UNITED
STATES

SECURITIES
AND EXCHANGE COMMISSION

Washington,
D.C. 20549



Form
10-K



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



For the fiscal year ended: December 31, 2012



OR



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



For the transition period from ________ to ________



Commission File Number: 333-130446



THE
PAWS PET COMPANY, INC.

(Exact Name of Registrant as Specified in Its
Charter)



|Illinois                                                        |  | 20-3191557                             
|--------------------------------------------------------------- |  | ---------------------------------------
|(State or other jurisdiction of 
incorporation or organization) |  | (I. R. S. Employer 
Identification No.)



455 NE 5th Ave, Suite D464, Delray
Beach, FL 33483

(Address of principal
executive offices and zip code)



(561) 274 6805

(Registrant’s
telephone number)



Securities registered under Section 12(b)
of the Exchange Act: None

Securities registered under Section 12(g)
of the Exchange Act: Common Stock



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes [  ] No [X]



Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(b) of the Act. Yes [X] No [  ]



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



Indicate by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of
Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [  ]



Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes [  ] No [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,” an “accelerated filer,” a “non-accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):



[  ] Large
accelerated Filer   [  ] Accelerated filer   [  ] Non-accelerated filer   [X] Smaller
reporting company



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



The aggregate market value of the voting
and non-voting common equity held by non-affiliates of the registrant as of December 31 2012, the last business day of the
registrant’s most recently completed second fiscal quarter, based on the last sales price of the issuer’s common
stock as reported on the OTCQB of the OTC Markets Group’s quotation and trading system was $4,758,046. Shares of common
stock held by each current executive officer and director and by each person who is known by the registrant to own 5% or more
of the outstanding common stock have been excluded from this computation in that such persons may be deemed to be affiliates
of the registrant. This determination of affiliate status is not a conclusive determination for other purposes.



The number of shares outstanding of the registrant’s Common
Stock as of June 13, 2013 was 87,551,473 shares.



DOCUMENTS INCORPORATED BY REFERENCE



NONE.




















The PAWS Pet Company, Inc.



FORM 10-K INDEX



|Item
    # |  | Description                                                                                                    |  | Page
|---------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                                |  |     
|           |  | PART I                                                                                                         |  |     
|           |  |                                                                                                                |  |     
|Item 1.    |  | Business                                                                                                       |  | 3   
|Item 1A.   |  | Risk Factors                                                                                                   |  | 5   
|Item 2.    |  | Properties                                                                                                     |  | 9   
|           |  |                                                                                                                |  |     
|           |  | PART II                                                                                                        |  |     
|           |  |                                                                                                                |  |     
|Item 5.    |  | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities |  | 10  
|Item 7.    |  | Management’s Discussion and Analysis of Financial Condition And Results of Operations                          |  | 12  
|Item 8.    |  | Consolidated financial statements and Supplementary Data                                                       |  | 16  
|Item 9A.   |  | Controls and Procedures                                                                                        |  | 17  
|           |  |                                                                                                                |  |     
|           |  | PART III                                                                                                       |  |     
|           |  |                                                                                                                |  |     
|Item 10.   |  | Directors, Executive Officers, and Corporate Governance                                                        |  | 19  
|Item 11.   |  | Executive
Compensation                                                                                         |  | 21  
|Item 12.   |  | Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                 |  | 21  
|Item 13.   |  | Certain
Relationships and Related Transactions, and Director Independence                                      |  | 22  
|Item 14.   |  | Principal
Accountants Fees and Services                                                                        |  | 23  
|           |  |                                                                                                                |  |     
|           |  | PART IV                                                                                                        |  |     
|           |  |                                                                                                                |  |     
|Item 15.   |  | Exhibits and consolidated financial statements Schedules                                                       |  | 24  
|Signatures |  | 26                                                                                                            



2







CAUTIONARY
STATEMENT ABOUT FORWARD-LOOKING STATEMENTS



This report includes statements that may constitute
“forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical facts, including, without limitation, statements regarding future financial position, business
strategy, budgets, projected sales, projected costs, and management objectives, are forward-looking statements. Terminology such
as “may,” “will,” “expects,” “intends,” “plans,” “projects,”
“estimates,” “anticipates,” or “believes” or the negative thereof, any variation thereon or
similar terminology are intended to identify forward-looking statements.



These forward-looking statements are subject
to risks and uncertainties that could cause actual results to differ materially and adversely from the results proposed in such
statements. Important factors that could cause actual results to differ from our expectations include, but are not limited to:
the costs and availability of financing; our ability to maintain adequate liquidity; our ability to execute our business plan;
our ability to control costs; our ability to attract and retain customers; transportation demand; general economic conditions;
costs of aviation fuel; competitive pricing pressures; governmental regulation; weather conditions; and statements of assumption
underlying any of the foregoing, as well as other factors set forth under “Item 1A. Risk Factors” and “Item
7 — Management’s Discussions and Analysis of Financial Condition and Results of Operation”in this report.



Readers are cautioned not to place undue reliance
on these forward-looking statements which speak only as of the date of this report. All forward-looking statements are qualified
in their entirety by the foregoing cautionary statements. We assume no duty to update or revise our forward-looking statements
based on changes in our expectations or events after the date hereof.



PART I



|ITEM 1. | BUSINESS
|------- | --------



The terms “The PAWS Pet Company.
Inc.,” the “Company,” “management,” “we,” “us,” and “our”
in this Annual Report on Form 10-K to refer collectively to The PAWS Pet Company Inc. and its subsidiary.



Business Summary



The PAWS Pet Company,
Inc. is a development stage company seeking new investment opportunities. On March 9, 2013 The Company
entered into a Securities Exchange Agreement whereby the Company issued 80,000shares of the Company’s Series B Convertible
Preferred Stock to the members of Advanced Access Pharmacy Services,LLC, a Nevada limited liability company (“AAPS”)
in exchange for 100% of the outstanding units of limited liability company membership interests of AAPS.



AAPS
was created to exploit specific niche opportunities in wholesale and retail pharmacies. AAPS intends to focus on workers’
compensation and in-office physician pharmacy distribution as well as the limited purchase and collection of pharmaceutical and
services related receivables. Leveraging decades of experience in pharmacy and medical receivables collections of the people being
hired, the Company believes that it should be able to achieve significant profitability in a very short period with very limited
investment.



Organizational History



We were incorporated in the State of Illinois
on June 6, 2005 as American Antiquities, Inc. (“AAI”). Historically, we purchased antiques and collectible items for
resale, accepted items on consignment, and sold items through various auctions and third party internet websites.



On August 13, 2010, we completed a reverse
acquisition transaction through a share exchange with Pet Airways, Inc. (Florida), which was a successor entity to Panther Air
Cargo, LLC (the “Acquisition”), whereby AAI acquired 100% of the issued and outstanding capital stock of Pet Airways,
Inc. (Florida) in exchange for 25,000,000 shares of our common stock, which constituted approximately 73% of our issued and outstanding
capital stock on a post-acquisition basis as of and immediately after the consummation of the Acquisition.



Panther Air Cargo, LLC was formed as a limited
liability company in the State of Florida in February 2005. From 2005 through 2009, Panther Air Cargo d/b/a Pet Airways evaluated
the market for pet air travel, including reservation systems and processes. It also considered whether it should own its own planes
or contract with third parties. It also evaluated the optimal ways to configure the aircraft for safe pet travel and the initial
markets to commence flight operations in. Pet Airways began flight operations in July 2009 and from the period July 2009 to March
2010 operated a weekly scheduled service. In March 2010 Pet Airways suspended flight operations to upgrade its on-line reservation
system and to raise additional capital. In June 2010 Pet Airways resumed flight operation after we implemented our new reservation
system and raised additional capital by issuing a series of convertible debentures, shares of common stock and warrants. Immediately
prior to the Acquisition Panther Air Cargo, LLC was renamed to Pet Airways, Inc., a Florida corporation. In January of 2012 the
Company decided to cease operations of Pet Airways.



3







As a result of the Acquisition, Pet Airways,
Inc. (Florida) became a wholly-owned subsidiary of ours and the controlling stockholders of Pet Airways, Inc. (Florida) became
our controlling stockholders. Also, upon completion of the Acquisition, we changed our name from AAI to Pet Airways, Inc. and commenced
trading under the symbol “PAWS” on the OTC QB. The OTC QB market tier of the OTC market helps investors identify companies
that are current in their reporting obligations with the Securities and Exchange Commission (the “SEC”). OTC QB securities
are quoted on OTC Markets Group’s quotation and trading system. On July 27, 2011, we filed Articles of Amendment to amend
our Articles of Incorporation to change our name to The PAWS Pet Company, Inc.



The share exchange transaction was treated
as a reverse acquisition, with Pet Airways, Inc. (Florida) as the acquirer and The PAWS Pet Company, Inc. as the acquired party.
Unless the context suggests otherwise, when we refer in this report to business and financial information for periods prior to
the consummation of the reverse acquisition, we are referring to the business and financial information of Pet Airways, Inc. and
its predecessors. For accounting purposes, the acquisition of Pet Airways, Inc. has been treated as a recapitalization with no
adjustment to the historical book and tax basis of the companies’ assets and liabilities.



Upon the closing of the Acquisition on August
13, 2010, Joseph A. Merkel, our former Chief Executive Officer, President and director and Kevin T. Quinlan, our former Chief Financial
Officer, Controller and director, resigned. On the same day, our board of directors approved an increase in the size of our board
to three board members and appointed Dan Wiesel, Alysa Binder and Andrew Warner to our board of directors at the effective time
of the resignation of Messrs. Merkel and Quinlan, to fill the vacancies created by their resignation. In addition, our board of
directors appointed Mr. Wiesel as our Chief Executive Officer and Ms. Binder as our Executive Vice President effective immediately
at the closing of the Acquisition.



