 30, 2010
                    
                    
                    1,250,000
                    
                    
                    $
                    0.52




14




NOTE
5 — FAIR VALUE




ASC 820
“Fair Value Measurements and Disclosures” defines fair value, establishes a
framework for measuring fair value and requires enhanced disclosures about fair
value measurements.  As defined in ASC 820, fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The
standard clarifies that the exchange price is the price in an orderly
transaction between market participants to sell an asset or transfer a liability
at the measurement date and emphasizes that fair value is a market-based
measurement and not an entity-specific measurement.




ASC 820
establishes the following hierarchy used in fair value measurements and expands
the required disclosures of assets and liabilities measured at fair
value:




• Level 1
- Inputs use quoted prices in active markets for identical assets or liabilities
that the Company has the ability  to access.




• Level 2
- Inputs use other inputs that are observable, either directly or indirectly.
These inputs include quoted prices for similar assets and liabilities in active
markets as well as other inputs such as interest rates and yield curves that are
observable at commonly quoted intervals.




• Level 3
- Inputs are unobservable inputs, including inputs that are available in
situations where there is little, if any, market activity for the related asset
or liability.




In
instances where inputs used to measure fair value fall into different levels in
the above fair value hierarchy, fair value measurements in their entirety are
categorized based on the lowest level input that is significant to the
valuation. The Company’s assessment of the significance of particular inputs to
these fair value measurements requires judgment and considers factors specific
to each asset or liability.




Liabilities
measured at fair value on a recurring basis at June 30, 2010 are as
follows:





Fair Value Measurements at June
      30, 2010SignificantTotal
      carrying
                      
                      
                      Quoted
      prices
                      
                      
                      other
                      
                      
                      Significantvalue
      at
                      
                      
                      in
      active
                      
                      
                      observable
                      
                      
                      unobservableJune
      30,
                      
                      
                      markets
                      
                      
                      inputs
                      
                      
                      inputs2010
                      
                      
                      (Level
      1)
                      
                      
                      (Level
      2)
                      
                      
                      (Level
      3)Derivative
      liability
                      
                      $
                      159,848
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      159,848




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 Company’s  Level 3 liabilities consist of derivative
liabilities associated with the 1,500,000 of warrants granted that contains a
reset price  provision, the embedded conversion option with respect to
convertible notes payable, and the 12,083,392 of
nonemployee  warrants.


15




The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the six months
ended June 30, 2010.





EmbeddedconversionWarrants
                  
                  
                  options
                  
                  
                  TotalBalance
      at January 1, 2010
                  
                  $
                  229,635
                  
                  
                  $
                  -
                  
                  
                  $
                  229,635Additions
                  
                  
                  804,318
                  
                  
                  
                  470,000
                  
                  
                  
                  1,274,318Reductions
                  
                  
                  (924,105
                  )
                  
                  
                  (420,000
                  )
                  
                  
                  (1,344,105
                  )Transfer
      in and /or out of Level 3
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Balance
      at June 30, 2010
                  
                  $
                  109,848
                  
                  
                  $
                  50,000
                  
                  
                  $
                  159,848




The
carrying amounts of cash, accounts payable, and accrued liabilities approximate
their fair value due to their short maturities.  There were no changes
in the valuation techniques during the six months ended June 30,
2010.




NOTE
6—NOTES PAYABLE




On
November 6, 2009, the Company entered into an unsecured note payable which
matured on December 6, 2009, in the amount of $250,000 accruing interest at 10%
per annum.  The note balance at June 30, 2010was
$250,000.    As of May 17, 2010, this note is in default of
the applicable repayment provisions.




On
December 21, 2009, the Company entered into an unsecured note payable which
matured on January 20, 2010, in the amount of $50,000accruing interest at 10%
per annum.  The note balance at June 30, 2010was
$50,000.    At May 17, 2010, this note is in default of the
applicable repayment provisions.




On
February 5, 2010, the Company entered into a short-term secured promissory
note.  Under the terms of this secured  promissory note, the
Company received $150,000.  Interest accrues at an annual rate of 10%
and the note is payable on  demand.  Security for this note
includes a first priority interest in all of the Company’s assets owned on the
date of the loan as  well as all assets acquired while the loan is
outstanding. The principal balance of the note at June 30, 2010was repaid in
full.




