UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON D.C. 20549





FORM 10-K





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





For the fiscal year ended June 30, 2010





oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT





For the transition period from __________ to __________





APRECIA, INC.


(Exact name of registrant as specified in its charter)





Commission File No.: 333-138625





Delaware

20-4378866(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification Number)





9 Dolson Road, Monsey, NY 10952


(Address of principal executive offices)





646-378-8008


(Issuer’s telephone number)





Securities registered under Section 12(b) of the Exchange Act





NONE





Securities registered pursuant to Section 12(g) of the Exchange Act:





Common Stock, $0.0001 par value


(Title of Class)





Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oNo x





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x





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 oNo x





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference Part III of this Form 10-K or any amendment to this Form 10-K. 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.





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer (Do not check if a smaller reporting company)
o
Smaller reporting company
x





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





State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $333,392.





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





Number of shares of the registrant’s common stock outstanding as of August 9, 2012, was 16,761,597.





DOCUMENTS INCORPORATED BY REFERENCE





List hereunder the following documents incorporated by reference. None










APRECIA, INC.





FORM 10-K





TABLE OF CONTENTS





PagePART IITEM 1.
Business


4ITEM 1A.
Risk Factors


5ITEM 1B.
Unresolved Staff Comments


5ITEM 2.
Properties


5ITEM 3.
Legal Proceedings


5ITEM 4.
Removed and Reserved


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


6ITEM 6.
Selected Financial Data


6ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations


6ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk


16ITEM 8.
Financial Statements and Supplementary Data


F-1ITEM 9.
Changes In and Disagreements with Accountant on Accounting and Financial Disclosure


17ITEM 9A.
Controls and Procedures


17ITEM 9B.
Other Information


19PART IIIITEM 10.
Directors, Executive Officers and Corporate Governance


20ITEM 11.
Executive Compensation


21ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


22ITEM 13.
Certain Relationships and Related Transactions and Director Independence


23ITEM 14
Principal Accountant Fees and Services


23PART IVITEM 15.
Exhibits, Financial Statement Schedules.


25SIGNATURES


27


2


CAUTIONARY NOTEREGARDING FORWARD-LOOKING STATEMENTS





This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements can be identified by the use of forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. Such statements include, but are
not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to, our:





·
being a development stage company with very limited operating history;


·
dependence on key personnel;


·
personnel allocating their time to other businesses and potentially having conflicts of interest with our business;


·
potentially being unable to obtain additional financing to complete an initial transaction;


·
limited pool of prospective business opportunities;


·
securities ownership being concentrated; and


·
potential change in control if we sell the Company or acquire a businesses for stock;





By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and developments in the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements contained in this Annual Report on Form 10-K. In addition, even if our results of operations, financial condition and liquidity, and developments in the industry in which we operate are consistent with the forward-looking statements
contained in this Annual Report on Form 10-K, those results or developments may not be indicative of results or developments in subsequent periods.





These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission. The forward-looking events we discuss in this Annual Report on Form 10-K speak only as of the date of such statement and might not occur in light of these risks, uncertainties and assumptions. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.





Unless otherwise provided in this Annual Report on Form 10-K, references to “Aprecia,” “the Company,” “the Registrant,” “we,” “us” and “our” refer to Aprecia, Inc.


3


PART I





ITEM 1. BUSINESS





General





Aprecia, Inc. was formed to become a leading edge provider of applied artificial intelligence solutions for thoroughbred and lottery applications. We developed MonitorPlus, an analysis tool designed to help the thoroughbred racing and lottery industry by providing alerts when potential wagering fraud or money laundering is detected. We had marketed our products through a partner/distributor primarily to regulatory bodies. Our success was largely dependent on the market acceptance of MonitorPlus, efficient utilization of our infrastructure, successful ongoing development of advanced process technologies and generation of sufficient return on research and development investments. We currently do not intend to
undertake any further research, development or marketing efforts with respect to the Monitor Plus technology or products based on such technology.





We are now considered a blank check company. The U.S. Securities and Exchange Commission (the “SEC”) defines those companies as “any development stage company that is issuing a penny stock, within the meaning of Section 3 (a)(51) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that has no specific business plan or purpose, or has indicated that its business plan is to merge with an unidentified company or companies.” Under SEC Rule 12b-2 under the Securities Act of 1933, as amended (the “Securities Act”), we also qualify as a “shell company,” because we have no or nominal assets (other than cash) and no or nominal
operations. Many states have enacted statutes, rules and regulations limiting the sale of securities of “blank check” companies in their respective jurisdictions. Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. We intend to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.




Our current business plan is to attempt to identify and negotiate with a business target for the merger of that entity with and into Aprecia. In certain instances, a target company may wish to become a subsidiary of Aprecia or may wish to contribute or sell assets to us rather than to merge. No assurances can be given that we will be successful in identifying or negotiating with any target company. Aprecia seeks to provide a method for a foreign or domestic private company to become a reporting or public company whose securities are qualified for trading in the United States secondary markets.




A business combination with a target company normally will involve the transfer to the target company of the majority of the issued and outstanding common stock of Aprecia, and the substitution by the target company of its own management and board of directors. No assurances can be given that we will be able to enter into a business combination, or, if we do enter into such a business combination, no assurances can be given as to the terms of a business combination, or as to the nature of the target company.




Competition







4





Regulation and Taxation


The Company intends to structure a merger or acquisition in such manner as to minimize federal and state tax consequences to the Company and to any target company.





Employees





The  Company's  only  employees  at the  present  time  are  its  officers  and directors,  who will devote as much time as the Board of Directors  determine is necessary to carry out the affairs of the Company.





ITEM 1A. RISK FACTORS




Smaller reporting companies are not required to provide the information required by this Item 1A.




ITEM 1B. UNRESOLVED STAFF COMMENTS





Not applicable.





ITEM 2. PROPERTIES





We currently maintain our corporate offices at9 Dolson Road, Monsey, NY 10952.We do not pay rent for this space because the amount of the space we use at such office is de minimis. We believe that this space will be sufficient until we start generating revenues and need to hire employees.





ITEM 3. LEGAL PROCEEDINGS





There are no pending legal proceedings to which the Company is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of voting securities of the Company, or security holder is a party adverse to the Company or has a material interest adverse to the Company. The Company’s property is not the subject of any pending legal proceedings.




ITEM 4. REMOVED AND RESERVED


5


PART II





ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.




Although  the then National Association of Securities Dealers, Inc. approved our Form 15c2-11 and granted us the stock symbol “ACIA.OB” on Feb 9, 2007, no public trading market for our common stock ever developed.





As of June 30, 2010,there were 55 holders of record of our common stock.





Dividends





We have never paid any dividends to our equity holders. We have intended to retain our earnings, if any were ever generated, to support the development of the business and therefore did not anticipate paying cash dividends. Payment of future dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including current financial condition, operating results and current and anticipated cash needs.





Securities Authorized for Issuance Under Equity Compensation Plans





As of June 30, 2011, we have not adopted any equity compensation plans.





Repurchases of Equity Securities





During the fiscal year ended June 30, 2010,we did not repurchase any shares as part of any publicly announced plans or programs or otherwise.




ITEM 6. SELECTED FINANCIAL DATA


Smaller reporting companies are not required to provide the information required by this Item 6.




ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINCNAICAL CONDITION AND RESULTS OF OPERATIONS.


Results of Operations





Overview





Certain statements contained in this prospectus, including statements regarding the anticipated development and expansion of our business, our intent, belief or current expectations, primarily with respect to the future operating performance of Aprecia, Inc. All forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.




6




Plan of Operation - General




During the next 12 months, the Company intends to seek, investigate and, if such investigation warrants, acquire an interest in one or more business opportunities presented to it by persons or firms who or which desire to seek the perceived advantages of a publicly held corporation. At this time, the Company has no plan, proposal, agreement, understanding or arrangement to acquire or merge with any specific business or company, and the Company has not identified any specific business or company for investigation and evaluation. No member of Management or promoter of the Company has had any material discussions with any other company with respect to any acquisition of that company.




The Company will not restrict its search to any specific business, industry or geographical location, and the Company may participate in a business venture of virtually any kind or nature. The discussion of the proposed plan of operation under this caption and throughout this Annual Report is purposefully general and is not meant to be restrictive of the Company's virtually unlimited discretion to search for and enter into potential business opportunities.




The Company will have to obtain funds in one or more private placements to finance the operation of any acquired business. Persons purchasing securities in these placements and other shareholders will likely not have the opportunity to participate in the decision relating to any acquisition. The Company's proposed business is sometimes referred to as a "blind pool" because any investors will entrust their investment monies to the Company's management before they have a chance to analyze any ultimate use to which their money may be put. Consequently, the Company's potential success is heavily dependent on the Company's management, which will have virtually unlimited discretion in searching for and entering into a
business opportunity. None of the officers and directors of the Company has had any experience in the proposed business of the Company. There can be no assurance that the Company will be able to raise any funds in private placements. In any private placement, management may purchase shares on the same terms as offered in the private placement.




Management anticipates that it will only participate in one potential business venture. This lack of diversification should be considered a substantial risk in investing in the Company because it will not permit the Company to offset potential losses from one venture against gains from another. The Company may seek a business opportunity with a firm which only recently commenced operations, or a developing company in need of additional funds for expansion into new products or markets, or seeking to develop a new product or service, or an established business which may be experiencing financial or operating difficulties and is in the need for additional capital which is perceived to be easier to raise by a public
company. In some instances, a business opportunity may involve the acquisition or merger with a corporation which does not need substantial additional cash but which desires to establish a public trading market for its common stock. The Company may purchase assets and establish wholly owned subsidiaries in various business or purchase existing businesses as subsidiaries.




The Company anticipates that the selection of a business opportunity in which to participate will be complex and extremely risky. Because of general economic conditions, rapid technological advances being made in some industries, and shortages of available capital, management believes that there are numerous firms seeking the benefits of a publicly traded corporation. Such perceived benefits of a publicly traded corporation may include facilitating or improving the terms on which additional equity financing may be sought, providing liquidity for the principals of a business, creating a means for providing incentive stock options or similar benefits to key employees, providing liquidity (subject to restrictions of
applicable statutes) for all shareholders, and other factors. Potentially available business opportunities may occur in many different industries and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex.