On February 23, 2012, pursuant to a share exchange
agreement (“the Agreement”) the Company acquired the 100% of the issued and outstanding capital stock of Impact Social
Networking, Inc. (“ISN”), a Georgia corporation in exchange for 7,394,056 shares of the Company’s common stock,
no par value per share valued at $1,035,168 on the date of the acquisition. ISN owns a number of technology assets that had not
reached technical feasibility at the time of the acquisition. With the exception of these technology assets ISN had no other assets
or liabilities at the time of the acquisition, and had except for the development costs incurred for these assets, had no other
costs and no revenue. Following, the acquisition, the Company commenced a new strategy of developing technologies for pet owners
and pet caregivers. In September we closed our social media application and are currently evaluating alternative business strategies.



On July 13, 2012 the company increased its
authorized share capital of common stock to 350,000,000.



On March 9, 2013, we entered into the agreement
for the acquisition of AAPS, as described above.



Employees



As of December 31, 2012, we had 2 fulltime
employees. We are not a party to any collective bargaining agreements and we believe that our relationship with our employees is
good.



Legal Proceedings



From time to time, we are involved in legal
proceedings, claims, and litigation that occur in connection with our business. We routinely assess our liabilities and contingencies
in connection with these matters based upon the latest available information and, when necessary, we seek input from our third-party
advisors when making these assessments. Consistent with SEC rules and requirements, we describe below material pending legal proceedings
(other than ordinary routine litigation incidental to our business), material proceedings known to be contemplated by governmental
authorities, other proceedings arising under federal, state, or local environmental laws and regulations (including governmental
proceedings involving potential fines, penalties, or other monetary sanctions in excess of $10,000) and such other pending matters
that we may determine to be appropriate.



On March 4, 2013, a judgment was entered against
us in District Court of Douglas County, Nebraska by Suburban Air Freight in the sum of $87,491 for services rendered, including
statutory interest and attorneys’ fees. Other than the foregoing, there were no claims, actions, or lawsuits which to our
knowledge are pending or threatened that could reasonably be expected to have a material effect on the results of our operations.



4









|ITEM 1A. | RISK
FACTORS
|-------- | ------------



CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS



An investment in our common stock involves
a high degree of risk. You should carefully consider the following risk factors in addition to other information in this Annual
Report on Form 10-K before purchasing our common stock. The risks and uncertainties described below are those that we currently
deem to be material and that we believe are specific to our Company and our industry. In addition to these risks, our business
may be subject to risks currently unknown to us. If any of these or other risks actually occurs, our business may be adversely
affected, the trading price of our common stock may decline and you may lose all or part of your investment.



RISKS RELATED TO OUR BUSINESS



We have experienced a history of losses
and have yet to begin generating positive cash flows from operations and, as a result, our auditors have raised substantial doubt
about our ability to continue as a going concern.



We do not currently
have sufficient cash on hand to meet our financing needs. As at December 31, 2012, we had approximately $82,000 of cash on hand.
Our current monthly cash burn rate is negligible. We owe substantial amounts in accounts payable and debt which we are not able
to pay. The report of our independent registered accountants issued in connection with the audit of our consolidated financial
statements as of and for our year ended December 31, 2012 contained a qualification raising a substantial doubt about our ability
to continue as a going concern. Our quarterly and annual consolidated financial statements do not include any adjustments that
may result from the outcome of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or all
of their investment in us.



We are a development stage company and anticipate losses and
negative cash flow.



We are a development stage company and have
no operating history upon which prospective investors may base an evaluation as to our likely performance. We are subject to all
the substantial risks inherent in a development stage business enterprise. No assurances can be given that our company will be
successful, profitable or that we will ever become profitable. In addition, if we ever do become profitable there can be no assurance
that we will remain profitable. Before purchasing our common stock, investors should consider an investment in our common stock
in light of the risks, uncertainties and difficulties frequently encountered by development stage companies in new and rapidly
evolving markets, including those described herein. We may not be able to successfully address any or all of these risks. Failure
to adequately address such risks could cause our business to fail which may result in our liquidation.



We have entered into a security exchange agreement with AAPS.



We have entered into a security exchange agreement
with AAPS that is contingent upon the Company to file certain delinquent periodic reports with the Securities and Exchange Commission,
(the “SEC”). No assurances can be given that even though we hereby are filing our Form 10-K for the year ended December
31, 2012 that the prior owners of AAPS will go forward with the transactions as the filing of this report was not done within the
time limit required.



We are entering into new operations without any prior experience.



AAPS was created to
exploit specific niche opportunities in wholesale and retail pharmacies. AAPS intends to focus on workers’ compensation and
in-office physician pharmacy distribution as well as the limited purchase and collection of pharmaceutical and services related
receivables. We intend to hire people with decades of experience in pharmacy and medical receivables collections. However, there
are no assurances that the Company will be successful in hiring these individuals.



We may have difficulty managing our growth.



We anticipate that we will grow rapidly in
the near future. Our ability to manage growth effectively will depend on our ability to improve and expand our operations, including
our financial and management information systems, and to recruit, train and manage additional marketing, operations and administrative
personnel. Our management may not be able to manage growth effectively, or may be unable to recruit and retain personnel needed
to meet our needs. If we are unable to manage growth or hire necessary personnel, our business could be materially harmed.



Reliance on Key Personnel.



We are dependent on the expertise, experience
and continued services of Daniel Wiesel, our Chairman and Chief Executive Officer, and Alysa Binder, our Executive Vice-President
and Chief Development Officer. The loss of Mr. Wiesel or Ms. Binder could harm our competitive position and financial performance.
Our future success depends, to a significant extent, on the continued services of Mr. Wiesel and Ms. Binder.



5







We do not carry business interruption
or other insurance, so we have to bear losses ourselves.



We are subject to risk inherent to our business,
including equipment failure, theft, natural disasters, industrial accidents, labor disturbances, business interruptions, property
damage, product liability, personal injury and death. We do not carry any business interruption insurance or third-party liability
insurance or other insurance to cover risks associated with our business. As a result, if we suffer losses, damages or liabilities,
including those caused by natural disasters or other events beyond our control and we are unable to make a claim again a third
party, we will be required to bear all such losses from our own funds, which could have a material adverse effect on our business,
financial condition and results of operations.



Our quarterly operating results are likely
to fluctuate, which may affect our stock price.



Our quarterly revenues, expenses, operating
results and gross profit margins will vary from quarter to quarter, and may vary significantly. As a result, our operating results
may fall below the expectations of third parties including securities analysts and investors, in some quarters, which could result
in a decrease in the market price of our common shares. Period-to-period comparisons of our operating results should not be relied
on as indications of future performance.



RISKS RELATED TO FINANCING OUR OPERATIONS



Without obtaining adequate capital funding,
we may not be able to continue as a going concern.



The reports of our independent registered public
accounting firms for the years ended December 31, 2012 and 2011 contained an explanatory paragraph to reflect its significant doubt
about our ability to continue as a going concern as a result of our history of losses and our liquidity position. If we are unable
to obtain adequate capital funding in the future, we may not be able to continue as a going concern, which would have an adverse
effect on our business and operations, and the value of your investment in us may materially decline. Our financial statements
have been prepared in accordance with accounting principles generally accepted in the United States, which contemplate that we
will continue to operate as a going concern. Our financial statements do not contain any adjustments that might result if we are
unable to continue as a going concern. Substantial doubt about our ability to continue as a going concern may have created, or
may create, negative reactions to the price of the common shares of our stock and we may have a more difficult time obtaining financing.



We have historically incurred losses
and we expect these losses will continue in the future.



For the years ended December 31, 2012 and
2011, the Company incurred net losses of $(1,218,814) and $(7,513,562), respectively, of which $(879,244) and $(7,513,562),
in losses was derived from continuing operations respectively, and $(339,570) and $0, related to losses from discontinued
operations, respectively, for the years ended December 31, 2012 and 2011. As of December 31, 2012 the Company had an
accumulated deficit of $(14,797,384) of which $(13,918,140) pertained to continuing operations and $(879,244) related to
discontinued operations; compared to a deficit of $($13,578,570) from continuing operations, and no discontinued operations
for the year ended December 31, 2011. Future losses are likely to occur. Accordingly, we may experience significant liquidity
and cash flow problems and additional operating losses if we are not able to raise additional capital as needed and on
acceptable terms and, in such event, our operations may be reduced or curtailed.



If we are unable to raise additional capital to finance operations,
our business operations will be curtailed.



Our operations have relied almost entirely
on funding from a combination of borrowings from and sales of common and warrants to third parties. We will need to raise additional
capital to fund our anticipated operating expenses and future expansion. Among other things, financing will be required to cover
our operating and capital costs. The sale of our stock to raise capital may cause dilution to our existing stockholders. Our inability
to obtain adequate financing, whether from current investors or from other third parties, would likely result in the need to reduce
or curtail business operations. Any of these events would be materially harmful to our business and may result in a loss of your
investment.



The issuance of shares upon conversion
of convertible debentures, exercise of outstanding warrants and in lieu of payments of interest on convertible debentures may cause
immediate and substantial dilution to our existing stockholders.



If the price per share of our common stock
at the time of conversion of our debentures, exercise of any warrants or issuance of shares in lieu of payments of interest on
our convertible debentures is in excess of the conversion or exercise prices of these securities, the conversion or exercise of
these securities would have a dilutive effect on our common stock. As of December 31, 2012, an aggregate of 124 million shares
of our common stock are issuable upon conversion and/or exercise of outstanding convertible debentures.



6







Following the conversion of our outstanding
convertible debentures and exercise of outstanding warrants, our issued and outstanding common stock would increase to 211 million
shares, which represents an increase of approximately 144% over our current issued and outstanding shares of 86,509,928.



We are not permitted to include any securities other than
those issued or issuable to the selling security holders until such time as all of the securities issued or issuable to the selling security holder are covered by one or more effective registration statements. This may significantly limit our ability to raise
capital through future equity offerings.



The registration rights agreement prohibits
us from including any securities other than those issued or issuable to the selling security holders on any registration statement
without the prior written consent of the selling security holder until such time as all of the securities issued or issuable to
the selling security holder are covered by one or more effective registration statements. Pursuant to the terms of the registration
rights agreement, we are required to file three registration statements on behalf of the selling security holders. Once the registration
statement, of which this prospectus forms a part, has been utilized for the disposition of 80% of the securities covered thereby,
we are required to prepare and file a registration statement covering the sale of an additional 7,000,000 shares on behalf of the
selling security holders. Once that registration statement has been utilized for the disposition of 80% of the securities covered
by such registration statement, we are required to prepare and file a registration statement covering the remaining shares then
held or issuable to the selling security holder. This may significantly limit our ability to raise capital through future equity
financings as we will not be able to offer registration rights to other potential investors until we have satisfied our obligations
under the registration rights agreement or unless the selling security holder waives its rights under the registration rights agreement.