NOTE
7—CONVERTIBLE NOTES PAYABLE




On March
12, 2010, the Company entered into a $75,000 short-term convertible promissory
note which may be converted at any time prior to the maturity date at the option
of the lender into the Company’s common stock based on a 40% discount tothe
weighted average price of the Company’s common stock for the three lowest
closing share prices during the ten trading days prior to the conversion date.
The gross proceeds from the note were recorded net of a discount of $50,000,
relatedto the fair value of the embedded conversion option.  The debt
discount will be charged to interest expense ratably over the term ofthe
convertible note. The note matures on June 23, 2010. Under accounting guidance
provided by ASC 815, the conversionprice of the loans did not have a
determinable number of shares the loans could be settled in and as a result,
have been presented as a derivative liability.  Accordingly, the
conversion option will be marked to market through earnings at the end of each
reporting period.




On March
23, 2010, the Company entered into a $150,000 short-term convertible promissory
note with a stated interest rate of 10% per annum. The note matures on June 23,
2010. At any time prior to the maturity date, the note can be converted at the
option of the lender into the Company’s common stock at a price of $0.02 per
share. If the lender demands repayment on the maturity date theconversion
feature is terminated and the Company is obligated to pay the lender
$200,000.  In addition the lender was alsogranted a warrant to acquire
3,000,000 shares of the Company’s common stock at $0.10 per share for three
years.  The grossproceeds from the note were recorded net of a
discount of $150,000, consisting of an allocation of the fair values attributed
tothe warrants and to the embedded conversion feature in accordance with ASC
815.  The debt discount consisted of $95,351  value
related to the warrants and a value attributed to the embedded conversion
feature of $150,000.  The debt discount was  first allocated
to the embedded conversion feature based on its fair value.  After
reducing the gross proceeds by the value  allocated to the embedded
conversion feature, the remaining unallocated debt discount was allocated to the
warrants.  The excess of the fair value of the warrants above the debt
discount allocated to the warrants was $95,351 and was recorded as a charge to
operations partially offsetting the gain of derivative financial
instruments.  The note’s embedded conversion feature and warrants will
be marked to market through earnings at the end of each reporting
period.




16




On April
2, 2010, the Company entered into a $100,000 short-term convertible promissory
note.   Under the terms of the promissory note, the Company received
$100,000.  The note matures on July 2, 2010. At any time prior to the
maturity date, the note can be converted at the option of the lender into the
Company’s common stock at a price of $0.02 per share.  If the lender
demands repayment on the maturity date the conversion feature is terminated and
the Company is obligated to pay the lender $133,333.  The lender was
also granted a warrant to acquire 3,000,000 shares of the Company’s common stock
at $0.10 per share for three years.The gross proceeds of the note were recorded
net of a discount of $100,000, consisting of an allocation of the fair values
attributed to the warrants of $81,800 and the fair value of the embedded
conversion feature of $100,000.  In accordance with ASC 815, the fair
value of the beneficial conversion feature was first allocated to the
note.  The remaining debt discount was recorded as a charge to
operations, partially offsetting the gain on derivative financial
instruments.  The embedded conversion option and warrants are
presented as a component of the derivative liability and will be marked to
market at each reporting period.





On May
19, 2010 the Company entered into a $170,000 convertible promissory
note.  Under the terms of the promissory note, the Company received
$170,000. The note matures on November 19, 2010; has a stated interest rate of
1% per month; 10% per month after the maturity date; and is convertible at
$0.004 per share of the Company’s common stock.  The conversion price
resets at the closing bid price of the Company’s common stock on any three or
more trading days following the date of the note.  In addition, the
convertible promissory note carries a provision that if and when the Company
issues shares or options at a price lower than the current conversion price, the
conversion price will adjust to the lower price.  The gross proceeds
of the note were recorded net of a debt discount of $170,000, consisting of an
allocation of the fair value attributed to the embedded conversion feature in
accordance with ASC 815.  The fair value of the beneficial conversion
feature of $255,000, was first allocated to the note ($170,000) with the
remaining debt discount of $85,000 recorded as a charge to operations partially
offsetting the gain of derivative financial instruments.  The debt
discount will be amortized ratably over the term of the note.  The
notes embedded conversion option is presented as a component of the derivative
liability and will be marked to market through earnings at the end of each
reporting period.




NOTE
8 - RELATED PARTY TRANSACTIONS




The
Company has an unsecured revolving promissory note with a lender whose owners
include a founder and shareholder of the
Company.    Interest will be accrued at an annual rate of
10% and will be payable on demand by the lender.  For the six months
ended June 30, 2010, the Company had received no new borrowings and repaid
$361,757 under the unsecured promissory note.  As of June 30, 2010,
the amount due under this facility totaled $238,767.




The
Company has a revolving promissory note with a founder and shareholder of the
Company. For the six months ended June 30, 2010, the Company received no new
borrowings and made no payments.  The note has a stated interest rate
of 10% and is payable on demand. As of June 30, 2010 the amount due under this
facility totaled $111,518.