7




As part of any transaction, the acquired company may require that management or other stockholders of the Company sell all or a portion of their shares to the acquired company, or to the principals of the acquired company. It is anticipated that the sales price of such shares will be lower than the current market price or anticipated market price of the Company's Common Stock. The Company's funds are not expected to be used for purposes of any stock purchase from insiders. The Company shareholders will not be provided the opportunity to approve or consent to such sale. The opportunity to sell all or a portion of their shares in connection with an acquisition may influence management's decision to enter into a
specific transaction. However, management believes that since the anticipated sales price will be less than market value, that the potential of a stock sale by management will be a material factor on their decision to enter a specific transaction.




The above description of potential sales of management stock is not based upon any corporate bylaw, shareholder or board resolution, or contract or agreement. No other payments of cash or property are expected to be received by Management in connection with any acquisition.




The Company has not formulated any policy regarding the use of consultants or outside advisors, but does not anticipate that it will use the services of such persons.




The Company has, and will continue to have, insufficient capital with which to provide the owners of business opportunities with any significant cash or other assets. However, management believes the Company will offer owners of business opportunities the opportunity to acquire a controlling ownership interest in a public company at substantially less cost than is required to conduct an initial public offering. The owners of the business opportunities will, however, incur significant post-merger or acquisition registration costs in the event they wish to register a portion of their shares for subsequent sale. The Company will also incur significant legal and accounting costs in connection with the acquisition of a
business opportunity including the costs of preparing post-effective amendments, Forms 8-K, agreements and related reports and documents nevertheless, the officers and directors of the Company have not conducted market research and are not aware of statistical data which would support the perceived benefits of a merger or acquisition transaction for the owners of a business opportunity.




The Company does not intend to make any loans to any prospective merger or acquisition candidates or to unaffiliated third parties.




Sources of Opportunities




The Company anticipates that business opportunities for possible acquisition will be referred by various sources, including its officers and directors, professional advisers, securities broker-dealers, venture capitalists, members of the financial community, and others who may present unsolicited proposals.




8





The Company will seek a potential business opportunity from all known sources, but will rely principally on personal contacts of its officers and directors as well as indirect associations between them and other business and professional people. It is not presently anticipated that the Company will engage professional firms specializing in business acquisitions or reorganizations.




The officers and directors of the Company are currently employed in other positions and will devote only a portion of their time (not more than three hour per week) to the business affairs of the Company, until such time as an acquisition has been determined to be highly favorable, at which time they expect to spend full time in investigating and closing any acquisition for a period of two weeks. In addition, in the face of competing demands for their time, the officers and directors may grant priority to their full-time positions rather than to the Company.




Evaluation of Opportunities




The analysis of new business opportunities will be undertaken by or under the supervision of the officers and directors of the Company. Management intends to concentrate on identifying prospective business opportunities which may be brought to its attention through present associations with management. In analyzing prospective business opportunities, management will consider such matters as the available technical, financial and managerial resources; working capital and other financial requirements; history of operation, if any; prospects for the future; present and expected competition; the quality and experience of management services which may be available and the depth of that management; the potential for
further research, development or exploration; specific risk factors not now foreseeable but which then may be anticipated to impact the proposed activities of the Company; the potential for growth or expansion; the potential for profit; the perceived public recognition or acceptance of products, services or trades; name identification; and other relevant factors. Officers and directors of the Company will meet personally with management and key personnel of the firm sponsoring the business opportunity as part of their investigation. To the extent possible, the Company intends to utilize written reports and personal investigation to evaluate the above factors. The Company will not acquire or merge with any company for which audited financial statements cannot be obtained.




It may be anticipated that any opportunity in which the Company participates will present certain risks. Many of these risks cannot be adequately identified prior to selection of the specific opportunity, and the Company's shareholders must, therefore, depend on the ability of management to identify and evaluate such risk. In the case of some of the opportunities available to the Company, it may be anticipated that the promoters thereof have been unable to develop a going concern or that such business is in its development stage in that it has not generated significant revenues from its principal business activities prior to the Company's anticipation. There is a risk, even after the Company's participation in the
activity and the related expenditure of the Company's funds, that the combined enterprises will still be unable to become a going concern or advance beyond the development stage. Many of the opportunities may involve new and untested products, processes, or market strategies which may not succeed. Such risks will be assumed by the Company and, therefore, its shareholders.




9




The Company will not restrict its search for any specific kind of business, but may acquire a venture which is in its preliminary or development stage, which is already in operation, or in essentially any stage of its corporate life. It is currently impossible to predict the status of any business in which the Company may become engaged, in that such business may need additional capital, may merely desire to have its shares publicly traded, or may seek other perceived advantages which the Company may offer.




Acquisition of Opportunities







It is anticipated that any securities issued in any such reorganization would be issued in reliance on exemptions from registration under applicable Federal and state securities laws. In some circumstances, however, as a negotiated element of this transaction, the Company may agree to register such securities either at the time the transaction is consummated, under certain conditions, or at specified time thereafter. The issuance of substantial additional securities and their potential sale into any trading market which may develop in the Company's Common Stock may have a depressive effect on such market. While the actual terms of a transaction to which the Company may be a party cannot be predicted, it may be
expected that the parties to the business transaction will find it desirable to avoid the creation of a taxable event and thereby structure the acquisition in a so called "tax free" reorganization under Sections 368(a)(1) or 351 of the Internal Revenue Code of 1986, as amended (the "Code"). In order to obtain tax free treatment under the Code, it may be necessary for the owners of the acquired business to own 80% or more of the voting stock of the surviving entity. In such event, the shareholders of the Company, including investors in this offering, would retain less than 20% of the issued and outstanding shares of the surviving entity, which could result in significant dilution in the equity of such shareholders.




As part of the Company's investigation, officers and directors of the Company will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis or verification of certain information provided, check references of management and key personnel, and take other reasonable investigative measures, to the extent of the Company's limited financial resources and management expertise.




The manner in which each Company participates in an opportunity will depend on the nature of the opportunity, the respective needs and desires of the Company and other parties, the management of the opportunity, and the relative negotiating strength of the Company and such other management.




With respect to any mergers or acquisitions, negotiations with target company management will be expected to focus on the percentage of the Company which target company shareholders would acquire in exchange for their shareholdings in the target company. Depending upon, among other things, the target company's assets and liabilities, the Company's shareholders will in all likelihood hold a lesser percentage ownership interest in the Company following any merger or acquisition. The percentage ownership may be subject to significant reduction in the event the Company acquires a target company with substantial assets. Any merger or acquisition effected by the Company can be expected to have a significant dilutive
effect on the percentage of shares held by the Company's then shareholders, including purchasers in this offering.




10




The Company will not have sufficient funds (unless it is able to raise funds in a private placement) to undertake any significant development, marketing and manufacturing of any products which may be acquired.




Accordingly, following the acquisition of any such product, the Company will, in all likelihood, be required to either seek debt or equity financing or obtain funding from third parties, in exchange for which the Company would probably be required to give up a substantial portion of its interest in any acquired product. There is no assurance that the Company will be able either to obtain additional financing or interest third parties in providing funding for the further development, marketing and manufacturing of any products acquired.




It is anticipated that the investigation of specific business opportunities and the negotiation, drafting and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial costs for accountants, attorneys and others. If a decision is made not to participate in a specific business opportunity the costs therefore incurred in the related investigation would not be recoverable.




Furthermore, even if an agreement is reached for the participation in a specific business opportunity, the failure to consummate that transaction may result in a loss to the Company of the related costs incurred.




Management believes that the Company may be able to benefit from the use of "leverage" in the acquisition of a business opportunity. Leveraging a transaction involves the acquisition of a business through incurring significant indebtedness for a large percentage of the purchase price for that business.




Through a leveraged transaction, the Company would be required to use less of its available funds for acquiring the business opportunity and, therefore, could commit those funds to the operations of the business opportunity, to acquisition of other business opportunities or to other activities. The borrowing involved in a leveraged transaction would ordinarily be secured by the assets of the business opportunity to be acquired. If the business opportunity acquired is not able to generate sufficient revenues to make payments on the debt incurred by the Company to acquire that business opportunity, the lender would be able to exercise the remedies provided by law or by contract. These leveraging techniques,
while reducing the amount of funds that the Company must commit to acquiring a business opportunity, may correspondingly increase the risk of loss to the Company. No assurance can be given as to the terms or the availability of financing for any acquisition by the Company. During periods when interest rates are relatively high, the benefits of leveraging are not as great as during periods of lower interest rates because the investment in the business opportunity held on a leveraged basis will only be profitable if it generates sufficient revenues to cover the related debt and other costs of the financing. Lenders from which the Company may obtain funds for purposes of a leveraged buy-out may impose restrictions on the future borrowing, distribution, and operating policies of the Company. It is not possible at this time to predict the restrictions, if any, which lenders may impose or the
impact thereof on the Company.




11





Results of Operations





Years Ended June 30, 2010 and 2009





As of June 30, 2010, we had $763 in cash, and have experienced losses since inception. We did not generate any revenues from operations during the years ended June 30, 2010 and 2009. Total operating costs and expenses during the year ended June 30, 2010 were $19,120 for a net loss of $168,133 compared to total operating costs and expenses of $48,250 for net income of $202,762 for the year ended June 30, 2009. The operating expenses of $19,120 consisted of officer's salary ($11,500) and general and administrative expenses ($7,620). We have incurred a cumulative net loss of $1,683,227 for the period December 15, 2005 (inception) to June 30, 2010.




Liquidity and Capital Resources




Our balance sheet as of June 30, 2010 reflects that the Company has $763 in assets. In addition, the Company had a working capital deficiency of $1,399,902 and total stockholders’ deficiency of $1,444,044 at June 30, 2010.  As of June 30, 2010, we had convertible debentures outstanding consisting of $515,466 in principal, accrued interest in the amount of $264,980, accrued liquidated damages of $106,667 and accrued interest on liquidated damages of $69,250.As of June 30, 2010, we have notes payable in the principal amount of $243,994 and $121,814 of accrued interest.




The focus of Aprecia's efforts is to acquire or develop an operating business.  Despite no active operations at this time, management intends to continue in business and has no intention to liquidate the Company.  We have considered various business alternatives including the possible acquisition of an existing business, but to date has found possible opportunities unsuitable or excessively priced. We does not contemplate limiting the scope of its search to any particular industry. Management has considered the risk of possible opportunities as well as their potential rewards.  Management has invested time evaluating several proposals for possible acquisition or combination;
however, none of these opportunities were pursued.  Watchtower’s significant expected expenses are comprised primarily of professional fees incident to its reporting requirements.