Public company compliance may make it more difficult to attract
and retain officers and directors.



The Sarbanes-Oxley Act and rules implemented
by the Securities and Exchange Commission have required changes in corporate governance practices of public companies. As a public
company, we expect these rules and regulations to increase our compliance costs in 2013 and beyond and to make certain activities
more time consuming and costly. As a public company, we also expect that these rules and regulations may make it more difficult
and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits
and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult
for us to attract and retain qualified persons to serve on our board of directors or as executive officers, and to maintain insurance
at reasonable rates, or at all.



RISKS RELATED TO THE MARKET FOR OUR COMMON
STOCK GENERALLY



In connection with the securities exchange
transaction with AAPS, the prior controlling shareholders of AAPS will have control of 80% of the outstanding shares if they convert
their Series B convertible shares.



Rubicon Peak Capital LLC is the owner of 80,000
Series B convertible shares as of March 9, 2013. As a result, it possesses the capability to convert its convertible shares to
the number of shares that represent 80% of the total number of outstanding shares at the time of conversion. They will then have
significant influence, giving them the ability, among other things, to elect members of our board of directors and to authorize
or prevent proposed significant corporate transactions. Their ownership and control may also have the effect of delaying or preventing
a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential
acquirer from making a tender offer. The interests of these three stockholders may not always coincide with the interests of other
stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders,
which may affect the market price for our securities.



Our common stock is quoted on the OTC
QB, which may have an unfavorable impact on our stock price and liquidity.



Our common stock is currently quoted on the
OTC QB. The OTC QB market tier helps investors identify companies that are current in their reporting obligations with the Securities
and Exchange Commission (the “SEC”). OTC QB securities are quoted on OTC Markets Group’s quotation and trading
system. The OTC QB is a significantly more limited market than established trading markets such as the New York Stock Exchange
or NASDAQ. The quotation of our shares on the OTC QB may result in a less liquid market available for existing and potential stockholders
to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact
on our ability to raise capital in the future. We plan to list our common stock with NASDAQ or New York Stock Exchange or other
exchanges as soon as practicable. However, we cannot assure you that we will be able to meet the initial listing standards of any
stock exchange, or that we will be able to maintain any such listing.



7







We are subject to penny stock regulations
and restrictions and you may have difficulty selling shares of our common stock.



The SEC has adopted regulations which generally
define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exemptions. Our common stock is considered to be a “penny stock”
and is subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule. This rule imposes additional sales practice requirements
on broker-dealers that sell such securities to persons other than established customers and “accredited investors”,
as such term is defined in the Securities Act. For transactions covered by Penny Stock Rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to
sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers
to sell any of our securities in the secondary market, thus possibly making it more difficult for us to raise additional capital.



For any transaction involving a penny stock,
unless exempt, the rules require delivery, prior to any transaction in penny stock, of a disclosure schedule required by the SEC
relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer
and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent
disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.



There can be no assurance that our common stock
will qualify for exemption from the Penny Stock Rule within the foreseeable future, if ever. In any event, even if our common stock
were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction
would be in the public interest.



Our Series A Preferred Stock has a liquidation
preference of $10,000 per share of Series A Preferred Stock, plus any accrued but unpaid dividends with respect to such shares
of Series A Preferred Stock.



Upon any liquidation, dissolution or winding
up of our Company after payment or provision for payment of our debts and other liabilities and any liquidation preferences of
senior securities, before any distribution or payment may be made to the holders of any junior securities, including our common
stock, the holders of our Series A Preferred Stock shall be entitled to a liquidation preference in the amount of $10,000 per share
of Series A Preferred Stock plus any accrued but unpaid dividends. Dividends on our Series A Preferred Stock accrue at a rate of
10% per annum from the date of issuance and are payable upon redemption of the Series A Preferred Stock. If we were liquidated,
the ability of our common stockholders to receive any distribution of payment would be significantly limited if there were then
a significant amount of shares of Series A Preferred Stock outstanding.



We have never paid dividends on our common
stock and we do not anticipate paying dividends in the foreseeable future.



We have never paid cash dividends on our common
stock. So long as any shares of our Series A Preferred Stock are outstanding, no dividends or other distributions may be paid,
declared or set apart with respect to any junior securities, including our common stock, other than dividends or other distributions
payable on our common stock solely in the form of additional shares of common stock. Accordingly, investors must be prepared to
rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking
cash dividends should not purchase our common stock.



There is currently a very limited trading
market for our common stock and we cannot ensure that one will ever develop or be sustained.



Our shares of common stock are very thinly
traded, only a small percentage of our common stock is available to be traded and is held by a small number of holders and the
price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market
for our shares of common stock either now or in the future. The market liquidity will be dependent on the perception of our operating
business, among other things. We may, in the future, take certain steps, including utilizing investor awareness campaigns, press
releases, road shows and conferences to increase awareness of our business and any steps that we might take to bring us to the
awareness of investors may require we compensate consultants with cash and/or stock. There can be no assurance that there will
be any awareness generated or the results of any efforts will result in any impact on our trading volume. Consequently, investors
may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business and trading may
be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares.
If a market should develop, the price may be highly volatile. Because there may be a low price for our shares of common stock,
many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit
in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination
of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many
lending institutions will not permit the use of low priced shares of common stock as collateral for any loans.



8







Our controlling stockholders hold a significant
percentage of our outstanding voting securities, which could hinder our ability to engage in significant corporate transactions
without their approval.



Mr. Dan Wiesel, Ms. Alysa Binder and Daniel
Zagorin are the beneficial owners of approximately 52.4% of our outstanding voting securities as of December 31, 2012. As a result,
they possess significant influence, giving them the ability, among other things, to elect members of our board of directors and
to authorize or prevent proposed significant corporate transactions. Their ownership and control may also have the effect of delaying
or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage
a potential acquirer from making a tender offer. The interests of these three stockholders may not always coincide with the interests
of other stockholders, and they may act in a manner that advances their best interests and not necessarily those of other stockholders,
which may affect the market price for our securities.



|ITEM 2. | DESCRIPTION
OF PROPERTY
|------- | -----------------------



We lease office space in Delray Beach,Florida.
The Florida office, which is our corporate headquarters, is used for corporate administrative functions. The office is owned by
our CEO, Mr. Dan Wiesel, and we lease it free of charge on a month-to-month basis.



9







PART II



| |  | 
| |  | 

|ITEM 5. | MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------- | ------------------------------------------------------------------------------------------------------------



Our stock is currently listed on the OTCQB
for trading. Our stock trades now under the symbol “PAWS” and previously traded under AAQS. The following table sets
forth, for the calendar quarters indicated, the high and low bid prices of our common stock. These quotations reflect inter-dealer
prices, without mark-up, mark-down or commission, and may not represent actual transactions.



Year Ending December 31, 2012



|                                     |  | High |      |  | Low |  
|------------------------------------ |  | ---- | ---- |  | --- | -
|1st Quarter Ended March 31, 2012     |  | $    | 0.17 |  |     | $
|2nd Quarter Ended June 30, 2012      |  | $    | 0.14 |  |     | $
|3rd Quarter Ended September 30, 2012 |  | $    | 0.10 |  |     | $
|4th Quarter Ended December 31, 2012  |  | $    | 0.01 |  |     | $



Year Ended December 31, 2011



|                                     |  | High |      |  | Low |  
|------------------------------------ |  | ---- | ---- |  | --- | -
|1st Quarter Ended March 31, 2011     |  | $    | 1.75 |  |     | $
|2nd Quarter Ended June 30, 2011      |  | $    | 1.12 |  |     | $
|3rd Quarter Ended September 30, 2011 |  | $    | 0.60 |  |     | $
|4th Quarter Ended December 31, 2011  |  | $    | 0.30 |  |     | $



Dividends



We have not paid any dividends on our common
stock and do not anticipate paying any cash dividends in the foreseeable future. We intend to retain any earnings to finance operations
and the growth of the business.



We cannot assure you that we will ever pay
cash dividends. Whether we pay any cash dividends in the future will depend on the financial condition, results of operations and
other factors that the Board of Directors will consider.



Holders



As of June 13, 2013, we had 150 record holders of our common stock.



Securities Authorized for Issuance under
Equity Compensation Plans



The Company has a Stock Incentive Plan (the
“Plan”).Under the Plan, at December 31, 2012 and 2011, the Company had 4,000,000 shares reserved for the issuance of
stock options to employees, officers, directors and outside advisors. Under the Plan, the options may be granted to purchase shares
of the Company’s common equity at fair market value, as determined by the Company’s Board of Directors, at the date
of grant.



|Plan
    Category                                      |  | Number
    of securities to be 
    issued upon exercise of
    outstanding options,
    warrants and rights 
    (a) |         |  | Weighted-average
    exercise
    price of outstanding options,
    warrants and rights 
    (b) |   |      | Number
    of securities
    remaining available for
    future issuance under equity 
    compensation plans
    (excluding securities
    reflected in column(a)) 
    (c) | 
|------------------------------------------------------ |  | --------------------------------------------------------------------------------------------------------------------- | ------- |  | ------------------------------------------------------------------------------------------------ | - | ---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans not approved by shareholders |  |                                                                                                                       | 722,000 |  |                                                                                                  | $ | 0.16 |                                                                                                                                                                              | 



10







Recent Sales of Unregistered Securities



In addition to transactions reported in our periodic filings under
the Securities Exchange Act of 1934:



On January 26, 2012 the Company issued 45,833
shares of common stock valued, using the closing stock price, at $5,500 as compensation for a license fee to non-employees.



On February 23, 2012 pursuant to the share
exchange agreement by which the Company acquired ISN, the Company issued 7,394,056 shares of its common stock, no par value per
share.