The
Company has received borrowings from a company owned by two individuals, one
being an officer and Director, and the other a founder and shareholder of the
Company. For the six months ended June 30, 2010, the Company received advances
of $128,900 and repaid $10,000.  As of June 30, 2010, the total amount
owed to this related party was $319,400.




On March
2, 2010, the Company received an advance totaling $83,000 from a former officer
of the Company. Interest accrues at an annual rate of 10% and the note is
payable on demand.  As of June 30, 2010, the total amount owed to this
related party was $83,000.




NOTE
9 - CONCENTRATIONS




For the
six and three months ended June 30, 2010, revenues was comprised of one
customer.




NOTE
10 - COMMITMENTS AND CONTINGENCIES




Other


At June
30, 2010, the Company has an obligation totaling $2,329,660 related to unpaid
payroll tax, including an estimate of penalties and interest.As of the date of
this filing the Company is in the process of filing its payroll tax return for
the first quarter of 2010. The Company plans to file the delinquent payroll tax
return in the near future.




The
Company has not filed either federal or state income tax returns for the years
ended 2009, 2008 and 2007.  There are no penalties or interest due,
nor is a liability recorded, as in all periods the Company reported
losses.


17




Litigation


A lawsuit
was filed on November 25, 2009 against the Company, numerous former and current
Company officers and directors,
and other individuals and entities. Plaintiffs have made no direct claims
against the Company, but have instead named it as a “nominal” defendant, and
have alleged “derivative” causes of action on its
behalf.    The Plaintiffs claim damages of approximately
$26,000,000 resulting from loans they made to previous companies, which Carl
Freer, the President of the Company, allegedly personally
guaranteed.  On August 29, 2010, the United States District Court
determined that there was absolutely no valid basis to file a lawsuit accusing
the company of being a racketeer influenced corrupt organization, denied leave
to amend, and dismissed the claims with prejudice.




By letter
dated February 24, 2010, fourteen former employees of a separate company made a
demand for $430,000 in unpaid wages against that company, and threatened to file
suit against the Company, on the ground that the separate company was merely an
instrumentality of GetFugu, Inc. To the Company’s knowledge, no claim has been
filed to date, and the Company believes the demand is not an obligation of the
Company.  Accordingly, as of June 30, 2010, the Company has no
liability accrued as it relates to this matter.




Although
the Company believes it will be successful in defending these matters there can
be no assurances that these legal matters will not result in any negative
outcomes.




On April
1, 2010, Hutton International Investments, Ltd (“Hutton”) filed a claim that it
suffered damages as a result of the Company's
breach of a securities purchase agreement with the Company. The parties
stipulated to settle the claim in exchange for issuance to Hutton of 40,000,000
shares of the Company’s common stock, subject to adjustment and the Court’s
approval of the settlement under Section 3(a)(10). The court approved the
settlement and dismissed the action on April 6, 2010 at which time 40,000,000
shares of the Company’s common stock were issued to Hutton. The Company recorded
a charge of approximately $1,200,000 for the year ended December 31, 2009, based
on the share price of the Company’s common stock on the date of settlement. As
of June 30, 2010 the shares have been issued and the matter is deemed to be
settled.




A demand
for arbitration was filed on April 13, 2010, by six former employees and
independent contractors, seeking unpaid wages and unspecified
damages.  At June 30, 2010, the Company had accrued $147,000 for all
such wages.


18




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




The
information contained in this Form 10-Q is intended to update the information
contained in our Annual Report  on Form 10-K for the year ended
December 31, 2009, and presumes that readers have access to, and will have read,
the  “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and other information contained  in such Form
10-K.  The following discussion and analysis also should be read
together with our condensed consolidated  financial statements and the
notes to the condensed consolidated financial statements included elsewhere in
this Form 10-Q.




The
following discussion contains certain statements that may be deemed
“forward-looking statements” within the  meaning of the Private
Securities Litigation Reform Act of 1995.  Such statements appear in a
number of places in this Form  10-Q, including, without limitation,
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”   These forward-looking statements can be identified
by the use of words such as “believes,” “estimates,”  “could,”
“possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or
“should” or other variations or  similar words. These statements are
not guarantees of future performance and involve risks, uncertainties and
requirements  that are difficult to predict or are beyond our
control.  Forward-looking statements speak only as of the date of this
quarterly  report.  You should
not  put  undue  reliance  on  any  forward-looking  statements.  Forward-looking
statements reflect  management’s current expectations and are
inherently uncertain.  We strongly encourage investors to carefully
read the  factors described in our Annual Report on Form 10-K for the
year ended December 31, 2009 in the section entitled “Risk  Factors”
for a description of certain risks that could, among other things, cause actual
results to differ from these forward- looking statements. We assume no
responsibility to update the forward-looking statements contained in this
quarterly report  on Form 10-Q. The following should also be read in
conjunction with the unaudited Financial Statements and notes
thereto  that appear elsewhere in this report.