The accompanying financial statements have been prepared assuming Aprecia will continue as a going concern.  Aprecia’s recurring losses from operations, stockholders' deficiency and working capital deficiency, and lack of revenue generating operations, raise substantial doubt about the Company’s ability to continue as a going concern.





Management believes Aprecia will continue to incur losses and negative cash flows from operating activities for the foreseeable future and will need additional equity or debt financing to sustain its operations until it can achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for Aprecia, but cannot assure that such financing will be available on acceptable terms.





The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.  There can be no assurance that management will be successful in implementing its business plan or that the successful implementation of such business plan will actually improve the Company’s operating results.




12





Going Concern Consideration





We have incurred a cumulative net loss of $1,683,227 for the period December 15, 2005 (inception) to June 30, 2010. In addition, the Company had a working capital deficiency of $1,399,902 and total stockholders’ deficiency of $1,444,044 at June 30, 2010.




These factors raise substantial doubt about the Company’s ability to continue as a going concern.




The financial statements contained herein for the period ending June 30, 2010, have been prepared on a “going concern” basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. For the reasons discussed herein and in the footnotes to our financial statements included herein, there is a significant risk that we will be unable to continue as a going concern. Our audited financial statements included in this Annual Report for the year ended June 30, 2010, contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.




Off-Balance Sheet Arrangements





We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, results of operations or liquidity.




Need For Additional Financing





The Company believes that its existing capital is not sufficient to meet the Company’s cash needs required for the costs of compliance with the reporting requirements of the Securities Exchange Act of 1934, as amended, and for the costs of accomplishing its goal of completing a business combination.


The Company believes that it will need approximately $40,000 to fund its expenses over the next twelve months. There can be no assurance that additional capital will be available to the Company. We currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.  Since the Company has no such arrangements or plans currently in effect, its inability to raise funds for the above purposes will have a severe negative impact on its ability to remain a viable company.




Critical Accounting Estimates





The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America (“GAAP”) requires our Management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Estimates and judgments are based on historical experience, forecasted future events and various other assumptions that the Company believes to be reasonable under the circumstances. Estimates and judgments may vary under different assumptions or conditions. We evaluate our estimates and judgments on an ongoing basis. Management believes the accounting policies below are critical
in the portrayal of our financial condition and results of operations and require management’s most difficult, subjective or complex judgments.




13





Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services





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





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





The fair value of share options and similar instruments is estimated on the date of grant using the Cox, Ross & Rubenstein Binomial Lattice Model or Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:





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





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





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





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




14




Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of
paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the
measurement date for transactions that are within the scope of this Subtopic.





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





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





Income Taxes





The Company is required to estimate its provision for income taxes and amounts ultimately payable or recoverable in numerous tax jurisdictions around the world. Estimates involve interpretations of regulations and are inherently complex. Resolution of income tax treatments in individual jurisdictions may not be known for many years after completion of any fiscal year. The Company is also required to evaluate the realizability of its deferred tax assets on an ongoing basis in accordance with GAAP, which requires the assessment of the Company’s performance and other relevant factors when determining the need for a valuation allowance with respect to these deferred tax assets. Realization of deferred tax
assets is dependent on the Company’s ability to generate future taxable income.





Recent Accounting Pronouncements





FASB Accounting Standards Update No. 2011-05





In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “Comprehensive Income” (“ASU 2011-05”), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income,by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive
statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.





The amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim periods within those years, beginning after December 15, 2011.




15





FASB Accounting Standards Update No. 2011-08





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





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





FASB Accounting Standards Update No. 2011-10





In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10 “Property, Plant and Equipment: Derecognition of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”).This Update is to resolve the diversity in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result of default on nonrecourse debt of the subsidiaries.





The amended guidance is effective for annual reporting periods ending after June 15, 2012 for public entities. Early adoption is permitted.





FASB Accounting Standards Update No. 2011-11





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





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





FASB Accounting Standards Update No. 2011-12





In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12“Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”).This Update is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the
time required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05.





All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011.





Other Recently Issued, but not yet Effective Accounting Pronouncements





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





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


Smaller reporting companies are not required to provide the information required by this item.




16





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


Aprecia, Inc.




June 30, 2010 and 2009




Index to the Financial Statements








Contents

Page(s)Report of Independent Registered Public Accounting Firm


F-2Balance Sheets at June 30, 2010 and 2009


F-3Statements of Operations for the Fiscal Year Ended June 30, 2010 and 2009


F-4Statement of Stockholders’ Deficit for Fiscal Year Ended June 30, 2010 and 2009


F-5Statements of Cash Flows for the Fiscal Year Ended June 30, 2010 and 2009


F-6Notes to the Financial Statements


F-7
  F-1




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the Board of Directors and Stockholders of


Aprecia, Inc.


Monsey, New York





We have audited the accompanying balance sheets of Aprecia, Inc., (the “Company”) as of June 30, 2010 and 2009 and the related statements of operations, stockholders’ deficit and cash flows for the fiscal years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of June 30, 2010 and 2009 and the results of its operations and its cash flows for the fiscal years then ended in conformity with accounting principles generally accepted in the United States of America.







/s/Li & Company, PC


Li & Company, PC





Skillman, New Jersey


August 13, 2012




F-2




Aprecia, Inc.Balance Sheets June 30, 2010


June 30, 2009ASSETSCURRENT ASSETS:Cash

$
763


$
17,383Total Current Assets


763



17,383Total Assets

$
763


$
17,383LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIES:Accrued expenses

$
5,950


$
18,450Accrued interest


464,588



306,071Accrued liquidated damages


106,667



106,667Convertible debentures


515,466



515,466Loans payable - stockholder


64,000



64,000Notes payable


243,994



228,994Total Current Liabilities


1,400,665



1,239,648DERIVATIVE WARRANT LIABILITY


44,142



53,646Total Liabilities


1,444,807



1,293,294STOCKHOLDERS' DEFICIT:Preferred stock: $0.0001 par value; 10,000,000 shares authorized;none issued or outstanding


-



-Common stock: $0.0001 par value; 250,000,000 shares authorized;16,761,597 shares issued and outstanding


1,676



1,676Additional paid-in capital


237,507



237,507Accumulated deficit


(1,683,227
)


(1,515,094
)Total Stockholders' Deficit


(1,444,044
)


(1,275,911
)Total Liabilities and Stockholders' Deficit

$
763


$
17,383
 
 See accompanying notes to the financial statements.
  F-3
  Aprecia, Inc.Statements of Operations For the Fiscal Year


For the Fiscal YearEnded


EndedJune 30, 2010


June 30, 2009NET REVENUES

$
-


$
-OPERATING EXPENSES:Salaries and wages - Officer


11,500



-General and administrative expenses


7,620



48,520Total operating expenses


19,120



48,520Loss from Operations


(19,120
)


(48,520
)Other (Income) Expense:Change in the fair value of derivative liability


(9,504
)


759Interest expense


158,517



153,483Total other (income) expense


149,013



154,242Loss before Income Tax Provision


(168,133
)


(202,762
)Income Tax Provision


-



-NET LOSS

$
(168,133
)

$
(202,762
)NET LOSS PER COMMON SHARE:- BASIC AND DILUTED

$
(0.01
)

$
(0.01
)Weighted average common shares outstanding:- basic and diluted


16,761,597



16,761,597
 
 See accompanying notes to the financial statements.
  F-4
  Aprecia, Inc.Statement of Stockholders' DeficitFor the Fiscal Year Ended June 30, 2010 and 2009 Common Stock, $0.0001 Par Value


Additional





TotalNumber of





Paid-in


Accumulated


Stockholders'Shares


Amount


Capital


Deficit


DeficitBalance, June 30, 2008


16,761,597


$
1,676


$
290,394


$
(1,312,332
)

$
(1,020,262
)Reclassification of additional paid-in capital to derivativewarrant liability at January 1, 2009 upon adoption ofFASB ASC 815-40-15 (formerly "EITF 07-5")










(52,887
)






(52,887
)Net loss














(202,762
)


(202,762
)Balance, June 30, 2009


16,761,597



1,676



237,507



(1,515,094
)


(1,275,911
)Net loss














(168,133
)


(168,133
)Balance, June 30, 2010


16,761,597


$
1,676


$
237,507


$
(1,683,227
)

$
(1,444,044
)
 
 See accompanying notes to the financial statements.
  F-5
  Aprecia, Inc.Statements of Cash Flows For the Fiscal Year


For the Fiscal YearEnded


EndedJune 30, 2010


June 30, 2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(168,133
)

$
(202,762
)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation


-



954Changes in operating assets and liabilities:Accrued expenses


(12,500
)


16,300Accrued interest


158,517



153,483Derivative warrant liability


(9,504
)


759NET CASH USED IN OPERATING ACTIVITIES


(31,620
)


(31,266
)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of convertible debentures


-



15,466Proceeds from issuance of notes payable


15,000



27,034NET CASH PROVIDED BY FINANCING ACTIVITIES


15,000



42,500NET CHANGE IN CASH


(16,620
)


11,234Cash at beginning of the year


17,383



6,149Cash at end of the year

$
763


$
17,383SUPPLEMENTAL DISCLOSUREOF CASH FLOWS INFORMATION:Interest paid

$
-


$
-Income tax paid

$
-


$
-
 
 See accompanying notes to the financial statements.
  F-6


Aprecia, Inc.


June 30, 2010 and 2009


Notes to the Financial Statements





Note 1 – Organization and Operations





Aprecia, Inc.





Aprecia, Inc. (the “Company”), was incorporated on December 15, 2005 under the laws of the State of Delaware.





The Company originally intended to become a leading edge provider of applied artificial intelligence solutions for thoroughbred and lottery applications through the development of MonitorPlus, an analysis tool designed to help the thoroughbred racing and lottery industry by providing alerts when potential wagering fraud or money laundering is detected. The Company intended to generate revenue through (i) the licensing of our technology to parties engaged in the regulation of the thoroughbred racing industry, and (ii) the licensing of our technology to third parties which were expected to develop and sell specifically tailored software solutions for customers based on its technology. However, the Company was
unable to enter into any meaningful agreement for the sale or license of its technology. The Company had planned to introduce MonitorPlus to the thoroughbred industry as an entry point into the marketplace, and then planned to develop complementary products based on MonitorPlus. However, the Company was unable to do either, and as a result, the Company substantially curtailed its operations.