On February 26, 2012 the Company issued 45,833
shares of common stock valued at $6,417 using the closing stock price of the day, as compensation for a license fee to non-employees.



On March 26, 2012 the Company issued 45,833
shares of common stock valued at $4,583 using the closing stock price of the day, as compensation for a license fee to non-employees.



On March 31, 2012 the Company elected to issue
49,354 shares of common stock valued, using the closing stock price of the day, at $4,442 in lieu of cash to satisfy interest payable
at March 31, 2012 to the convertible debentures holders.



On April 2, 2012 the Company sold 200,000 shares
of common stock for cash consideration of $10,000.



On April 10, 2012 the Company issued 6,170,950
shares of common stock valued at $740,514 using the closing stock price of the day, as compensation for services rendered to employees
and non-employees.



On April 20, 2012 the Company issued 1,500,000
shares of common stock valued at $180,000 using the closing stock price of the day, as compensation for services rendered to non-employees.



On April 27, 2012 the Company issued 350,000
shares of common stock valued at $42,000, using the closing stock price of the day, as compensation for services rendered to non-employees.



On April 30, 2012 the Company issued 250,000
shares of common stock following the conversion of $100,000 of a $350,000 14% convertible debenture.



On May 1, 2012 the Company issued 595,836 shares
of common stock valued at $41,709 using the closing stock price of the day, as compensation for a license fee to non-employees.



On June 7, 2012 the Company sold 1,500,000
shares of common stock for cash consideration of $15,000.



On June 15, 2012 the Company sold 10,000,000
shares of common stock for cash consideration of $100,000.



On June 30, 2012 the Company sold 10,000,000
shares of common stock for cash consideration of $100,000.



On June 30, 2012 the Company elected to issue
44,063 shares of common stock valued, using the closing stock price of the day, at $1,763 in lieu of cash to satisfy interest payable
at June 30, 2012 to the convertible debentures holders.



On September 4, 2012 the Company issued 2,033,898
shares of common stock following the conversion of $12,000 of a $47,500 8% convertible debenture.



On September 30, 2012 the Company elected to issue 41,545 shares
of common stock valued at $228, using the closing stock price of the day, in lieu of cash to satisfy interest payable at September
30, 2012 to the convertible debentures holders.



On December 31, 2012 the Company elected to
issue 41,545 shares of common stock valued at $206, using the closing stock price of the day, in lieu of cash to satisfy interest
payable at December 31, 2012 to the convertible debentures holders.



All of the foregoing securities were issued
pursuant to the exemption from registration afforded by Section 4(a) (2) under the Securities Act.



11







|ITEM 7. | MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------



This Management’s Discussion and Analysis
of Financial Condition and Results Of Operation and other parts of this Annual Report on Form 10-K contain forward-looking statements
that involve risks and uncertainties. All forward-looking statements included in this Annual Report on Form 10-K are based on information
available to us on the date hereof, and except as required by law, we assume no obligation to update any such forward-looking statements.
Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the caption “Risk Factors” beginning on page 6 of this report and elsewhere
herein. The following should be read in conjunction with our annual consolidated financial statements contained elsewhere in this
report.



Dollar amounts of $1.0 million or more are
rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand and all percentages
are stated to the nearest one percent or one tenth of one percent.



Overview



We are a development stage company currently
seeking new opportunities for investment.



Critical Accounting Policies



The discussion and analysis of financial condition
and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. We continuously evaluate our estimates and judgments, including those related to revenue
recognition, bad debts, impairment of intangible assets, income taxes, contingencies and litigation. Our estimates are based on
historical experience and assumptions that we believe to be reasonable 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. Actual
results may differ from these estimates under different assumptions or conditions.



Our Board of Directors has reviewed our
related disclosures in our Form 10-K for the period ended December 31, 2012 and for the period ended December 31, 2011 filed with
the SEC. We believe the following critical accounting policies, among others, affect our more significant judgments and estimates
used in the preparation of our consolidated financial statements:



Derivative Liabilities



We have utilized convertible debentures
with warrants to purchase shares of common stock to settle certain liabilities and fund operations resulting in the recording
of a derivative liability. Current guidance for valuing and classifying transactions of this type include ASC 470-20
“Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement”),” EITF No. 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios” and EITF No. 00-27, “Application of Issue No. 98-5 to Certain
Convertible Instruments.” Accordingly, we have used the Black-Scholes option-pricing model as our method of
determining the fair value of the convertible debenture issued with a warrant. The resulting calculation of the beneficial
conversion feature (BCF) and warrant equity component are recorded to APIC with an offset discount to the principal value of
the convertible debenture. We have used the effective yield interest method for amortizing the discount to interest expense
over the maturity term of the convertible debenture. We record to interest expense the unamortized discount value associated
with a debenture converted in a period.



Accruals for Contingent Liabilities



We make estimates of liabilities that arise
from various contingencies for which values are not fully known at the date of the accrual or during the periodic financial planning
and analysis cycle. These contingencies may include, but are not limited, to accruals for reserves for costs and awards involving
legal settlements, cost associated with planned changes in workforce or operating levels, costs associated with reduced flight
services from Suburban, the building out of leased premises, vacating leased premises or abandoning leased equipment, and costs
involved with the discontinuance of a segment of a business. Events may occur that are resolved over a period of time or on a specific
future date. Management makes estimates using the facts available of the probability of the outcomes and range of cost, if measureable,
of these occurrences and charges them to expense in the appropriate periods. If the ultimate resolution of any event is different
than management’s estimate caused by a change in facts or material operating assumptions, compensating entries to earnings
may be required.



Equity-Based Compensation



We are using the Black-Scholes option-pricing
model as our method of valuation for share-based awards (e.g., warrant to purchase shares of common stock) used to settle certain
liabilities to non-employees. Our determination of fair value of share-based payment awards on the date of grant using the option-pricing
model is affected by our equity price as well as assumptions regarding our expected equity price volatility over the term of the
awards, the selection of a risk free interest rate, the ultimate disposition of the award and the impact of the award on earnings
per share. For example, in calculating the expected equity price volatility, we may consider using our historical experience only,
our experience plus that of a publicly trade index volatility experience, or a blended volatility experience for public peer companies.
We also evaluate carefully the expected life term of an award though the vesting of awards to date have been immediate. Finally,
we attempt to use a risk free rate that is widely quoted and pertinent across a broad range of transactions.



12







Results of Operations



Comparison of the Year Ended December 31,
2012 to the Year Ended December 31, 2011.



The following table sets forth, certain statement
of operations data relating to the business for the periods indicated.



|                                                                                                       |  | Twelve
    months ended December 31 |            |   | Year
    over Year Change | 
|------------------------------------------------------------------------------------------------------ |  | ----------------------------------- | ---------- | - | ------------------------- | 
|                                                                                                       |  | 2012                                |            |   | 2011                      | 
|                                                                                                       |  |                                     |            |   |                           | 
|Revenue                                                                                                |  | $                                   | -          |   |                           | 
|Cost of revenue                                                                                        |  |                                     | -          |   |                           | 
|Gross loss                                                                                             |  |                                     | -          |   |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Operating expense:                                                                                     |  |                                     |            |   |                           | 
|Sales, general and administration                                                                      |  |                                     | 1,736,541  |   |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Loss from operations                                                                                   |  |                                     | (1,736,541 | ) |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Other income (expense):                                                                                |  |                                     |            |   |                           | 
|Interest expense
    (including $411,332 and $556,437, respectively, of amortization of debt discount) |  |                                     | (423,110   | ) |                           | 
|Deferred financing fee                                                                                 |  |                                     | (427,073   | ) |                           | 
|Net gain on conversion of convertible notes                                                            |  |                                     | 61,661     |   |                           | 
|Loss on extinguishment of debt                                                                         |  |                                     | -          |   |                           | 
|Impairment of goodwill                                                                                 |  |                                     | (1,035,168 | ) |                           | 
|Warrant liability valuation, net                                                                       |  |                                     | 2,682,587  |   |                           | 
|Other income (expense), net                                                                            |  |                                     | 858,897    |   |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Loss before income taxes                                                                               |  |                                     | (877,644   | ) |                           | 
|Expense for income taxes                                                                               |  |                                     | 1,600      |   |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Loss from continuing operations                                                                        |  |                                     | (879,244   | ) |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Discontinued operations:                                                                               |  |                                     |            |   |                           | 
|Loss from discontinued operations, net of tax                                                          |  |                                     | (339,570   | ) |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Net loss                                                                                               |  | $                                   | (1,218,814 | ) |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Net loss per share, basic and diluted                                                                  |  | $                                   | (0.02      | ) |                           | 
|                                                                                                       |  |                                     |            |   |                           | 
|Weighted average shares used in calculation of basic and diluted net income (loss) per share           |  |                                     | 71,122,936 |   |                           | 



* Not meaningful.



Revenue. Revenue for the year
ended December 31, 2012 was $0 compared to $1.6 million for the year ended December 31, 2011. The decrease is due to
discontinued operations as of January 2012.



13







Cost
of revenue. Cost of revenuefor the year ended December 31, 2012was $0 compared
to $1.8 million (115% of revenue) for the year ended December 31, 2011 due to discontinued operations as of January
2012.



Operating expenses.Operating
expenses for the year ended December 31, 2012 consisted mainly of payroll costs, R&D costs, non-cash equity-based
compensation, professional fees, and outside services. The operating expenses for the year ended December 31, 2012
were $1.7 million compared to $4.0 million for the year ended December 31, 2011.



Other income (expense), net. Other
income (expense), net increased to an income of $859,000 from an expense of $3.3 million, or a change of income of $4.1
million primarily due to the derivative warrant valuation change of $5.1 million from 2011 to 2012 and a change in deferred
financing fee of $854,000.



Loss from discontinued operations.The
Company closed the Pet Airway business and discontinued flight operations in January 2012. In closing the business we incurred
over the year $340,000 in discontinued operations related expenses.



Net loss.Our net loss was $1.2
million in 2012 as compared to $7.5 million in 2011. The decrease in losses is primarily attributable to an increase in other
income (expense) items and a reduction of sales, general and administration expenses of $2.3 million.