Overview




GetFugu,
Inc, (“We”, “Our”, “GetFugu,” or “Company”), is developing next generation
mobile search tools. The Company’s technology is designed to play on the
strengths of mobile handheld devices (mobile phones) and assist consumers in
retrieving content more expediently. Consumers will be able to download GetFugu
application tools to their mobile phone device.  The GetFugu
applications will allow consumers to retrieve content and eliminate the need to
type website addresses or search terms into the device’s internet
browser.




We
currently have four products under development.




1.
            See
      It (ARL): “Vision recognition” This GetFugu application recognizes
      logos and products through any mobile phone camera. Consumers simply point
      their phone at a logo and retrieve content from the brand
      owner.


2.
            Say
      It (VRL): “Voice recognition” The consumer can simply speak into
      the phone to retrieve content. In addition to brand names, the consumer
      can say generic keywords such as “best pizza” or
      “ATM”.


3.
            Find
      It (GRL): “Location recognition” For local content, GetFugu is
      designed to work with the Global Positioning Systems (“GPS”) in mobile
      phones. The application will return content, based on the proximity to the
      user. A keyword of “pizza” will return the closest pizza
      parlors.  Local businesses can pay for voice-activated key words
      to position themselves at the top of the search list within a geographic
      area.


4.
            Get
      it (Hot-Spotting): GetFugu provides advertisers with a way to
      monetize their marketing efforts through a  mobile ecommerce
      tool called Hot-Spotting.  Hot-Spotting enables the consumer to
      purchase or retrieve information on any item featured in a video simply by
      touching products as displayed on the
  screen.




The
Company was incorporated in the State of Nevada on March 14, 2007 under the name
Madero, Inc.  On August 29, 2008, the Company entered into a stock
purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga (sole
director, former President, Chief Executive Officer, and Chief Financial Officer
of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and
conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of
the Company’s common stock (this number, and all other share amounts presented,
is post the 12 for 1 forward stock split which was effectuated on February 11,
2009), or approximately 48.07% of the Company’s then issued and outstanding
shares of common stock from Mr. Lizarraga.


19




Prior to
the closing of the transactions referenced in the Stock Purchase Agreement, the
Company was a development  stage company in an unrelated
industry.  Through March 14, 2007, the Company’s activities had been
limited to its formation,  business planning and raising capital, and
since August 29, 2008 involved in the development of next generation mobile
search tools.




On
January 23, 2009, the Company amended its Articles of Incorporation to increase
the number of authorized  common stock, par value $0.001 per share,
from 75,000,000 to 500,000,000.  On February 11, 2009, there was a
forward splitof common stock whereby each issued and outstanding share of common
stock was split into 12 shares of common stock.




Effective
March 25, 2009, our Articles of Incorporation were amended to change the name to
GetFugu, Inc.




Effective
April 9, 2009, we entered into an Agreement for the Assignment of Patent Rights
(the “Assignment Agreement”) with MARA Group Ltd.  Pursuant to the
Assignment Agreement we acquired eight patent applications (the “Patent
Applications”) from MARA Group Ltd. in exchange for 25 million shares of common
stock of the Company.  Prior to the closing of this transaction, MARA
Group Ltd. was deemed to be an “affiliate”, as it owned more than ten (10%)
percent of our outstanding common stock.




On
October 19, 2009, the Company’s Board of Directors approved (i) the
reincorporation of the Company from Nevada to Delaware, (ii) increasing the
number of authorized shares of common stock from 500,000,000 to 750,000,000,
(iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and
(iv) the creation of the 2009 Incentive Compensation Plan with a maximum of
250,000,000 shares of common stock to be issued with no more than 100,000,000
shares permitted to be issued in any fiscal year.  As of September 7,
2010, the Company had not formally adopted the Incentive Compensation
Plan.  All of the above noted items require shareholder
approval.  Accordingly, at this meeting, the Board approved the filing
with the Securities and Exchange Commission (“SEC”) of a written consent
statement.  As of September 7, 2010 the Company has not filed its
amended articles of incorporation with the appropriate regulatory
bodies.