Following a reassessment of its business goals and objectives, the Company's Board of Directors concluded that shareholder value would be better enhanced by either a sale of the Company or an acquisition of a business enterprise rather than the continuation of its efforts to commercialize the MonitorPlus products. Consequently, in fiscal 2008 its management was authorized to cease the development of its applied artificial intelligence solutions and develop a business strategy to either sell the Company or acquire a business enterprise instead. The Company has not yet been able to consummate either objective.





The Company is currently inactive.





Note 2 – Summary of Significant Accounting Policies





Basis of Presentation





The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).





Use of Estimates and Assumptions





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





The Company’s significant estimates and assumptions include the fair value of financial instruments; expected term of share options and similar instruments, expected volatility of the entity’s common shares and the method used to estimate it, expected annual rate of quarterly dividends, and risk free interest rate(s); income tax rate, income tax provision, deferred tax assets and valuation allowance of deferred tax assets; and the assumption that the Company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are
difficult to measure or value.




F-7





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





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





Actual results could differ from those estimates.





Fair Value of Certain Financial Instruments





The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of certain of its financial instruments and has adopted paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of certain of its financial instruments except for the effects of derivative financial instruments relating to its convertible debt, redeemable Series A convertible preferred stock, and related warrants. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value
measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:





Level 1

Quoted market prices available in active markets for identical assets or liabilities as of the reporting date.Level 2

Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date.Level 3

Pricing inputs that are generally observable inputs and not corroborated by market data.





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





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





The carrying amounts of the Company’s financial assets and liabilities, such as cash, accrued expenses, accrued interest and accrued liquidated damages, approximate their fair values because of the short maturity of these instruments.





The Company’s convertible debentures and notes payable approximate the fair value of such instruments based upon management’s best estimate of interest rates that would be available to the Company for similar financial arrangements at June 30, 2010 and 2009.





The Company’s Level 3 financial liabilities consist of the derivative warrant liability, bifurcated embedded conversion option or other embedded derivative instruments in its notes payable and convertible instruments. There is no current market for these securities such that the determination of fair value requires significant judgment or estimation. The Company revalues its derivative warrant liability or bifurcates the embedded conversion option or other embedded derivative instruments in its notes and convertible instruments at each reporting period and recognizes gains or losses in the statements of operations that are attributable to the change in the fair value of the derivative warrant
liability.




F-8





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





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





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





Level 3 Financial Liabilities – Derivative Warrant Liabilities





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





Fiscal Year End





The Company elected June 30th as its fiscal year end date upon its formation.





Cash Equivalents





The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.





Discount on Debt





The Company allocates the proceeds received from convertible debt instruments between the underlying debt instruments and records the conversion feature as a liability in accordance with subtopic 470-20 of the FASB Accounting Standards Codification (“Subtopic 470-20”). The conversion feature and certain other features would be considered embedded derivative instruments, if it had a conversion reset provision, a penalty provision or a redemption option, and be recorded at their fair value within the terms of Subtopic 470-20 as the fair value can be separated from the convertible note and its conversion is independent of the underlying note value.





Pursuant to ASC Paragraph 470-20-30-27, the carrying amount of the liability component shall be determined for purposes of paragraph 470-20-25-23 by measuring the fair value of a similar liability (including any embedded features other than the conversion option) that does not have an associated equity component, i.e. free standing instruments. Pursuant to ASC Paragraph 470-20-30-28, the carrying amount of the equity component represented by the embedded conversion option shall be determined for purposes of paragraph
470-20-25-23 by deducting the fair value of the liability component from the initial proceeds up to the initial proceeds ascribed to the convertible debt instrument as a whole.





The derivative and conversion liability is marked to market each reporting period with the resulting gains or losses shown on the statements of operations as other income or loss. The Company has also recorded the resulting discount on debt related to the warrants and conversion feature and is amortizing the discount using the effective interest rate method over the life of the debt instruments.




F-9





Derivative Instruments and Hedging Activities





The Company accounts for derivative instruments and hedging activities in accordance with paragraph 810-10-05-4 of the FASB Accounting Standards Codification (“Paragraph 810-10-05-4”). Paragraph 810-10-05-4 requires companies to recognize all derivative instruments as either assets or liabilities in the balance sheet at fair value. The accounting for changes in the fair value of a derivative instrument depends upon: (i) whether the derivative has been designated and qualifies as part of a hedging relationship, and (ii) the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a company must designate the hedging instrument based upon the
exposure being hedged as either a fair value hedge, cash flow hedge or hedge of a net investment in a foreign operation.





Derivative Warrant Liability





The Company evaluates its notes, convertible debt, share options, warrants or other contracts, if any, to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with paragraph 810-10-05-4 and Section 815-40-25 of the FASB Accounting Standards Codification. The result of this accounting treatment is that the fair value of the embedded derivative is marked-to-market each balance sheet date and recorded as either an asset or a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations as other income or expense. Upon conversion, exercise or cancellation
of a derivative instrument, the instrument is marked to fair value at the date of conversion, exercise or cancellation and then that the related fair value is reclassified to equity.





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





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





On January 1, 2009, the date when Section 815-40-15 became effective, the Company adopted Section 815-40-15 of the FASB Accounting Standards Codification (“Section 815-40-15”)to determine whether an instrument (or an embedded feature) is indexed to the Company’s own stock. Section 815-40-15 provides that an entity should use a two-step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument’s contingent exercise and settlement provisions. The adoption of Section 815-40-15 has affected the accounting for certain freestanding
warrants that contain exercise price adjustment features.





The Company marks to market the fair value of the embedded derivative warrants at each balance sheet date and records the change in the fair value of the remaining embedded derivative warrants as other income or expense in the statements of operations.





Commitments and Contingencies





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




F-10





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





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





Revenue Recognition





The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer, (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured. The Company derives its revenues from sales contracts with customers with revenues being generated upon the shipment of goods.





Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services





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





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





The fair value of share options and similar instruments is estimated on the date of grant using the Cox, Ross & Rubenstein Binomial Lattice Model or Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:





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





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




F-11




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





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





Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid
asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is
limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.





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





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





Income Tax Provision





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




F-12





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





Uncertain Tax Positions





The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the fiscal year ended June 30, 2010 or 2009.





Net Income (Loss) per Common Share





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





The following table shows the weighted-average number of potentially outstanding dilutive shares excluded from the diluted net loss per share calculation for the fiscal year ended June 30, 2010 and 2009 as they were anti-dilutive:





Potentially Outstanding Dilutive

Common SharesFor the Fiscal

Year

Ended

June 30, 2010


For the Fiscal

Year

Ended

June 30, 2009Convertible debentures, at 7% interest per annum, convertible at the option of the holder, to the Company’s common stock at $0.12 per common share, issued on March 10, 2006 matured on March 10, 2008, 24 months from the date of the issuance, which is past due.


4,166,667



4,166,667Convertible debentures Allonge No. 1, at 7% interest per annum, convertible at the option of the holder, to the Company’s common stock at $0.12 per common share, issued on December 15, 2008 matured on December 15, 2010, 24 months from the date of the issuance, which is past due.


128,883



128,883Warrants issued in connection with the notes payable issued on May 18, 2007 with an exercise price of $0.18 per common share expiring five (5) years from the date of issuance


500,000



500,000Warrants issued as broker’s fees in connection with notes payable issued on May 18, 2007 with an exercise price of $0.18 per share expiring five (5) years from the date of issuance


83,111



83,111Total potentially outstanding dilutive common shares


4,878,661



4,878,661




F-13




Cash Flows Reporting
 
 The Company adopted paragraph 230-10-45-24 of the FASB Accounting Standards Codification for cash flows reporting, classifies cash receipts and payments according to whether they stem from operating, investing, or financing activities and provides definitions of each category, and uses the indirect or reconciliation method (“Indirect method”) as defined by paragraph 230-10-45-25 of the FASB Accounting Standards Codification to report net cash flow from operating activities by adjusting net income to reconcile it to net cash flow from operating activities by removing the effects of (a) all deferrals of past operating cash receipts and payments and all accruals of expected future operating cash
receipts and payments and (b) all items that are included in net income that do not affect operating cash receipts and payments. The Company reports the reporting currency equivalent of foreign currency cash flows, using the current exchange rate at the time of the cash flows and the effect of exchange rate changes on cash held in foreign currencies is reported as a separate item in the reconciliation of beginning and ending balances of cash and cash equivalents and separately provides information about investing and financing activities not resulting in cash receipts or payments in the period pursuant to paragraph 830-230-45-1 of the FASB Accounting Standards Codification.
 
 Subsequent Events
 
 The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued.
 
 Recently Issued Accounting Pronouncements
 
 FASB Accounting Standards Update No. 2011-05
 
 In June 2011, the FASB issued the FASB Accounting Standards Update No. 2011-05 “Comprehensive Income” (“ASU 2011-05”), which was the result of a joint project with the IASB and amends the guidance in ASC 220, Comprehensive Income,by eliminating the option to present components of other comprehensive income (OCI) in the statement of stockholders’ equity. Instead, the new guidance now gives entities the option to present all non-owner changes in stockholders’ equity either as a single continuous statement of comprehensive income or as two separate but consecutive
statements. Regardless of whether an entity chooses to present comprehensive income in a single continuous statement or in two separate but consecutive statements, the amendments require entities to present all reclassification adjustments from OCI to net income on the face of the statement of comprehensive income.
 
 The amendments in this Update should be applied retrospectively and are effective for public entity for fiscal years, and interim periods within those years, beginning after December 15, 2011.
 
 FASB Accounting Standards Update No. 2011-08
 
 In September 2011, the FASB issued the FASB Accounting Standards Update No. 2011-08 “Intangibles—Goodwill and Other: Testing Goodwill for Impairment” (“ASU 2011-08”).This Update is to simplify how public and nonpublic entities test goodwill for impairment. The amendments permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Under the amendments in this Update, an entity is not required
to calculate the fair value of a reporting unit unless the entity determines that it is more likely than not that its fair value is less than its carrying amount.
 