Non-Cash Expense
Items



During 2012 and 2011, we entered into a number
of equity financings for working capital purposes, the settlement of services rendered in lieu of cash and general corporate purposes.
Additionally, other transactions and events occurred in which significant non-cash expense arose due to the nature of those occurrences.



The following tables summarize the non-cash
expense items, total amount and percentage of our net loss for the years ended December 31, 2012 and 2011:





|                                                                       |  | Years
    ended December 31, |           
|---------------------------------------------------------------------- |  | ---------------------------- | ----------
|                                                                       |  | 2012                         |           
|Cash and non-cash items in net income (loss):                          |  |                              |           
|Cash                                                                   |  | $                            | (934,804  
|Non-cash                                                               |  |                              | (284,010  
|Net loss                                                               |  | $                            | (1,218,814
|                                                                       |  |                              |           
|                                                                       |  |                              | 2012      
|Summary of non-cash items:                                             |  |                              |           
|Derivative warrant valuation income (expense), net                     |  | $                            | 2,682,587 
|Costs incurred in acquisition of Impact Social Networking              |  |                              | (1,035,168
|Loss on extinguishment of 14% debenture                                |  |                              | -         
|Accelerated amortization of debt discount from conversion of debenture |  |                              | (59,080   
|Loss on abandonment of property and equipment                          |  |                              | (49,053   
|(Loss) gain on conversion of notes                                     |  |                              | 6 1,661   
|Warrants issued for services rendered by non-employees                 |  |                              | -         
|Amortization of debt discount                                          |  |                              | (352,252  
|Common shares issued for interest payable in lieu of cash              |  |                              | (6,638    
|Deferred financing fee                                                 |  |                              | (427,073  
|Equity based compensation                                              |  |                              | (25,173   
|Depreciation and amortization                                          |  |                              | (53,098   
|Common shares issued for license fee                                   |  |                              | (58,209   
|Common shares issued for services rendered by non-employees            |  |                              | (818,514  
|Common shares issued in lieu of cash to employees                      |  |                              | (144,000  
|Total non-cash                                                         |  | $                            | (284,010  
|                                                                       |  |                              |           
|Non-cash dilutive per share amount                                     |  | $                            | -         



14







Liquidity and Capital Resources



At December 31, 2012, the Company had $81,755
in cash and cash equivalents as compared to $38,256 in cash and cash equivalents at December 31, 2011.



Net cash used in operating activities was
$(284,001) and $(1,941,148) for the years ended December 31, 2012 and 2011, respectively. The Company’s operating
activities were substantially curtailed as we stopped our Pet Airway operations. The Company still expended monies trying to
develop the Pawdoodle initiative, in which the initiative was subsequently abandoned.



Net cash used in investing activities was $(87,653)
during the year ended December 31, 2011 with no investing activities during the year ended December 31, 2012. Cash used during
the year ended December 31, 2011 period was primarily due to upgrades to the reservation system enhancements and the build out
for the San Jose administrative offices and pet airport facilities.



Net cash provided by financing activities was
$327,500 and $556,000 during the years ended December 31, 2012 and 2011, respectively. The cash provided in 2012 was received through
issuance of convertible notes and sale of shares, compared to proceeds received in 2011 that was primarily due to proceeds of the
issuance of 2,253,470 shares of common stock for $500,000 from the Socius CG II, Ltd. financing (See Socius CG II, Ltd. Agreement
below).



Financings



We do not currently maintain a line of credit
or term loan with any commercial bank or other financial institution. We will need to complete additional financing transactions
in order to continue operations beyond the next twelve months. We do not currently have sufficient cash
on hand to meet our needs to pay outstanding debt and payables. We currently do not generate any from our operations to cover our
monthly operating costs.Financing transactions, if any, may include the issuance of equity or debt securities, obtaining
credit facilities, or other financing mechanisms. Even if we are able to raise the funds required, it is possible that we could
incur unexpected costs and expenses, fail to generate sufficient revenues, or experience unexpected cash requirements that would
force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience
additional dilution or the new equity securities may have rights, preferences or privilege senior to those of existing holders
of our common stock. If additional financing is not available or is not available on acceptable terms, we may have to significantly
curtail or suspend our operations.



If we are unable to generate sufficient liquidity
from operations or raise additional financing on acceptable terms, our business, results of operations, liquidity and financial
condition could be adversely affected, and we may be required to significantly reduce our operations, including but not limited
to terminating or suspending all operations and reorganizing or liquidating the Company.



Socius CG II, Ltd. Financing





On June 3, 2011, the Company entered into a
securities purchase agreement with Socius CG II, Ltd. Agreement (“Socius”), pursuant to which it secured $500,000 of
immediate funding through the issuance and sale of 2,253,470 shares of common stock and a warrant to purchase up to 20,476,707
shares of common stock at an initial exercise price of $1.02 (subject to anti-dilution adjustments). In addition, Socius agreed
to purchase up to an additional $5 million in non-convertible shares of Preferred Stock from the Company over the next two years,
subject to the Company meeting certain conditions.



Subject to the terms and conditions of the
securities purchase agreement, beginning 75 days after the closing of the initial purchase, at the Company’s sole discretion,
the Company may submit to Socius a tranche notice to purchase a certain dollar amount of the Company’s Preferred Stock at
$10,000 per share. The maximum amount that may be funded under any tranche cannot exceed 20% of the cumulative trading volume of
the common stock for the 10 trading day-period prior to the applicable tranche notice date.



In connection with the securities purchase
agreement, the Company agreed to issue on the 75 day anniversary of the initial purchase by Socius, 1,126,735 shares of common
stock to Socius as consideration for executing the securities purchase agreement. The fair value of the consideration was $371,823
using the August 18, 2011 common stock closing price of $0.33 per share and was recorded as a deferred financing fee.



In addition, with the closing of the Socius
financing, the Company approved the issuance of an aggregate of 1,800,000 shares of common stock as contingent consideration valued
at $1,260,000 using the June 3, 2011 common stock closing price of $0.70 per share to two non-employee consultants. The share issuance
was recorded as APIC and as financing cost charged to APIC.



In connection with the issuance of the
warrant to purchase up to 20,476,707 shares of common stock at an initial exercise price of $1.02 (subject to full ratchet,
anti-dilution adjustment), using the Black Scholes option pricing model that valued the warrants at $0.70 and $0.65 per share
at June 3 and June 30, 2011 respectively, the Company recorded a charge to operations of $12,839,860 and to additional paid
in capital of $470,000.



In connection with the above transaction, we
recorded a net charge to operations of $5,673,053 and a charge to additional paid in capital of $470,000 during the year ended
December 31, 2011. The above value of the derivative liability was reduced to $2,930,955 at December 31, 2011 and $248,368 at December
31, 2012, respectively. In connection with the Socius transaction we recorded total deferred financing fees of $427,073 during
the year ended December 31, 2011. However, because access to the $5 million financing is based on a percentage formula of the dollar
value of stock traded, the Company determined that it is unlikely that sufficient stock volume will be reached over the balance
of the term of the financing and has expensed the deferred financing fees of $427,073 during the quarter ended September 30, 2012.



Off-Balance Sheet
Arrangements



As of December 31, 2012, the Company did not
have any relationships with unconsolidated entities or financial partners, such as entities often referred to as structured finance
or special purpose entities that had been established for the purpose of facilitating off-balance sheet arrangements or other contractually
narrow or limited purposes. As such, we are not materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.



15







|ITEM
8. | CONSOLIDATED FINANCIAL STATEMENTS
AND SUPPLEMENTARY DATA
|------- | --------------------------------------------------------



The
audited consolidated financial statements of the Company, the Notes thereto and the Report of Independent Registered Public Accounting
Firm thereon required by this item appears in this report on the pages indicated in the following index:



|                                                                                                                                                                                                    |  | Page
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|Index to Audited Consolidated
    Financial Statements:                                                                                                                                             |  |     
|                                                                                                                                                                                                    |  |     
|Report of Independent Registered Public Accounting Firm                                                                                                                                             |  | F-1 
|                                                                                                                                                                                                    |  |     
|Consolidated Balance Sheets — December 31, 2012 and 2011                                                                                                                                            |  | F-2 
|                                                                                                                                                                                                    |  |     
|Consolidated Statements of Operations — Years ended December 31, 2012 and 2011, and for the period from inception of development stage (February 1, 2012) to December 31, 2012                      |  | F-3 
|                                                                                                                                                                                                    |  |     
|Consolidated Statement of Changes in Stockholders’ Deficit — Years ended December 31, 2012 and 2011, and for the period from inception of development stage (February 1, 2012) to December 31, 2012 |  | F-4 
|                                                                                                                                                                                                    |  |     
|Consolidated Statements of Cash Flows — Years ended December 31, 2012 and 2011, and for the period from inception of development stage (February 1, 2012) to December 31, 2012                      |  | F-5 
|                                                                                                                                                                                                    |  |     
|Notes to consolidated financial statements                                                                                                                                                          |  | F-6 



16











REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Stockholders

The
Paws Pet Company, Inc.

Delray
Beach, Florida



We
have audited the accompanying consolidated balance sheets of The Paws Pet Company, Inc., (A Development Stage Company), (“the
Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, changes
in shareholders’ deficit, and cash flows for each of the years in the two year period
ended December 31, 2012, and for the period from inception of development stage (February 1, 2012) to December 31, 2012. The Paws
Pet Company, Inc. management is responsible for these consolidated financial statements. Our responsibility is to express an opinion
on these consolidated 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 also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position
of The Paws Pet Company, Inc. as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each
of the years in the two year period ended December 31, 201, and for the period from inception of development stage (February 1,
2012) to December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Notes 1 and 15 to the consolidated financial statements, the Company has suffered recurring losses from operations,
and is dependent upon shareholders to provide sufficient working capital to maintain continuity. These circumstances create substantial
doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



|/s/
    KBL, LLP  | 
|----------------- | 
|New
    York, NY  | 
|June
    26, 2013 | 



F-1







THE
PAWS PET COMPANY, INC.