The
Company has been late on two of its regulatory filings with the SEC. The Company
may be ineligible for quotation by a NASD member if the Company does not meet
its future filing requirements timely.




Critical
Accounting Policies and Estimates




The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amount of expenses during the
reporting period. On an ongoing basis, we evaluate our estimates, which are
based on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. The result of these
evaluations forms the basis for making judgments about the carrying values of
assets and liabilities and the reported amount of expenses that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions. Our significant accounting policies are described
in the notes to our annual consolidated financial statements included in Form
10-K for the year ended December 31, 2009.


20




Results
of Operations for the Six Months Ended June
30, 2010compared to the Six Months Ended June
30, 2009




Revenues




Revenues
for the six months ended June 30, 2010 and 2009 were approximately $22,000 and
zero, respectively. During the second quarter 2010 we entered into a sales
agreement  with a customer for a period of two years. The gross amount
of the proceeds received was approximately $320,000 which will be recorded
ratably as revenues are earned over the agreement’s service period.




In May
2010, the company began signing up businesses for its ARL platform through a
coordinated effort spearheaded by groups of field sales teams under an agreement
with Salesconx. The sales force consisted of approximately 50 people who
approached small local businesses with a 90 day complimentary offer. During the
first 45 days of this offer, signed on nearly 400 small businesses. Each of the
businesses provided the company with a logo and/or name of their business for
consumers to search on. Each of the ARLs link to their existing webpages. Over
70% of signups were generated on second visit which indicates a strong
acceptance rate to the companies purchase offer.




Cost
of Sales




Cost of
sales were zero for the six months ended June 30, 2010 and 2009,
respectively.




Operating
Expenses




Operating  expenses  totaled $18,918,531  and$13,294,674  for  the  six
months ended June  30, 2010 and 2009, respectively.




Following
are the primary components of operating expenses:




Compensation
and Related Benefits —Compensation and related benefits totaled $9,131,249 and
$2,626,738 for the six months ended June  30, 2010 and 2009,
respectively, of which $7,018,037 and $1,320,554 is related to employees and
$2,113,212 and $1,306,184 is related to the Company’s Board of Directors.
Included in the total expense for the six months ended June 30, 2010 and 2009,
respectively, are $6,053,669 and $0of non-cash expenses consisting of $2,013,584
and $222,046 associated with employee stock options, $3,756,450 and $781,250
associated with the issuance of the Company’s common stock to various employees,
$943,212 and $0 associated with director stock options, and $195,000 and $0
associated with the amortization of the previous issuance of the Company’s
common stock to the Company’s directors.




Legal and
Professional Fees —Legal and professional fees totaled $127,464 and $809,425 for
the six months ended June 30, 2010 and 2009, respectively.  The
amounts in 2009 related to legal efforts associated with compliance and other
similar  activities.




Marketing
—Marketing expenses totaled $91,689 and $36,777 for the six months ended June
30, 2010 and 2009, respectively, primarily consisting of public relations
related activities, development of the corporate website, media related
activities, and development of the marketing campaign for the Company’s consumer
launch.




Occupancy
and Related Costs —Occupancy and related costs totaled $94,430 and $39,926 for
the six months ended June  30, 2010 and 2009,
respectively.  Rent and related expense of the Company’s office in Los
Angeles totaled $66,841.




Research
and Development — Research and development expense relates to the development
and purchase of existing in-process research and development of new products and
processes including improvements to existing products. These costs are expensed
as incurred and totaled $2,211,014 and $9,000,583 the six months ended June 30,
2010 and 2009, respectively, which includes a charge of $1,212,800 related to
in-process research and development.




Travel
and Entertainment —Travel and entertainment expenses totaled $59,637 and
$129,412 for the six months ended June 30, 2010 and 2009,
respectively.  The majority of such costs were travel, meals, and
lodging related to financing activities and similar costs related to consultants
traveling to work in the Company’s offices.


21




Consulting
and Outside Services —Consulting and outside services totaled $6,969,279 and
$614,634 for the six months ended June  30, 2010 and 2009,
respectively.  Due to the liquidity issues related to a new venture,
the Company utilized its common stock as a primary means of compensating
consultants.  The Company issued stock and options resulting in
non-cash expenses of $6,630,885 and $0 for the six months ended June 30, 2010
and 2009, respectively.  In addition, the Company contracted with
specialized developers and contractors on an as needed basis to assist in the
development of the Company’s mobile search technology.




Office
and Other Expenses —Office and other expenses totaled $150,803 and $37,179 for
the six months ended June  30, 2010 and 2009.  These
expenses included postage and delivery charges, telephone, Internet services,
stock transfer  agent fees, closing down and relocation of the San
Francisco office to Los Angeles, insurance, and other miscellaneous
office  related expenses.