 The guidance is effective for interim and annual periods beginning on or after December 15, 2011. Early adoption is permitted.
  F-14
  FASB Accounting Standards Update No. 2011-10
 
 In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-10 “Property, Plant and Equipment: Derecognition of in Substance Real Estate-a Scope Clarification” (“ASU 2011-09”).This Update is to resolve the diversity in practice as to how financial statements have been reflecting circumstances when parent company reporting entities cease to have controlling financial interests in subsidiaries that are in substance real estate, where the situation arises as a result of default on nonrecourse debt of the subsidiaries.
 
 The amended guidance is effective for annual reporting periods ending after June 15, 2012 for public entities. Early adoption is permitted.
 
 FASB Accounting Standards Update No. 2011-11
 
 In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS.
 
 The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods.
 
 FASB Accounting Standards Update No. 2011-12
 
 In December 2011, the FASB issued the FASB Accounting Standards Update No. 2011-12“Comprehensive Income: Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05” (“ASU 2011-12”).This Update is a deferral of the effective date pertaining to reclassification adjustments out of accumulated other comprehensive income in ASU 2011-05. FASB is to going to reassess the costs and benefits of those provisions in ASU 2011-05 related to reclassifications out of accumulated other comprehensive income. Due to the time
required to properly make such a reassessment and to evaluate alternative presentation formats, the FASB decided that it is necessary to reinstate the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of Update 2011-05.
 
 All other requirements in Update 2011-05 are not affected by this Update, including the requirement to report comprehensive income either in a single continuous financial statement or in two separate but consecutive financial statements. Public entities should apply these requirements for fiscal years, and interim periods within those years, beginning after December 15, 2011.
 
 Other Recently Issued, but not yet Effective Accounting Pronouncements
 
 Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
  F-15
 
 Note 3 – Financial Condition
 
 The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
 
 As reflected in the accompanying financial statements, the Company had an accumulated deficit at June 30, 2010, a net loss and net cash used in operating activities for the fiscal year then ended, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
 
 While the Company is attempting to commence operations and generate sufficient revenues, the Company’s cash position may not be sufficient enough to support the Company’s daily operations. Management intends to raise additional funds by way of a public or private offering. Management believes that the actions presently being taken to further implement its business plan and generate sufficient revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going
concern is dependent upon the Company’s ability to further implement its business plan and generate sufficient revenues.
 
 The financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
 Note 4 - Convertible Debentures
 
 Principal of Convertible Debentures
 
 On March 10, 2006 the Company entered into four (4) Securities Purchase Agreements (“Securities Purchase Agreements”) maturing 24 months from the date of the issuance, with investors relating to the issuance and sale, in a private placement, exempt from the registration requirements, of the Securities Act of 1933, as amended (the “1933 Act”), of 7% Convertible Debentures in the principal amount of $500,000. The debentures are collateralized by all of the now owned and hereafter acquired rights, title and interest of the Company’s assets and convertible at the option of the holder to the Company’s common stock at $0.12 per common share. Expenses incurred in connection with the
private offering of the debentures were $185,000, which were carried as deferred financing costs and being amortized over the term of the convertible debentures.
 
 Allonge No. 1
 
 On December 15, 2008, the Allonge No. 1 to three (3) of the Convertible Debentures were made by and between the Company and the debenture holders. Except as amended hereby, the terms of the Note remain as originally stated.
  F-16
 
 The Principal Amounts as stated on the face of certain Debentures were increased by $1,547, $6,188 and $7,731, respectively, or $15,466 in aggregate, to $515,466. Interest on the increased portion of the Principal Amounts shall accrue from the date of this Allonge. The amendment to the Principal Amounts due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.
 
 Interest and Late Fees
 
 The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Debenture at the rate of 7% per annum. All overdue accrued and unpaid principal and interest to be paid hereunder shall entail a late fee at the rate of 18% per annum (or such lower maximum amount of interest permitted to be charged under applicable law) (“Late Fees”) which should accrue daily.
 
 Liquidated Damages and Related Interest
 
 Since a registration statement covering the underlying common stock was not filed within 90 days, the Company is required to pay liquidated damages of 2% of the principal amount of $500,000 plus interest at 18% per annum, if the Company fails to pay the liquidated damages within seven (7) days. The Company accrued $106,667 in liquidated damages.
  Summary of Convertible Debentures, Accrued Interest, Liquidated Damages and Related Interest
 
 Convertible debentures, accrued interest, liquidated damages and related interest at June 30, 2010 and 2009 consisted of the following:
 
 June 30, 2010

June 30, 2009Convertible debentures


515,466



515,466Accrued interest


264,980



172,196Accrued liquidated damages


106,667



106,667Accrued interest on liquidated damages


69,250



50,050
 
 Note 5 – Loans Payable - Stockholder
 
 In November 2007 a stockholder loaned the Company $28,000 for working capital purposes. Such loan bears interest at 6% per annum, matured on November 30, 2008 and is now past due.
 
 In February 2008 a stockholder loaned the Company $11,000 for working capital purposes. Such loan bears interest at 6% per annum, matured on February 28, 2009 and is now past due.
 
 In June 2008 a stockholder loaned the Company $25,000. The loan bears interest at 6% per annum, matured on June 30, 2009 and is now past due.
  F-17
 
 Loans payable – stockholder and related interest at June 30, 2010 and 2009 consisted of the following:
 
 June 30, 2010

June 30, 2009Loans payable – Stockholder


64,000



64,000Accrued interest


8,544



4,704
 
 Note 6 – Notes Payable
 
 Notes Payable
 
 Principal, Attached Warrants and Related Offering Costs. On May 18, 2007 the Company sold two (2) $93,500 each, or $187,000, in aggregate, of 7% secured promissory notes (the “Notes”) maturing four (4) months from the date of issuance along with two (2) warrants to purchase 250,000 shares each, or 500,000 shares in aggregate, of common stock at an exercise price of $0.18 per share expiring five (5) years from the date of issuance (the “2007 Warrants”) (collectively, the “Securities” or “2007 Notes Offering”) for an aggregate purchase price of $170,000. The Notes were past due
as of September 18, 2007 and are secured by all of the now owned and hereafter acquired rights, title and interest of the Company’s assets. In connection with the sale of the 2007 Notes Offering, the Company issued as broker’s fees: (i) a warrant to purchase 83,111 shares of common stock at an exercise price of $0.18 per share expiring five (5) years from the date of issuance, valued at $9,641 on the date of grant and (ii) a promissory note in the amount of $14,960. In addition, the Company incurred legal fees of $30,512 in connection with the sale of the 2007 Notes Offering. The aggregate costs of $55,813 were carried as deferred financing costs and amortized over the term of the notes payable of four (4) months.
 
 Interest Rate. Interest payable on this Note shall accrue at a rate per annum (the "Interest Rate") of seven percent (7%). Interest on the Principal Amount shall accrue from the date of this Note and shall be payable, in arrears, together with Principal Amount payments as described below and on the Maturity Date, whether by acceleration or otherwise.
 
 Default Interest.The Company shall have a five (5) business day grace period to pay any monetary amounts due under this Note, after which grace period and during the pendency of an Event of Default (as defined in Article III) a default interest rate of eighteen percent (18%) per annum shall apply to the amounts owed hereunder.
 
 Fair Value of Warrants on the Date of Grant. The Company estimated the fair value of the 2007 warrants, estimated on the date of grant, using the Black-Scholes option-pricing model with the following weighted-average assumptions:
 
 Expected life (year)


5Expected volatility


91.00%Risk-free interest rate


1.55%Expected annual rate of quarterly dividends


0.00%
 
 F-18
 
 The contractual term of the share options or similar instruments is used as the expected term of the share options or similar instruments for the Company as it has no historical data for the instrument holders’ exercise behavior. As a thinly-traded public entity it is not practicable for the Company to estimate the expected volatility of its share price, The Company selected four (4) comparable public companies listed on the NYSE Amex and NASDAQ Capital Market within the software industry which the Company used to calculate the expected volatility. The Company calculated those four (4) comparable companies’ historical volatility over the expected life and averaged them as its expected volatility.
The risk-free interest rate is based on a yield curve of U.S. treasury interest rates on the date of valuation based on the expected term of the share options or similar instruments. Expected annual rate of quarterly dividends is based on the Company’s dividend history and anticipated dividend policy.
 
 The fair value of the 2007 warrants to purchase 500,000 common shares issued to the note holders, estimated on the date of grant, was $43,246, which was originally recorded as a debit to the discount - notes payable and a credit to additional paid-in capital.
 
 Allonge No. 1
 
 On December 15, 2008, the Allonge No. 1 to one of the Notes was made by and between the Company and the note holder. Except as amended hereby, the terms of the Note remain as originally stated.
 
 The Principal Amount as stated on the face of the Note shall be increased by $21,250 to $114,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.
 
 Allonge No. 2
  On December 29, 2008, the Allonge No. 2 to one of the Notes was made by and between the Company and the note holder, however the note holder never transferred the funds to the Company, which invalidated the Allonge No. 2.
 
 Allonge No. 3
 
 On September 23, 2009, the Allonge No. 3 to one of the Notes was made by and between the Company and the note holder. Except as amended hereby, the terms of the Note remain as originally stated.
 
 The Principal Amount as stated on the face of the Note shall be increased by $10,000 to $124,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.
  F-19
  Allonge No. 4
 
 On May 12, 2010, the Allonge No. 4 to one of the Notes was made by and between the Company and the note holder. Except as amended hereby, the terms of the Note remain as originally stated.
 
 The Principal Amount as stated on the face of the Note shall be increased by $5,000 to $129,750. Interest on the increased portion of the Principal Amount shall accrue from the date of this Allonge. The amendment to the Principal Amount due and owing on the Note described herein notwithstanding, Lender does not waive interest that may have accrued at a default rate of interest and liquidated damages, if any, that may have accrued on the Note through the date of this Allonge, which default interest and liquidated damages, if any, remain outstanding and payable.
 
 The notes are currently in default and the Company is accruing interest at the default rate of 18% per annum.
 
 Summary of Notes Payable and Accrued Interest
 
 Notes payable and related interest at June 30, 2010 and 2009 consisted of the following:
 
 June 30,

2010

June 30,

2009Notes payable


243,994



228,994Accrued interest


121,814



79,121
 
 Note 7 – Related Party Transactions
 
 Free Office Space from Majority Stockholder and Chief Executive Officer
 
 The Company has been provided office space by its majority stockholder and Chief Executive Officer at no cost. The management determined that such cost is nominal and did not recognize the rent expense in its financial statements.
 