(A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED
BALANCE SHEETS



|                                                                                                                                                        |  | December 31, 2012 |             |   | December 31, 2011 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | - | ----------------- | -
|ASSETS                                                                                                                                                  |  |                   |             |   |                   |  
|Current assets:                                                                                                                                         |  |                   |             |   |                   |  
|Cash and cash equivalents                                                                                                                               |  | $                 | 81,755      |   |                   | $
|Receivable due from credit card clearing house                                                                                                          |  |                   | -           |   |                   |  
|Prepaid expenses                                                                                                                                        |  |                   | 1,600       |   |                   |  
|Deferred financing fee                                                                                                                                  |  |                   | -           |   |                   |  
|Total current assets                                                                                                                                    |  |                   | 83,355      |   |                   |  
|                                                                                                                                                        |  |                   |             |   |                   |  
|Property and equipment, at cost                                                                                                                         |  |                   | 169,136     |   |                   |  
|Less: accumulated depreciation and amortization                                                                                                         |  |                   | (116,753    | ) |                   |  
|Total property and equipment, net                                                                                                                       |  |                   | 52,383      |   |                   |  
|                                                                                                                                                        |  |                   |             |   |                   |  
|Security deposits and other                                                                                                                             |  |                   | -           |   |                   |  
|Total assets                                                                                                                                            |  | $                 | 135,738     |   |                   | $
|                                                                                                                                                        |  |                   |             |   |                   |  
|LIABILITIES AND STOCKHOLDERS’ DEFICIT                                                                                                                   |  |                   |             |   |                   |  
|Current liabilities:                                                                                                                                    |  |                   |             |   |                   |  
|Accounts and accrued expenses payable                                                                                                                   |  | $                 | 1,596,826   |   |                   | $
|Convertible debentures, net of debt discount of $160,067 and $0 at December 31, 2012
    and 2011, respectively                                         |  |                   | 655,433     |   |                   |  
|Litigation accrual, discontinued operations                                                                                                             |  |                   | 87,491      |   |                   |  
|Accounts and accrued expenses payable, discontinued operations                                                                                          |  |                   | 778,074     |   |                   |  
|Total current liabilities                                                                                                                               |  |                   | 3,117,824   |   |                   |  
|                                                                                                                                                        |  |                   |             |   |                   |  
|Non-current liabilities:                                                                                                                                |  |                   |             |   |                   |  
|Convertible debentures, net of debt discount of $0 and $482,003 at December 31, 2012 and 2011, respectively                                             |  |                   | -           |   |                   |  
|Warrant liability                                                                                                                                       |  |                   | 248,368     |   |                   |  
|Total non-current liabilities                                                                                                                           |  |                   | 248,368     |   |                   |  
|Total liabilities                                                                                                                                       |  |                   | 3,366,192   |   |                   |  
|                                                                                                                                                        |  |                   |             |   |                   |  
|Commitments and contingencies                                                                                                                           |  |                   |             |   |                   |  
|                                                                                                                                                        |  |                   |             |   |                   |  
|Stockholders’ deficit:                                                                                                                                  |  |                   |             |   |                   |  
|Series A preferred stock, 10,000,000 shares authorized, none issued and outstanding at December 31, 2012 and 2011, respectively                         |  |                   | -           |   |                   |  
|Common stock, no par value, 350,000,000 shares authorized, 86,509,928 and 46,201,182 issued and outstanding at December 31, 2012 and 2011, respectively |  |                   | -           |   |                   |  
|Additional paid-in capital                                                                                                                              |  |                   | 11,566,930  |   |                   |  
|Accumulated deficit from inception until discontinuance of operations (January 31, 2012)                                                                |  |                   | (13,918,140 | ) |                   |  
|Accumulated deficit since inception of development stage (February 1, 2012) to (December 31, 2012)                                                      |  |                   | (879,244    | ) |                   |  
|Total stockholders’ deficit                                                                                                                             |  |                   | (3,230,454  | ) |                   |  
|Total liabilities and stockholders’ deficit                                                                                                             |  | $                 | 135,738     |   |                   | $



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



F-2







THE
PAWS PET COMPANY, INC.

(A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED
STATEMENTS OF OPERATIONS



|                                                                                                   |  |                          |            |   |                    |   |            | For the period from inception | 
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | ------------------ | - | ---------- | ----------------------------- | 
|                                                                                                   |  |                          |            |   |                    |   |            | of development stage          | 
|                                                                                                   |  | Years ended December 31, |            |   | (February 1, 2012) |  
|                                                                                                   |  | 2012                     |            |   | 2011               |   |            | to December 31, 2012          | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Revenue                                                                                            |  | $                        | -          |   |                    | $ | 1,584,432  |                               | 
|Cost of revenue                                                                                    |  |                          | -          |   |                    |   | 1,821,128  |                               | 
|Gross loss                                                                                         |  |                          | -          |   |                    |   | (236,696   | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Operating expense:                                                                                 |  |                          |            |   |                    |   |            |                               | 
|Sales, general and administration                                                                  |  |                          | 1,736,541  |   |                    |   | 4,006,129  |                               | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Loss from operations                                                                               |  |                          | (1,736,541 | ) |                    |   | (4,242,825 | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Other income (expense):                                                                            |  |                          |            |   |                    |   |            |                               | 
|Interest expense (including $411,332 and $556,437, respectively, of amortization of debt discount) |  |                          | (423,110   | ) |                    |   | (664,032   | )                             | 
|Deferred financing fee                                                                             |  |                          | (427,073   | ) |                    |   | 427,073    |                               | 
|Net gain on conversion of convertible notes                                                        |  |                          | 61,661     |   |                    |   | -          |                               | 
|Loss on extinguishment of debt                                                                     |  |                          | -          |   |                    |   | (571,122   | )                             | 
|Impairment of goodwill                                                                             |  |                          | (1,035,168 | ) |                    |   | -          |                               | 
|Warrant liability valuation, net                                                                   |  |                          | 2,682,587  |   |                    |   | (2,460,956 | )                             | 
|Other income (expense), net                                                                        |  |                          | 858,897    |   |                    |   | (3,269,037 | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Loss before income taxes                                                                           |  |                          | (877,644   | ) |                    |   | (7,511,862 | )                             | 
|Provision for income taxes                                                                         |  |                          | 1,600      |   |                    |   | 1,700      |                               | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Loss from continuing operations                                                                    |  |                          | (879,244   | ) |                    |   | (7,513,562 | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Discontinued operations:                                                                           |  |                          |            |   |                    |   |            |                               | 
|Loss from discontinued operations, net of tax                                                      |  |                          | (339,570   | ) |                    |   | -          |                               | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Net loss                                                                                           |  | $                        | (1,218,814 | ) |                    | $ | (7,513,562 | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Net loss per share, basic and diluted                                                              |  | $                        | (0.02      | ) |                    | $ | (0.18      | )                             | 
|                                                                                                   |  |                          |            |   |                    |   |            |                               | 
|Weighted average shares used in calculation of basic and diluted net loss per share                |  |                          | 71,122,936 |   |                    |   | 42,836,006 |                               | 



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



F-3







THE
PAWS PET COMPANY, INC.

(A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT



|                                                                                                                               |  |               |            |  |            |   |            | Accumulated        |  |   |                    |   |  |               |         
|------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ---------- |  | ---------- | - | ---------- | ------------------ |  | - | ------------------ | - |  | ------------- | --------
|                                                                                                                               |  |               |            |  |            |   |            | deficit from       |  |   | Accumulated        |   |  |               |         
|                                                                                                                               |  |               |            |  |            |   |            | inception until    |  |   | deficit from       |   |  |               |         
|                                                                                                                               |  | Common Stock, |            |  | Additional |   |            | discontinuance of  |  |   | inception of       |   |  | Total         |         
|                                                                                                                               |  | No Par Value  |            |  | Paid-In    |   |            | operations         |  |   | development stage  |   |  | Stockholders’ |         
|                                                                                                                               |  | Shares        |            |  | Capital    |   |            | (January 31, 2012) |  |   | (February 1, 2012) |   |  | Deficit       |         
|                                                                                                                               |  |               |            |  |            |   |            |                    |  |   |                    |   |  |               |         
|Balance, December 31, 2010                                                                                                     |  |               | 38,314,615 |  |            | $ | 6,407,128  |                    |  | $ | (6,065,008         | ) |  | $             | -       
|                                                                                                                               |  |               |            |  |            |   |            |                    |  |   |                    |   |  |               |         
|Conversion of 8% debentures to common stock                                                                                    |  |               | 1,300,000  |  |            |   | 525,000    |                    |  |   | -                  |   |  |               | -       
|Common shares issued for cash                                                                                                  |  |               | 2,533,470  |  |            |   | 556,000    |                    |  |   | -                  |   |  |               | -       
|Common shares issued for shares in lieu of cash                                                                                |  |               | 3,329,219  |  |            |   | 1,983,098  |                    |  |   | -                  |   |  |               | -       
|Cost of equity offering and share registration                                                                                 |  |               | -          |  |            |   | (1,290,028 | )                  |  |   | -                  |   |  |               | -       
|Warrants issued with $350,000 convertible debenture                                                                            |  |               | -          |  |            |   | 481,250    |                    |  |   | -                  |   |  |               | -       
|Warrants issued in connection with financings                                                                                  |  |               | -          |  |            |   | (470,000   | )                  |  |   | -                  |   |  |               | -       
|Value attributed to APIC from the issuance of a $350,000 convertible debenture with beneficial conversion feature and warrants |  |               | -          |  |            |   | 342,632    |                    |  |   | -                  |   |  |               | -       
|Common shares issued to Intellicell                                                                                            |  |               | 433,332    |  |            |   | 117,791    |                    |  |   | -                  |   |  |               | -       
|Common shares issued in lieu of interest paid in cash                                                                          |  |               | 290,546    |  |            |   | 252,764    |                    |  |   | -                  |   |  |               | -       
|Warrants issued for services rendeed by non-employees                                                                          |  |               | -          |  |            |   | 169,061    |                    |  |   | -                  |   |  |               | -       
|Stock option expense                                                                                                           |  |               | -          |  |            |   | 39,769     |                    |  |   | -                  |   |  |               | -       
|Net loss                                                                                                                       |  |               | -          |  |            |   | -          |                    |  |   | (7,513,562         | ) |  |               |         
|Balance, December 31, 2011                                                                                                     |  |               | 46,201,182 |  |            |   | 9,114,465  |                    |  |   | (13,578,570        | ) |  |               | -       
|                                                                                                                               |  |               |            |  |            |   |            |                    |  |   |                    |   |  |               |         
|Common shares issued for cash                                                                                                  |  |               | 21,700,000 |  |            |   | 225,000    |                    |  |   | -                  |   |  |               | -       
|Common shares issued for services to employees                                                                                 |  |               | 1,200,000  |  |            |   | 144,000    |                    |  |   |                    |   |  |               |         
|Common shares issued for services to non-employees                                                                             |  |               | 6,820,950  |  |            |   | 818,541    |                    |  |   | -                  |   |  |               | -       
|Common shares issued in lieu of interest paid in cash                                                                          |  |               | 176,507    |  |            |   | 6,638      |                    |  |   | -                  |   |  |               | -       
|Common shares issued for license agreement                                                                                     |  |               | 733,335    |  |            |   | 58,209     |                    |  |   |                    |   |  |               |         
|Common shares issued in exchange for shares                                                                                    |  |               | 7,394,056  |  |            |   | 1,035,168  |                    |  |   | -                  |   |  |               | -       
|Common shares issued for conversion of debenture                                                                               |  |               | 2,283,898  |  |            |   | 42,000     |                    |  |   | -                  |   |  |               | -       
|Stock option expense                                                                                                           |  |               | -          |  |            |   | 25,173     |                    |  |   | -                  |   |  |               | -       
|Gain on conversion of convertible notes                                                                                        |  |               |            |  |            |   | 8,339      |                    |  |   |                    |   |  |               |         
|Value attributed to APIC from the issuance of a $350,000 convertible debenture with beneficial conversion feature and warrants |  |               | -          |  |            |   | 89,397     |                    |  |   | -                  |   |  |               | -       
|Net loss                                                                                                                       |  |               | -          |  |            |   | -          |                    |  |   | (339,570           | ) |  |               | (879,244
|                                                                                                                               |  |               |            |  |            |   |            |                    |  |   |                    |   |  |               |         
|Balance, December 31, 2012                                                                                                     |  |               | 86,509,928 |  |            | $ | 11,566,930 |                    |  | $ | (13,918,140        | ) |  | $             | (879,244