Depreciation
—Depreciation expense for the six months ended June 30, 2010 and 2009, totaled
$82,966 and $0, respectively.  The Company began depreciating computer
and other fixed assets beginning the month following the quarter in which the
assets were acquired.  The primary fixed assets are computers and
related equipment which are being depreciated over 3 years on a straight-line
basis.




Other
Income (Expense)




Interest
Expense—Interest expense for the six months ended June 30, 2010 and 2009,
totaled $364,862 and $0, respectively.




Change in
Fair Value of Derivative Financial Instrument —The change in fair
value of derivative financial instrument totaled $1,344,105 and $0 for the six
months ended June 30, 2010 and 2009, respectively.  Financial
instruments which do not have fixed settlement provisions  are deemed
to be derivative instruments.    The warrants issued with
the Company’s September 18, 2009 common stock  financing did not have
fixed settlement provisions because the exercise price may be lowered if the
Company issues securities  at lower prices in the
future.  The Company was required to include the reset provisions in
order to protect the warrant holders  from the potential dilution
associated with future financings.  In accordance with ASC 815-40, the
warrants were recognized  as a derivative instrument. In addition, the
conversion price of a short-term note payable did not have a determinable
number  of shares the loans could be settled into and as a result this
and an additional convertible note payable, together with non- employee warrants
have been presented as a derivative
liability.    Accordingly, the conversion options of these
notes and  embedded conversion features of non-employee warrants will
be marked to market through earnings at the end of each  reporting
period.




Results
of Operations for the Three Months Ended June
30, 2010compared to the Three Months Ended June
30, 2009




Revenues




Revenues
for the three months ended June 30, 2010 and 2009 were approximately $22,000 and
zero, respectively. During the second quarter 2010 the We entered into a sales
agreement with a customer for a period of two years. The gross amount of the
proceeds received was approximately $320,000 which will be recorded as revenues
ratably over the agreements service period.




In May
2010, the company began signing up businesses for its ARL platform through a
coordinated effort spearheaded by groups of field sales teams under an agreement
with Salesconx. The sales force consisted of approximately 50 people who
approached small local businesses with a 90 day complimentary offer. During the
first 45 days of this offer, signed on nearly 400 small businesses. Each of the
businesses provided the company with a logo and/or name of their business for
consumers to search on. Each of the ARLs link to their existing webpages. Over
70% of signups were generated on second visit which indicates a strong
acceptance rate to the companies purchase offer.




Cost
of Sales




Costs of
sales were zero for the three months ended June 30, 2010 and 2009,
respectively.




Operating
Expenses




Operating
expensestotaled $9,134,111 and $5,171,574 for the three months ended June 30,
2010 and 2009, respectively.


22




Following
are the primary components of operating expenses:




Compensation
and Related Benefits —Compensation and related benefits totaled $6,103,700 and
$2,626,738 for the three months ended June  30, 2010 and 2009,
respectively, of which $2,021,663 and $1,320,554 is related to employees and
$1,242,142 and $1,306,184 is related to the Company’s Board of Directors.
Included in the total expense for the three ended June  30, 2010 and
2009, respectively, are $5,153,928 and $0of non-cash expenses consisting of
$1,778,928 and $222,046 associated with employee stock options, $3,375,000 and
$781,250 associated with the issuance of the Company’s common stock to various
employees, $397,142 and $0 associated with director stock options, and $845,000
and $0 associated with the amortization of the previous issuance of the
Company’s common stock to the Company’s directors.




Legal and
Professional Fees —Legal and professional fees totaled $123,964 and $590,262 for
the three months ended June 30, 2010 and 2009, respectively.  The
amounts in 2010 related to legal efforts associated with compliance and other
similar  activities.




Marketing
—Marketing expenses totaled $12,531 and $36,777 for the three months ended
June  30, 2010 and 2009, respectively, primarily consisting of public
relations related activities, development of the corporate website, media
related activities, and development of the marketing campaign for the Company’s
consumer launch.




Occupancy
and Related Costs —Occupancy and related costs for the Los Angeles office
totaled $23,772 and $39,926 for the three months ended June  30, 2010
and 2009, respectively.




Research
and Development — Research and development expense relates to the development
and purchase of existing in-process research and development of new products and
processes including improvements to existing products. These costs are expensed
as incurred and totaled $858,502 and $1,114,333 for the three months ended June
30, 2010 and 2009, respectively. The decrease is primarily attributed to
completing the engineering of the software during the second quarter of
2010.