 Note 8 – Derivative Warrant Liability
 
 The notes payable are hybrid instruments which contain an embedded derivative feature which would individually warrant separate accounting as a derivative instrument under Paragraph 815-10-05-4. The embedded derivative feature includes the warrants attached to the Notes. Pursuant to Paragraph 815-10-05-4, the value of the embedded derivative liability have been bifurcated from the debt host contract and recorded as a derivative liability resulting in a reduction of the initial carrying amount (as unamortized discount) of the notes, which are amortized as debt discount to be presented in other (income) expenses in the statements of operations using the effective interest method over the life of the
notes.
 
 The compound embedded derivatives within the notes have been valued using a layered discounted probability-weighted cash flow approach, recorded at fair value at the date of issuance; and marked-to-market at each reporting period end date with changes in fair value recorded in the Company’s statements of operations as “change in the fair value of derivative instrument”.
  F-20
 
 Warrants Issued on May 18, 2007
 
 Description of Warrants
 
 In connection with the sale of Notes, the Company issued (i) warrants to purchase 500,000 shares of common stock to the Notes holders and (ii) a warrant to purchase 83,111 shares of common stock to the broker, or 583,111 common shares in aggregate (“2007 Warrants”) with an exercise price of $0.18 per share expiring on May 18, 2012, all of which have been earned upon issuance.
 
 Derivative Analysis
 
 The exercise price of the 2007 warrants and the number of shares issuable upon exercise is subject to reset adjustment in the event of stock splits, stock dividends, recapitalization, most favored nation clause and similar corporate events. Pursuant to the most favored nation provision of the 2007 Notes Offering, if the Company issues any common stock or securities other than the excepted issuances, to any person or entity at a purchase or exercise price per share less than the share purchase price of the 2007 warrant exercise price without the consent of the subscriber holding purchased notes, warrants or warrant shares of the 2007 Notes Offering, then the subscriber shall have the right to apply the lowest such
purchase price or exercise price of the offering or sale of such new securities to the purchase price of the purchased shares then held by the subscriber (and, if necessary, the Company will issue additional shares), the reset adjustments are also referred to as full reset adjustments.
 
 Because these warrants have full reset adjustments tied to future issuances of equity securities by the Company, they are subject to derivative liability treatment under Section 815-40-15 of the FASB Accounting Standard Codification (“Section 815-40-15”) (formerly FASB Emerging Issues Task Force (“EITF”) Issue No. 07-5: Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock (“EITF 07-5”)). Section 815-40-15 became effective for the Company on January 1, 2009 and as of that date the Warrants issued in the 2007 Notes Offering have been measured at fair value using a Binomial pricing
model at each reporting period end date with gains and losses from the change in fair value of derivative liabilities recognized on the statements of operations.
 
 Valuation of Derivative Liability
 
 (a)
Valuation Methodology
 
 The Company’s 2007 warrants do not trade in an active securities market, as such, the Company developed a lattice model that values the derivative liability of the warrants based on a probability weighted discounted cash flow model. This model is based on future projections of the various potential outcomes. The features that were analyzed and incorporated into the model included the exercise feature and the full ratchet reset.
 
 Based on these features, there are two primary events that can occur; the Holder exercises the Warrants or the Warrants are held to expiration. The model analyzed the underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, exercise price, volatility, etc.). Projections were then made on these underlying factors which led to a set of potential scenarios. As the result of the large Warrant overhang we accounted for the dilution affects, volatility and market cap to adjust the projections.
  F-21
 
 Probabilities were assigned to each of these scenarios based on management projections. This led to a cash flow projection and a probability associated with that cash flow. A discounted weighted average cash flow over the various scenarios was completed to determine the value of the derivative warrant liability.
 
 (b)
Valuation Assumptions
 
 The Company’s 2007 derivative warrants were valued at each period ending date using the Cox, Ross & Rubenstein Binomial Lattice Model with the following assumptions:
 
 
The underlying stock price was used as the fair value of the common stock on period end date;
 
 
The stock price would fluctuate with the Company’s projected volatility. The projected volatility curve for each valuation period was based on its historical volatility;
 
 
The Holder would exercise the warrant at maturity if the stock price was above the exercise price;
 
 
Reset events projected to occur are based on no future projected capital needs;
 
 
The Holder would exercise the warrant as they become exercisable at target prices of $0.18 per common share for the 2007 Notes Offering, and lowering such target as the warrants approached maturity;
 
 
The probability weighted cash flows are discounted using the risk free interest rates;
 
 
Expected volatility: Due to limited to no trading volume, the Company selected comparables to determine expected volatility. The Company analyzed companies in the comparable industry and selected early staged, similarly capitalized companies. The Company performed an analysis of the comparable companies’ volatility and utilized the average of the comparable companies’ volatility as its expected volatility;
 
 
The risk-free interest rate is based on a yield curve of U.S treasury interest rates on the date of valuation based on the contractual life of the warrants;
 
 
Expected annual rate of quarterly dividends is based on the Company’s dividend history and anticipated. dividend policy.
 
 (c)
Fair Value of Derivative Warrants
 
 The fair value of the 2007 derivative warrants was computed using the Cox, Ross & Rubenstein Binomial Lattice Model with the following assumptions at December 31, 2008, the date when Section 815-40-15 became effective:
 
 December 31, 2008Expected life (year)


3.38Expected volatility


91.00
%Expected annual rate of quarterly dividends


0.00
%Risk-free interest rate


1.55
%
  F-22
  The Company initially classified the warrants to purchase 583,111 shares of its common stock issued in connection with its 2007 Notes Offering as additional paid-in capital upon issuance. Upon the adoption of Section 815-40-15, these warrants are no longer deemed to be indexed to the Company’s own stock and were reclassified from equity to a derivative warrant liability. The difference between the fair value of the 2007 warrants estimated on December 31, 2008 and the relative fair value of the 2007 warrants estimated on the date of grant was immaterial. On January 1, 2009, the Company reclassified $52,887, the amount originally classified as additional paid-in capital upon issuance of the warrants on
May 18, 2007, to the derivative warrant liability.
 
 The fair value of the 2007 derivative warrants was computed using the Cox, Ross & Rubenstein Binomial Lattice Model with the following assumptions June 30, 2010 and 2009:
 
 June 30, 2010


June 30, 2009Expected life (year)


1.88



2.88Expected volatility


92.75
%


97.00
%Expected annual rate of quarterly dividends


0.00
%


0.00
%Risk-free interest rate


0.895
%


2.54
%
 
 The fair value of the embedded derivative warrants is marked-to-market at each balance sheet date after January 1, 2009, the date when Section 815-40-15 became effective, and the change in the fair value of the embedded derivative warrants is recorded in the statements of operations as change in the fair value of derivative liability in other income or expense.
 
 The table below provides a summary of the fair value of the derivative warrant liability and the changes in the fair value of the derivative warrants, including net transfers in and/or out, of derivative warrants measured at fair value on a recurring basis using significant unobservable inputs (level 3) at June 30, 2010 and for the fiscal year then ended:
 
 Fair Value Measurement Using Level 3 InputsDerivative warrants Assets

(Liability)


TotalBalance, December 31, 2008, the date when Section 815-40-15 became effective

$
(52,887
)

$
(52,887
)Total gains or losses (realized/unrealized) included in:Net income (loss)


(759
)


(759
)Other comprehensive income (loss)


-



-Purchases, issuances and settlements


-



-Transfers in and/or out of Level 3


-



-Balance, June 30, 2009


(53,646
)


(53,646
)Total gains or losses (realized/unrealized) included in:Net income (loss)


9,504



9,504Other comprehensive income (loss)


-



-Purchases, issuances and settlements


-



-Transfers in and/or out of Level 3


-



-Balance, June 30, 2010

$
(44,142
)

$
(44,142
)
 
 F-23
 
 Warrants Activities
 
 The table below summarizes the Company’s derivative warrant activity through June 30, 2010:
 
 Derivative Shares


Non-derivative Shares


Total Warrant Shares


Fair Value of Derivative Warrants


APIC

Reclassification of Derivative Liability


(Gain) Loss

Change in Fair Value of Derivative LiabilityDerivative warrants at December 31, 2008


583,111



-



583,111


$
(52,887
)

$
-


$
-Exercise of warrants


(-
)


-



(-
)


-



(-
)


-Exercise of warrants – Cashless


(-
)


-



(-
)


-



(-
)


-Total warrant exercised


(-
)


-



(-
)


-



(-
)


-Extinguishment of warrant liability resulting from waiver of anti-dilution


(-
)


-



(-
)


-



(-
)


-Derivative warrants remaining


583,111



-



583,111



(52,887
)


-



-Mark to market


-



-







(759
)


-



759Derivative warrants at June 30, 2009


583,111



-



583,111



(53,646
)


-



759Exercise of warrants


(-
)


-



(-
)


-



(-
)


-Exercise of warrants – Cashless


(-
)


-



(-
)


-



(-
)


-Total warrant exercised


(-
)


-



(-
)


-



(-
)


-Extinguishment of warrant liability resulting from waiver of anti-dilution


(-
)


-



(-
)


-



(-
)


-Derivative warrants remaining


583,111



-



583,111



(53,646
)


-



-Mark to market


-



-







9,504



-



(9,504
)Derivative warrants at June 30, 2010


583,111



-



583,111



(44,142
)


-



-
 
 The following table summarizes information concerning outstanding and exercisable warrants as of June 30, 2010:
 
 Warrants Outstanding

Warrants ExercisableRange of Exercise Prices

Number Outstanding

Average Remaining Contractual Life (in years)

Weighted Average Exercise Price

Number Exercisable

Average Remaining Contractual Life (in years)

Weighted Average Exercise Price$
0.18


583,111

1.88

$
0.18

583,111

1.88

$
0.18$
0.18


583,111

1.88

$
0.18

583,111

1.88

$
0.18
 
 F-24
 
 Note 9 – Stockholders’ Deficit
 
 Shares Authorized
 
 Upon formation the Company is authorized to issue two classes of stock. One class of stock shall be Common Stock, par value $0.0001, of which the Corporation shall have the authority to issue 250,000,000 shares. The second class of stock shall be Preferred Stock, par value $0.0001, of which the Corporation shall have the authority to issue 10,000,000 shares. The Preferred Stock, or any series thereof, shall have such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions thereof as shall be expressed in the resolution or resolutions providing for the issue of such stock adopted by the board of directors and may be made dependent upon
facts ascertainable outside such resolution or resolutions of the board of directors, provided that the matter in which such facts shall operate upon such designations, preferences, rights and qualifications; limitations or restrictions of such class or series of stock is clearly and expressly set forth in the resolution or resolutions providing for the issuance of such stock by the board of directors.
 