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



F-4







THE
PAWS PET COMPANY, INC.

(A
DEVELOPMENT STAGE COMPANY)

CONSOLIDATED
STATEMENTS OF CASH FLOWS



|                                                                                       |  |              |            |   |                       |   |            | For the period from | 
|-------------------------------------------------------------------------------------- |  | ------------ | ---------- | - | --------------------- | - | ---------- | ------------------- | 
|                                                                                       |  |              |            |   |                       |   |            | inception of        | 
|                                                                                       |  |              |            |   |                       |   |            | development stage   | 
|                                                                                       |  | December 31, |            |   | (February 1, 2012) to |  
|                                                                                       |  | 2012         |            |   | 2011                  |   |            | December 31, 2012   | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                  |  |              |            |   |                       |   |            |                     | 
|Net loss                                                                               |  | $            | (1,218,814 | ) |                       | $ | (7,513,562 | )                   | 
|Adjustments to reconcile net loss to net cash used in operating activities:            |  |              |            |   |                       |   |            |                     | 
|Depreciation and amortization                                                          |  |              | 53,098     |   |                       |   | 63,078     |                     | 
|Equity based compensation                                                              |  |              | 25,173     |   |                       |   | 39,769     |                     | 
|Warrant valuation, net                                                                 |  |              | (2,682,587 | ) |                       |   | 2,930,954  |                     | 
|Loss on abandonment of property and equipment                                          |  |              | 49,053     |   |                       |   | -          |                     | 
|Loss on extinguishment of 14% debenture                                                |  |              | -          |   |                       |   | 571,122    |                     | 
|Accelerated amortization of debt discount from conversion of debenture                 |  |              | 59,080     |   |                       |   | 325,399    |                     | 
|Amortization of debt discount                                                          |  |              | 352,252    |   |                       |   | 231,038    |                     | 
|Net gain on conversion of convertible notes                                            |  |              | (61,661    | ) |                       |   | -          |                     | 
|Impairment of goodwill                                                                 |  |              | 1,035,168  |   |                       |   | -          |                     | 
|Warrants issued in lieu of cash for services rendered by non-employees                 |  |              | -          |   |                       |   | 169,061    |                     | 
|Common shares issued in lieu of cash to Intellicell for license fee                    |  |              | 58,209     |   |                       |   | 117,791    |                     | 
|Common shares issued in lieu of cash for interest to non-employees                     |  |              | 6,638      |   |                       |   | 525,394    |                     | 
|Common shares issued in lieu of cash for services rendered by non-employees            |  |              | 818,514    |   |                       |   | -          |                     | 
|Common shares issued in lieu of cash compensation to employees                         |  |              | 144,000    |   |                       |   | -          |                     | 
|Deferred financing fee                                                                 |  |              | 427,073    |   |                       |   | (427,073   | )                   | 
|Changes in certain assets and liabilities:                                             |  |              |            |   |                       |   |            |                     | 
|Receivable due from credit card clearing house                                         |  |              | 59,418     |   |                       |   | 63,716     |                     | 
|Prepaid expenses                                                                       |  |              | (63        | ) |                       |   | 117,817    |                     | 
|Security deposits and other                                                            |  |              | 39,689     |   |                       |   | (8,902     | )                   | 
|Accounts payable and accrued expenses                                                  |  |              | 350,474    |   |                       |   | 853,250    |                     | 
|Accounts payable and accrued expenses, discontinued operations                         |  |              | 201,285    |   |                       |   | -          |                     | 
|Net cash used in operating activities                                                  |  |              | (284,001   | ) |                       |   | (1,941,148 | )                   | 
|                                                                                       |  |              |            |   |                       |   |            |                     | 
|CASH FLOWS FROM INVESTING ACTIVITIES:                                                  |  |              |            |   |                       |   |            |                     | 
|Purchases of property and equipment                                                    |  |              | -          |   |                       |   | (87,653    | )                   | 
|Net cash used in investing activities                                                  |  |              | -          |   |                       |   | (87,653    | )                   | 
|                                                                                       |  |              |            |   |                       |   |            |                     | 
|CASH FLOWS FROM FINANCING ACTIVITIES:                                                  |  |              |            |   |                       |   |            |                     | 
|Proceeds from sale of common stock                                                     |  |              | 225,000    |   |                       |   | 556,000    |                     | 
|Proceeds from issuance of debt                                                         |  |              | 102,500    |   |                       |   | -          |                     | 
|Net cash provided by financing activities                                              |  |              | 327,500    |   |                       |   | 556,000    |                     | 
|Net change in cash and cash equivalents                                                |  |              | 43,499     |   |                       |   | (1,472,801 | )                   | 
|Cash and cash equivalents at beginning of period                                       |  |              | 38,256     |   |                       |   | 1,511,057  |                     | 
|Cash and cash equivalents at end of period                                             |  | $            | 81,755     |   |                       | $ | 38,256     |                     | 
|                                                                                       |  |              |            |   |                       |   |            |                     | 
|Supplementary disclosure of cash flow information                                      |  |              |            |   |                       |   |            |                     | 
|Cash paid during the year for:                                                         |  |              |            |   |                       |   |            |                     | 
|Income taxes                                                                           |  | $            | -          |   |                       | $ | -          |                     | 
|Interest expense                                                                       |  | $            | -          |   |                       | $ | 6,480      |                     | 
|Non-cash transactions:                                                                 |  |              |            |   |                       |   |            |                     | 
|Conversion of 8% convertible debentures to 1.3 million shares of common stock          |  | $            | -          |   |                       | $ | 525,000    |                     | 
|Conversion of convertible debentures to 2,283,898 shares of common stock               |  | $            | 42,000     |   |                       | $ | -          |                     | 
|Purchase of subsidiary in exchange for issuing shares                                  |  | $            | 1,035,168  |   |                       |   |            |                     | 
|Derivative warrant valuation APIC component                                            |  | $            | -          |   |                       | $ | 470,000    |                     | 
|Issuance of 14% convertible debenture with warrants in exchange for 14% debenture      |  | $            | -          |   |                       | $ | 350,000    |                     | 
|Derivative liability discount from issuance of 14% convertible debenture with warrants |  | $            | -          |   |                       | $ | 342,632    |                     | 
|Extinguishment of 14% debenture exchanged for 14% convertible debenture                |  | $            | -          |   |                       | $ | 250,000    |                     | 
|Common shares issued in 2011 in lieu of cash for 2011 interest due                     |  | $            | -          |   |                       | $ | 258,183    |                     | 
|Common shares issued in 2011 for services rendered by non-employees                    |  | $            | -          |   |                       | $ | 298,824    |                     | 



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



F-5







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



1. Description of the Business



The PAWS Pet Company,
Inc. is a development stage company seeking new investment opportunities. On March 9, 2013 The Company
entered into a Securities Exchange Agreement whereby the Company issued 80,000shares of the Company’s Series B Convertible
Preferred Stock to the members of Advanced Access Pharmacy Services,LLC, a Nevada limited liability company (“AAPS”)
in exchange for 100% of the outstanding units of limited liability company membership interests of AAPS.



AAPS
was created to exploit specific niche opportunities in wholesale and retail pharmacies. AAPS intends to focus on workers’ compensation
and in-office physician pharmacy distribution as well as the limited purchase and collection of pharmaceutical and services related
receivables. Leveraging decades of experience in pharmacy and medical receivables collections of the people being hired, the Company
believes that it should be able to achieve significant profitability in a very short period with very limited investment.