Travel
and Entertainment —Travel and entertainment expenses totaled $14,788 and
$111,725 for the three months ended June 30, 2010 and 2009,
respectively.  The majority of such costs were travel, meals, and
lodging related to financing activities and similar costs related to consultants
traveling to work in the Company’s offices.




Consulting
and Outside Services —Consulting and outside services totaled $1,920,801 and
$614,634 for the three months ended June  30, 2010 and 2009,
respectively.  Due to the liquidity issues related to a new venture,
the Company utilized its common stock as a primary means of compensating
consultants.  The Company issued stock and options resulting in
non-cash expenses of $287,046 and $0 for the three months ended June 30, 2010
and 2009, respectively.  In addition, the Company contracted with
specialized developers and contractors on an as needed basis to assist in the
development of the Company’s mobile search technology.




Office
and Other Expenses —Office and other expenses totaled $34,571 and $37,179 for
the three months ended June 30, 2010 and 2009.  These expenses
included postage and delivery charges, telephone, Internet services, stock
transfer  agent fees, closing down and relocation of the San Francisco
office to Los Angeles, insurance, and other miscellaneous
office  related expenses.




Depreciation
—Depreciation expense for the three months ended June 30, 2010 and 2009, totaled
$41,482 and $0, respectively.  The Company began depreciating computer
and other fixed assets beginning the month following the quarter in which the
assets were acquired.  The primary fixed assets are computers and
related equipment which are being depreciated over 3 years on a straight-line
basis.




Other
Income (Expense)




Interest
Expense—Interest expense for the three months ended June 30, 2010 and 2009,
totaled $301,383 and $0, respectively.




Change in
Fair Value of Derivative Financial Instrument —The change in fair value of
derivative financial instrument totaled $744,216 and $0 for the three months
ended June 30, 2010 and 2009, respectively.  Financial instruments
which do not have fixed settlement provisions  are deemed to be
derivative instruments.    The warrants issued with the
Company’s September 18, 2009 common stock  financing did not have
fixed settlement provisions because the exercise price may be lowered if the
Company issues securities  at lower prices in the
future.  The Company was required to include the reset provisions in
order to protect the warrant holders  from the potential dilution
associated with future financings.  In accordance with ASC 815-40, the
warrants were recognized  as a derivative instrument. In addition, the
conversion price of a short-term note payable did not have a determinable
number  of shares the loans could be settled into and as a result this
and an additional convertible note payable, together with non- employee warrants
have been presented as a derivative
liability.    Accordingly, the conversion options of these
notes and  embedded conversion features of non-employee warrants will
be marked to market through earnings at the end of each  reporting
period.


23




Going
Concern, Liquidity and Financial Condition




The
Company incurred a net loss of approximately $17.9 million and $13.3 million for
the six months ended June 30, 2010 and 2009, respectively. As of June 30, 2010,
the Company’s accumulated deficit from inception amounted to approximately $71
million and the Company’s working capital deficit amounted to approximately $9.9
million.  During the six months ended June 30, 2010, net cash used in
operating activities amounted to approximately $382,000. During the six months
ended June 30, 2010, cash provided by financing activities amounted to
$382,000.  As of June 30, 2010, the Company’s cash position was
$762.




The
Company needs to raise additional capital from external sources in order to
sustain its operations while continuing the longer term efforts contemplated
under its business plan. The Company expects to continue incurring losses for
the foreseeable future and must raise additional capital to pursue its product
development initiatives, to penetrate markets for the sale of its products and
to continue as a going concern. The Company cannot provide any assurance that it
will raise additional capital. If the Company is unable to secure additional
capital, it may be required to curtail its research and development
initiatives,  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.
These measures could cause significant delays in the
Company’s  efforts to commercialize its products, which is critical to
the realization of its business plan and the future operations of
the  Company. These matters raise substantial doubt about the
Company’s ability to continue as a going
concern.    The  accompanying condensed
consolidated financial statements do not include any adjustments that may be
necessary should the Company be unable to continue as a going
concern.




Recent
Accounting Pronouncements




For a
discussion of the impact of recent accounting pronouncements, see Note 3 of the
accompanying condensed consolidated financial statements.




Off-Balance
Sheet Arrangements




We do not
have any off-balance sheet arrangements.