 Common Stock
 
 On December 15, 2005, the Company issued 4,510,000 shares of common stock to the founders at par for cash of $451.
 
 On March 6, 2006, the Company issued 9,700,000 shares of common stock at $0.01 per share for total cash proceeds of $97,000.
 
 On March 10, 2006, the Company issued 2,083,333 shares of common stock at $0.024 per share for total cash proceeds of $50,000.
 
 On October 31, 2006, the Company issued 468,264 shares of common stock at $0.12 per share for total cash proceeds of $56,192.
 
 Note 10 – Income Tax Provision
 
 Deferred Tax Assets
 
 At June 30, 2010, the Company has available for federal income tax purposes net operating loss (“NOL”) carry-forwards of $1,639,085, net of (i) $52,887 of the fair value of derivative warrants included in the debt discounts and deferred financing costs and (ii) ($8,475) of accumulated change in fair value of derivative warrants included in the statements of operations, which may be used to offset future taxable income through the fiscal year ending June 30, 2030. No tax benefit has been reported with respect to these net operating loss carry-forwards in the accompanying financial statements since the Company believes that the realization of its net deferred tax asset of approximately $557,289 was not
considered more likely than not and accordingly, the potential tax benefits of the net loss carry-forwards are fully offset by the full valuation allowance.
 
 Deferred tax assets consist primarily of the tax effect of NOL carry-forwards. The Company has provided a full valuation allowance on the deferred tax assets because of the uncertainty regarding its realizability. The valuation allowance increased approximately $60,139 and $50,957 for fiscal year ended June 30, 2010 and 2009, respectively.
  F-25
 
 Components of deferred tax assets as of June 30, 2010 and 2009 are as follows:
 
 June 30, 2010


June 30, 2009Net deferred tax assets – Non-current:Expected income tax benefit from NOL carry-forwards


557,289



497,150Less valuation allowance


(557,289
)


(497,150
)Deferred tax assets, net of valuation allowance


-


$
-
 
 Limitation on Utilization of NOLs due to Change in Control
 
 The Company had ownership changes as defined by the Internal Revenue Code Section 382 (“Section 382”), which may subject the NOL’s to annual limitations which could reduce or defer the NOL. Section 382 imposes limitations on a corporation’s ability to utilize NOLs if it experiences an “ownership change.” In general terms, an ownership change may result from transactions increasing the ownership of certain stockholders in the stock of a corporation by more than 50 percentage points over a three-year period. In the event of an ownership change, utilization of the NOLs would be subject to an annual limitation under Section 382 determined by multiplying the value of its stock at
the time of the ownership change by the applicable long-term tax-exempt rate. Any unused annual limitation may be carried over to later years. The imposition of this limitation on its ability to use the NOLs to offset future taxable income could cause the Company to pay U.S. federal income taxes earlier than if such limitation were not in effect and could cause such NOLs to expire unused, reducing or eliminating the benefit of such NOLs.
 
 Income Tax Provision in the Statements of Operations
 
 A reconciliation of the federal statutory income tax rate and the effective income tax rate as a percentage of income before income taxes is as follows:
 
 For the Fiscal Year Ended

June 30, 2010


For the Fiscal Year Ended

June 30, 2009Federal statutory income tax rate

34.0
%


34.0
%Change in valuation allowance on net operating loss carry-forwards

(34.0
)


(34.0
)Effective income tax rate

0.0
%


0.0
%
 
 Note 11 – Subsequent Events
 
 The Company has evaluated all events that occurred after the balance sheet date through the date when the financial statements were issued to determine if they must be reported. The Management of the Company determined that there were certain reportable subsequent events to be disclosed as follows:
 
 Issuance of Notes Payable
 
 On October 5, 2010, the Company issued a note payable in amount of $11,500.
  F-26
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
 
 On September 8, 2010, the Company re-engaged Li & Company, PC (“Li & Company”) as its independent registered public accounting firm to audit and review the Company’s financial statements effective immediately. Li & Company previously served as the Company’s Independent Registered Public Accounting Firm from October 13, 2009 through August 24, 2010. This change was made solely in an effort to reduce our overall cost given our limited resources.
 
 ITEM 9A. CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure Controls and Procedures
 
 Regulations under the Securities Exchange Act of 1934 (the “Exchange Act”) require public companies to maintain “disclosure controls and procedures,” which are defined as controls and other procedures that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. 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.
 
 The Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of June 30, 2010, the end of the period covered by this report. Based upon that evaluation, the Company’s CEO concluded that the Company’s disclosure controls and procedures are not effective at the reasonable assurance level due to the material weaknesses described below.
 
 In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
 
 A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following four material weaknesses which have caused management to conclude that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective at the reasonable assurance level:
 
 1.           We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us as of the end of the period covered by this report. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
 
 2.           The Company’s board of directors has no audit committee, independent director or member with financial expertise which causes ineffective oversight of the Company’s external financial reporting and internal control over financial reporting.
 
 3.           We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness.
  17
 
 4.           We have had, and continue to have, a significant number of audit adjustments. Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information. The failure could be due to inadequate design of the internal controls or to a misapplication or override of controls. Management evaluated the impact of our significant number of audit adjustments and has concluded that the control deficiency that resulted represented a material weakness.
 
 To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
 
 Remediation of Material Weaknesses
 
 We intend to remediate the material weaknesses in our disclosure controls and procedures identified above by adding independent director or member with financial expertise or hiring a full-time CFO, with SEC reporting experience, in the future when working capital permits and by working with our independent registered public accounting firm and refining our internal procedures. To date, we have not been successful in reducing the number of audit adjustments, but will continue our efforts in the coming fiscal year as more fully detailed below.
 
 Management’s Report on Internal Control Over Financial Reporting
 
 Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the issuer’s principal executive and principal financial officer and effected by the issuer’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and
procedures that:
 
 ●
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;
 
 ●
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the issuer; and
 
 ●
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer’s assets that could have a material effect on the financial statements.
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be
prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
  18
 
 As of the end of our most recent fiscal year, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, as of the end of the period covered by this report, such internal control over financial reporting was not effective. This was due to deficiencies that existed in the design or operation of our internal control over financial reporting that adversely
affected our internal controls and that may be considered to be material weaknesses.
 
 The matters involving internal control over financial reporting that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives of having segregation of the initiation of transactions, the recording of transactions and the custody of assets; and (3) ineffective controls over period end
financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of the end of the period covered by this report.
 
 To address the material weaknesses set forth in items (2) and (3) discussed above, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
 
 This annual report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only the management's report in this annual report.
 
 Management’s Remediation Initiatives
 
 In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
 
 We will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. First, we will create a position to segregate duties consistent with control objectives of having separate individuals perform (i) the initiation of transactions, (ii) the recording of transactions and (iii) the custody of assets. Second, we will create a senior position to focus on financial reporting and standardizing and documenting our accounting procedures with the goal of increasing the effectiveness of the internal controls in preventing and detecting misstatements of accounting information. Third, we plan to appoint one or more outside directors to our board of
directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
 
 Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
 
 We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2012. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2012.
 
 Changes in internal controls
 
 There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15 (f) under the Exchange Act) during the fourth quarter of our fiscal year 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 ITEM 9B. OTHER INFORMATION
 
 None.
  19
 
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 Directors and Executive Officers
 
 The following person is our sole executive officer and director and holds the offices set forth opposite his name.
 
 Name

Age

PositionIsaac Onn

61

President, Chief Executive Officer, Interim Chief Financial Officer and Director
 
 Directors and Executive Biographies
 
 Isaac Onn. Since 2008, Mr. Onn has served as the CEO, Treasurer and a director of Ness Energy of Israel Inc., a U.S. registered company engaged in oil exploration under licenses given by the Israeli government. Prior to that Mr. Onn was the founder, President and a director of I.P.A-Fuel Services Ltd., a company that traded fuel and fuel residual products. Mr. Onn currently serves on the Board of Directors of: Airtrax Inc. (AITX), Seeworld Inc., Intellect Neurosciences, Inc. (ILNS) and CYBRA Corporation (CYRP). Mr. Onn is a graduate of the Tel Aviv College of Management and received his LLP from the Ono Academic Law School and is a
member of the Israel Bar Association.
 
 Mr. Onn was not affiliated with any company that has filed for bankruptcy within the last ten years. The Company is not aware of any proceedings to which any of the Company’s officers or directors, or any associate of any such officer or director, is a party adverse to the Company or has a material interest adverse to it.
  Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
  Board of Directors
 
 Each director of the Company serves for a term of one year or until the successor is elected at the Company's annual shareholders' meeting and is qualified, subject to removal by the Company's shareholders. Each officer serves, at the pleasure of the board of directors, for a term of one year and until the successor is elected at the annual meeting of the board of directors and is qualified.
  Directors may receive compensation for their services and reimbursement for their expenses as shall be determined from time to time by resolution of the Board. Mr. Isaac Onn, our sole director, currently receives no compensation for his service on our Board.
 
 Section 16(a) Beneficial Ownership Reporting Compliance
 
 Since none of our securities have been registered pursuant to Section 12(b) or 12(g) of the Exchange Act of 1934, our officers and directors and persons who own more than 10% of our common stock are not required to file Section 16(a) beneficial ownership reports.
  20
 
 Code of Ethics
 
 Our Board has not adopted a code of ethics that applies to all of our directors, employees and officers, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
 
 Committees
 
 Since inception, we have never had any audit committee or any other committee of the Board.
 
 ITEM 11. EXECUTIVE COMPENSATION
 
 The following table summarizes the compensation paid to our Chief Executive Officer for services rendered in all capacities to us during the years ended June 30, 2010, 2009 and 2008. There were no other compensated executive officers during the fiscal years ended June 30, 2010, 2009 and 2008.
  Annual Compensation


Long-Term Compensation AwardsName and Principal Position
Year

Salary

($)


Bonus

($)


Restricted

Stock

Awards

($)


Securities

Underlying

Options/SARs

(#)


Non-Equity

Incentive Plan

Compensation


Non-Qualified

Deferred

Compensation

Earnings


All Other

Compensation

($)


Total

Compensation

($)Isaac Onn(1)
2010


11,500



0



0



0



0



0



0



11,5002009


0



0



0



0



0



0



0



0Isidore Sobkowski(2)
2009


0



0



0



0



0



0



0



02008


46,573



0



0



0



0



0



0



0
 
 (1) Mr. Onn was appointed as our President, Chief Executive Officer and Interim Chief Financial Officer and a director on December 15, 2008, after the resignation of Mr. Sobkowski from the same positions on the same day.
 