Safe
Harbor




The
discussions of the results of operations and financial condition of the Company
should be read in conjunction




with the
financial statements and notes pertaining to them that appear elsewhere in this
Form 10-Q. Statements made in this Form 10-Q that are not historical or current
facts are "forward- looking statements" made pursuant to the safe harbor
provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section
21E of the Securities Exchange Actof 1934. These statements often can be
identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "approximate" or "continue," or the negative thereof.
The Company intends that such forward-looking statements be subject to the safe
harbors for such statements. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond the control of
the Company that could cause actual results and events to differ materially from
historical results of operations and events and those presently anticipated or
projected. These factors include adverse economic conditions, risks of foreign
operation, entry of new and stronger competitors, inadequate capital and
unexpected costs. The Company disclaims any obligation subsequently to revise
any forward-looking statements to reflect events or circumstances after the date
of such statement or to reflect the occurrence of anticipated or unanticipated
events.




ITEM
3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




Not
applicable.




ITEM
4.    CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures


24




Our chief
executive officer and Principal Financial and Accounting Officer has reviewed
and evaluated the effectiveness of  our disclosure controls and
procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities
Exchange Act of  1934), as of June  30,
2010.  Based on such review and evaluation, our chief executive
officer and chief financial officer have  concluded that, as of
June  30, 2010, our disclosure controls and procedures were not
effective to ensure that information  required to be disclosed by us
in the reports that we file or submit to the Securities and Exchange Commission
pursuant to the  reporting obligations of the Exchange Act, including
this Quarterly Report on Form 10-Q, is recorded, processed,
summarized  and reported, within the time periods specified in the
rules and forms of the SEC.  Disclosure controls and procedures
include,  without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in
the  reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer’s management,  including
its principal executive and principal financial officers, or persons performing
similar functions, as appropriate to  allow timely decisions regarding
required disclosure.




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.  The design of any system of controls also is based in part on
certain assumptions  regarding the likelihood of future events, and
there can be no assurance that any design will succeed in achieving its
stated  goals under all potential future conditions.  Given
these and other inherent limitations of control systems, there is
only  reasonable assurance that our controls will succeed in achieving
their stated goals under all potential future conditions.




As
reported in our Annual Report in Form 10-K for our fiscal year ended December
31, 2009, our management identified  material weaknesses in internal
controls over financial reporting as of December 31, 2009 and
June  30, 2010as follows:




Due to
the small size of the operations, we have limited personnel and therefore
segregation of duties is limited.  As our operations expand,
additional personnel will be employed and respective controls and procedures
will be enhanced accordingly.    We have not formally
documented our entity level controls for policies and procedures in
place.  We lack proper documentation of the performance of key
controls and appropriate document retention procedures. Our current staffing
levels were not sufficient to support the complexity of our financial reporting
requirements; we lacked the expertise we needed to apply complex accounting
principles relating to our equity transactions and lacked the structure we need
to ensure the timely and accurate filing of employee income tax withholding and
our corporate tax returns. Our record retention policies need to be enhanced as
supporting records were not always easily accessible. We have limited staff and
therefore lack proper segregation of duties in part due to the small size of the
Company and the constraints of funds to hire additional staff to provide
assistance with the preparation of the year end and quarterly financial
statements. Management has hired outside consultants with the necessary
expertise to ensure the accuracy of the year end and quarterly financial records
as they are being reported. Due to the above factors our financial reporting
function is limited which makes it difficult to report our financial information
with the SEC timely, the Company has been late on two of its regulatory filings
with the SEC. The Company may be ineligible for quotation by a NASD member if
the Company does not meet its future filing requirements timely.




There was
no change in our internal control over financial reporting identified in
connection with the evaluation required by  paragraph (d) of Rule
13a-15 or 15d-15 under the Securities Exchange Act of 1934 that occurred during
our most recent fiscal  quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.


25




PART
II - OTHER INFORMATION




Item
5. Other Information




5.02(b)
Departure of Directors or Principal Officers; Election of Directors; Appointment
of Principal Officers.




On May
14, 2010, the Company’s board of directors accepted the resignations of Michael
Solomon from the positions of Chairman of the Board and Chief Executive Officer,
Michael O’Connor as director, and Alan Bailey as director.  The board
appointed Richard Jenkins as a director and Chief Executive Officer and Vrajesh
Chokshi as a director.




Item
6. Exhibits and Reports on Form 8-K




Exhibits




(a)
Exhibit 31. Certifications required by Rule 13a-14(a) or Rule 15d-
14(a)




31.1 and
32.2 Certification of Chief Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C.ss.1850 as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.




(b)
Exhibit 32. Certifications required by Rule 13a-14(b) or Rule 15d- 14(b) and
section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350




32.1 and
32.2 Certification of Chief Executive Officer and Principal Financial Officer
pursuant to 18 U.S.C.ss.1850 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.




(c)
Other Exhibits




None


26