 (2) Mr. Sobkowski resigned as of December 15, 2008; accordingly, he received no compensation during the 2010 fiscal year.
 
 As of June 30, 2010, we have not entered into any employment agreements with Mr. Onn or any other individual. Mr. Onn received $11,500 in compensation from the Company in exchange for his services; however, he is reimbursed for out of pocket expenses he incurs in providing services to the Company.
  21
 
 Stock Options/SAR Grants. No grants of stock options or stock appreciation rights were made to our officers and directors since our date of incorporation on December 15, 2005.
  Long-Term Incentive Plans. As of June 30, 2010, we had no group life, health, hospitalization, or medical reimbursement or relocation plans in effect. Further, we had no pension plans or plans or agreements which provide compensation on the event of termination of employment or corporate change in control.
  Outstanding Equity Awards at Fiscal Year-End. Since our incorporation on December 15, 2005, no stock options or stock appreciation rights were granted to any of our directors or executive officers.  We have no long-term equity incentive plans.
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  Set forth below is the ownership, as of August 9, 2012, of the number of shares and percentage of our common stock beneficially owned by: (i) each of our directors, (ii) each of our executive officers listed in the above summary compensation table, (iii) all of our directors and executive officers as a group, and (iv) all person or entities known to beneficially own more than 5% of our outstanding common stock.
 
 Title of Class
Name of Beneficial Owner

Amount and Nature of Beneficial Owner


Percent

of ClassCommon Stock
Isaac Onn


0



0.0Common Stock
Isidore Sobkowski


9,700,000



57.9Common Stock
Solomon Lax


2,200,000



13.1Common Stock
Michael Hartstein


960,000



5.7Common Stock
Eroom Systems, Inc.


2,083,333



12.4Common Stock
All executive officers and directors as a group (1)


0



0.0
 
 (1) Unless otherwise indicated, the address of each beneficial owner is c/o Aprecia, Inc., 9 Dolson Rd., Monsey, New York 10952.
 
 (2) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Applicable percentage ownership is based on 16,761,597 shares of common stock outstanding as of August 9, 2012, together with securities exercisable or convertible into shares of common stock within 60 days of August 9, 2012, for each stockholder. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of August 9, 2012, which are deemed to be beneficially owned by the person holding such
securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
  22
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
 Related  Party Transactions
 
 In March 2006, the Company sold 4,510,000 shares of common stock valued at $451 to the founders of the Company.
 
 On March 6, 2006, we entered into the APA with Isidore Sobkowski, our former Chief Executive Officer, Interim Chief Financial Officer and director. Pursuant to the APA, we acquired certain assets from Mr. Sobkowski relating to software based on open source induction technology designed to enable the automatic discovery of patterns and the automatic creation of rules for raw data. In consideration of the purchase and sale of the Assets, we issued to Mr. Sobkowski 9,700,000 shares of our common stock.
 
 On March 6, 2006, Isidore Sobkowski (our former Chief Executive Officer, Interim Chief Financial Officer and director), Solomon Lax (a former director) and a shareholder of our company, which collectively hold approximately 76% of our outstanding shares of common stock, entered into a Shareholder Voting Agreement. Each of the parties agreed to vote their shares for one director proposed by Mr. Sobkowski, one director proposed by Mr. Lax and one director jointly proposed by Mr. Sobkowski and Mr. Lax. Further, each party to the Shareholder Voting Agreement may only sell an amount of shares equal to 1% of the total outstanding per quarter unless the other two parties consent to a sale in excess of 1% of the
total outstanding assuming such sale is legally valid.
 
 In September 2007, the Company agreed to provide Mr. Isidore Sobkowski, our former Chief Executive Officer, Interim Chief Financial Officer and director with a full release from all non-complete and non-solicitation clauses in their agreements, either written and oral, and either explicit and implied, in exchange for full settlement of any outstanding debts owed to Mr. Isidore Sobkowski that are unpaid. Accordingly, $135,000 (the amount of indebtedness) was credited to additional paid-in capital in connection with such release. In addition, the Company granted Mr. Isidore Sobkowski a non-exclusive, worldwide, royalty-free right and license to use the Monitor Plus software source code, and all derivative works
thereof, in return for agreement to render reasonable assistance in the winding down of the Company’s original business plans.
 
 In November 2007 a stockholder loaned the Company $28,000 for working capital purposes. Such loan bears interest at 6% per annum, matured on November 30, 2008 and is now past due.
 
 In February 2008 a stockholder loaned the Company $11,000 for working capital purposes. Such loan bears interest at 6% per annum, matured on February 28, 2009 and is now past due.
 
 In June 2008 a stockholder loaned the Company $25,000. The loan bears interest at 6% per annum, matured on June 30, 2009 and is now past due.
 
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
 
 Audit Fees
 
 Audit fees include fees for audit or review services in accordance with generally accepted auditing standards and fees for services that generally only our auditors provide, such as statutory audits and review of documents filed with the SEC.
  23
 
 The aggregate fees, billed by Li & Company, independent registered public accountant, for auditing services to us during the fiscal year ended June 30, 2009, were $0.
 
 The aggregate fees, billed by Li & Company, independent registered public accountant, for auditing services to us during the fiscal year ended June 30, 2010, were $0.
 
 Audit Related Fees
 
 Audit-related fees include fees for assurance and related services that are traditionally performed by our auditors. These services include due diligence on acquisition targets and consultation in connection with financial and accounting standards.
 
 The aggregate fees, paid to, or accrued for Li & Company, our independent registered public accountant, for audit-related services to us during the fiscal year ended June 30, 2009, were $0.
 
 The aggregate fees, paid to, or accrued for Li & Company, our independent registered public accountant, for audit-related services to us for the fiscal year ended June 30, 2010, were $0.
 
 Tax Fees
 
 Tax fees include fees for services that are performed by professional tax staff other than in connection with the audit. These services include tax compliance services, tax planning and tax advice. The aggregate fees, paid to, or accrued for Li & Company, independent registered public accountant, for tax services to us during the fiscal year ended June 30, 2009, were $0.
 
 Tax fees include fees for services that are performed by professional tax staff other than in connection with the audit. These services include tax compliance services, tax planning and tax advice. The aggregate fees, paid to, or accrued for Li & Company, independent registered public accountant, for tax services to us during the fiscal year ended June 30, 2010, were $0.
 
 All Other Fees
 
 During the fiscal year ended June 30, 2009, the aggregate fees, paid to, or accrued for Albanese, independent registered public accountant, for all other services were $0.
 
 During the fiscal year ended June 30, 2010, the aggregate fees, paid to, or accrued for Li & Company, independent registered public accountant, for all other services were $0.
  24
  PART IV
 
 ITEM 15. EXHIBITS
 
 DESIGNATION OF EXHIBIT AS SET FORTH IN ITEM 601 OF REGULATION

S-K

DESCRIPTION

LOCATION3.1

Articles of Incorporation

Incorporated by Reference to the Registration Statement on Form SB-2 filed on November 13, 2006 (File No. 333-138625).3.2

Bylaws

Incorporated by Reference to the Registration Statement on Form SB-2 filed on November 13, 2006 (File No. 333-138625).4.1

Securities Purchase Agreement dated March 10, 2006 by and between the Company and Alpha Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises Corp., and CMS Capital

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.2

7% Convertible Debenture dated March 10, 2006 issued to Alpha Capital Aktiengesellschaft

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.3

Registration Rights Agreement dated March 10, 2006 by and between the Company and Alpha Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises Corp., and CMS Capital

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.4

Security Agreement dated March 10, 2006 by and between the Company and Alpha Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises Corp., and CMS Capital and Michael Hartstein, as collateral agent

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.5

Collateral Agent Agreement dated March 10, 2006 by and between the Company and Alpha Capital Aktiengesellschaft, Double U Master Fund LP, Tobanna Enterprises Corp., and CMS Capital and Michael Hartstein, as collateral agent

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.6

7% Convertible Debenture dated March 10, 2006

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.7

7% Convertible Debenture dated March 10, 2006

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).4.8

7% Convertible Debenture dated March 10, 2006

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).10.1

Asset Purchase Agreement by and between Isidore Sobkowski and the Company dated March 6, 2006

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).10.2

Voting Agreement by and between Michael Hartstein, Solomon Lax and Isidore Sobkowski

Incorporated by Reference to Amendment No. 1 to the Registration Statement on Form SB-2 filed on December 27, 2006 (File No. 333-138625).
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  10.3

Subscription Agreement by and among the Company, Alpha Capital Anstalt, and Harborview Master Fund L.P.

Incorporated by Reference to the Company’s Current Report of Form 8-K filed on May 30, 2007 (File No. 333-138625).10.4

Form of Warrant issued by the Company to each of Alpha Capital Anstalt, and Harborview Master Fund L.P.

Incorporated by Reference to the Company’s Current Report of Form 8-K filed on May 30, 2007 (File No. 333-138625).10.5

Form of Secured Note issued by the Company to each of Alpha Capital Anstalt and Harborview Master Fund L.P.

Incorporated by Reference to the Company’s Current Report of Form 8-K filed on May 30, 2007 (File No. 333-138625).10.6

Consent Agreement by and among the Company, Alpha Capital Anstalt, and Harborview Master Fund L.P.

Incorporated by Reference to the Company’s Current Report of Form 8-K filed on May 30, 2007 (File No. 333-138625).31.1

Certification of President and Chief Executive Officer (one person) pursuant to Rule 13a-14(a)/15d-14(a) of the Exchange Act

Provided Herewith32.1

Certification of President and Chief Executive Officer (one person) pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Provided Herewith
  26
  SIGNATURES
 
 In accordance with the requirements of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
  Aprecia Inc.Date: August 13, 2012
By:
/s/ Isaac OnnName: Isaac OnnTitle: President, Chief Executive Officer and Interim Chief Financial Officer