Continuation of Company as a Going Concern



The Company has experienced net losses in
each calendar quarter since our inception and, as of the year ended December 31, 2012, had a total accumulated deficit of
$(14,797,384). The Company incurred a net loss to common shareholders of $(339,570) during the period January 1, 2012 to
January 31, 2012 and a net loss of $(879,244) during the period February 1, 2012 to December 31, 2012. As a result of these
conditions, the report of our independent registered accountants issued in connection with the audit of our consolidated
financial statements as of and for our year ended December 31, 2012 contained a qualification raising a substantial doubt
about our ability to continue as a going concern. Our consolidated financial statements do not include any adjustments that
may result from the outcome of this uncertainty. If we cannot continue as a viable entity, our stockholders may lose some or
all of their investment in us.



2. Summary of Significant Accounting
Policies



Fiscal Year



The Company’s fiscal year is the twelve
month period ending on December 31.



Principles of Consolidation



The consolidated financial statements presented
above include the accounts of The PAWS Pet Company, Inc. and its subsidiaries. All significant inter-company balances and transactions
have been eliminated.



Development Stage
Company



On January 31, 2012, the Company exited the
pet airline business. The Company is planning to exploit specific niche opportunities in wholesale and retail pharmacies with a
focus on workers’ compensation and in-office physician pharmacy distribution as well as the limited purchase and collection of
pharmaceutical and services related receivables. The Company has been in the development stage since February 1, 2012 and has not
yet realized any revenue since then. The Company is a development stage company as defined in Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Codification (“ASC”) ASC 915 “Development Stage Entities.”
A development stage enterprise is one in which planned and principal operations have not commenced or, if its operations have commenced,
there has been no significant revenue therefrom. As a development stage enterprise the Company will report cumulative costs beginning
from the time the Company discontinued its previous operations.



Use of Estimates



The preparation of consolidated financial statements
and related footnote disclosures in conformity with accounting principles generally accepted in the United States requires management
to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure
of contingent assets and liabilities. The Company evaluates, on an on-going basis, its estimates and judgments, including those
related to revenue recognition, bad debts, impairment of goodwill and intangible assets, income taxes, contingencies and litigation.
Its estimates are based on historical experience and assumptions that we believe to be reasonable 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. Actual results may differ from these estimates under different assumptions or conditions.



Cash and Cash Equivalents



The Company considers all highly liquid investments
with an original maturity or remaining maturity of three months or less at the date of purchase to be classified as cash and cash
equivalents consisting of checking and money market accounts. Cash and cash equivalents are stated at cost, which approximates
market value, and are primarily maintained at two financial institutions.



F-6







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



Advertising Costs



Advertising and marketing costs of $0 and $78,746
were expensed as incurred in each of the years ended December 31, 2012 and 2011, respectively.



Property and equipment



Property and equipment
are stated at cost. Depreciation of computer equipment and software is computed using the straight line method over the estimated
useful lives of the assets. Estimated useful lives of three to five years are used for computer equipment and software.
Property and equipment sold, retired or disposed of, together with related accumulated depreciation is removed from the appropriate
accounts and the resultant gain or loss is included in income or loss. The interest expense amount subject to capitalization during
the construction period of the Pet Lounges was immaterial as of December 31, 2012.



Long-lived assets



The Company reviews long-lived assets for impairment
when circumstances indicate the carrying amount of an asset may not be recoverable based on the undiscounted future cash flows
of the asset. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use
of the asset, and its eventual disposition. Measurement of an impairment loss for intangible and long-lived assets that management
expects to hold and use is based on the fair value of the asset as estimated using a discounted cash flow model. The goodwill acquired
in connection to the share exchange agreement with Impact Social Networking, Inc. was impaired as of March 31, 2012, and written
off to the Statement of Operations. There were no long-lived assets as of December 31, 2012 and 2011, respectively.



Concentrations



Payment collected is invested in money market
and interest earning deposit accounts at a FDIC insured financial institution at times at levels that may exceed the $250,000 insurance
limit afford each account holder.



Revenue Recognition



The Company recognizes revenue when it is earned,
and its collection is reasonable assured.



Income Taxes



The Company accounts for income taxes using
the asset and liability approach in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of assets and liabilities. The effect on deferred taxes of a change
in tax rates is recognized in operations in the period that includes the enactment date. Pursuant to accounting guidance concerning
provision for uncertain income tax provisions contained in Accounting Standards Codification (“ASC”) 740-10, there
are no uncertain income tax positions. The federal, state, and city income tax returns of the Company are subject to examination
by the federal and state taxing authorities, generally for three years after they were filed.



Computation of Earnings
per Share



In accordance with FASB ASC 260, “Earnings
per Share”, the basic earnings or loss per common share is computed by dividing net loss available to common stockholders
by the weighted average number of common shares outstanding. Diluted earnings per common share is computed in a manner similar
to basic loss per common share except that the denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. At
December 31, 2012 and 2011, the Company stock equivalents were anti-dilutive and excluded in the diluted loss per share computation.



Equity Based Award
Compensation



The Company accounts for equity-based compensation
under the provisions of ASC 718-10 and ASC 505-50 “Stock Compensation and Equity Based Payments to Non-Employees”.
ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant
using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense
over the requisite service periods in our Statement of Operations.



The Company
uses the Black-Scholes option-pricing model as its method of valuation for share-based awards. Our determination of fair
value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well
as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to
our expected stock price volatility over the term of the awards, and certain other market variables such as the risk free
interest rate.Equity-based compensation expense for awards to employees and non-employees recognized was $987,714 and
$602,835 for the years ended December 31, 2012 and 2011, respectively.



F-7







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



Segment Information



ASC 280, “Disclosures about Segments
of an Enterprise and Related Information”, establishes standards for reporting information regarding operating segments in
annual consolidated financial statements and requires selected information for those segments to be presented in interim financial
reports issued to stockholders. It also establishes standards for related disclosures about products and services and geographic
areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is
available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources
and assess performance. The Company originally operated as a single segment company; however, as of February 1, 2012 the Company
became a development stage company and is no longer operating as a segment. The Company intends to commence operations as another
segment in the near future.



Reclassification



The Company has made certain reclassifications
to conform to prior periods’ data to the current presentation. These reclassifications had no effect on reported losses,
operating ratios or ROI measurements.



Fair Value Measurement



The Company adopted the provisions of ASC 820
“Fair Value Measurements and Disclosures” on January 1, 2009, the beginning of our 2009 fiscal year. ASC 820 clarifies
the principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability
and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under the standard,
fair value measurements are separately disclosed by level within the fair value hierarchy. As originally issued, it was effective
for fiscal years beginning after November 15, 2007, with early adoption permitted. It does not require any new fair value measurements.
It only applies to accounting pronouncements that already require or permit fair value measures, except for standards that relate
to share-based payments.



On February 12, 2008, the FASB allowed deferral
of the effective date of ASC 820 for one year, as it relates to nonfinancial assets and liabilities. Accordingly, our adoption
related only to financial assets and liabilities. Upon adoption ASC 820, there was no cumulative effect adjustment to beginning
retained earnings and no impact on the consolidated financial statements as of December 31, 2012 and 2011, respectively.



Valuation techniques considered under ASC 820
techniques are based on observable and unobservable inputs. The ASC classifies these inputs into the following hierarchy:



Level 1 inputsare observable inputs and use quoted prices in active markets for identical assets or liabilities that the reporting entity
has the ability to access at the measurement date and are deemed to be most reliable measure of fair value.



Level
2 inputs are observable inputs and reflect assumptions that market participants would use in pricing the asset or liability
developed based on market data obtained from sources independent of the reporting entity. Level 2 inputs includes 1) quoted prices
for similar assets or liabilities in active markets, 2) quoted prices for identical or similar assets or liabilities in markets
that are not active, 3) observable inputs such as interest rates and yield curves observable at commonly quoted intervals, volatilities,
prepayment speeds, credits risks, default rates, and 4) market-corroborated inputs.



Level 3 inputs
are unobservable inputs and reflect the reporting entity’s own assumptions about the assumptions market participants would
use in pricing the asset or liability based on the best information available under the circumstances.



In October 2008, the FASB clarified the
application of ASC 820 in determining the fair value of a financial asset when the market for that financial asset is not
active.



The Company adopted the provisions of ASC 825,
“The Fair Value Option for Financial Assets and Liabilities”, on January 1, 2009, the beginning of our 2009
fiscal year. ASC 825 permits us to choose to measure certain financial assets and liabilities at fair value that are not currently
required to be measured at fair value (the “Fair Value Option”). Election of the Fair Value Option is made on an instrument-by-instrument
basis and is irrevocable. At the adoption date, unrealized gains and losses on financial assets and liabilities for which the Fair
Value Option has been elected are reported as a cumulative adjustment to beginning retained earnings.



Our current and non-current debentures payable
obligations are valued using Level 3 inputs. The fair values of the obligations exceed their carrying cost and are fairly presented
throughout our consolidated financial statements at December 31, 2012.



Recent Accounting
Pronouncements



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



F-8







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)



3. Acquisition of subsidiary



On February 23, 2012, pursuant to a share exchange
agreement (the “Exchange Agreement”) the Company acquired 100% of the issued and outstanding capital stock of Impact
Social Networking, Inc. (“ISN”), a Georgia corporation in exchange for 7,394,056 shares of the Company’s common
stock, no par value per share valued at $1,035,168 on the date of the acquisition. ISN owns a number of technology assets that
had not reached technical feasibility at the time of the acquisition. With the exception of these technology assets ISN had no
other assets or liabilities at the time of the acquisition, and had except for the development costs incurred for these assets,
had no other costs and no revenue. The Transaction was accounted for using the acquisition method under ASC Topic 805, Business
Combinations. Under the acquisition method, the purchase price was allocated to the underlying tangible and intangible assets
acquired and liabilities assumed based on their respective fair values, with the remainder allocated to goodwill. None of the goodwill
recorded in connection with the Transaction will be deductible for income tax purposes.



Following, the acquisition, the Company commenced
a new strategy of developing technologies for pet owners and pet caregivers. On March 16, 2012, the Company launched a beta version
of a social media application called “Pawdoodle.” This was an application that could be used in conjunction with social
media platforms such as Facebook, Twitter and Google Plus. We believe Pawdoodle was the first social networking application that
had been developed specifically for pet owners and pet caregivers that worked across a number of social media platforms. By using
Pawdoodle, pet owners could build web pages for their pets, post and view pictures of their pets, follow pet breeds and pet adoptions.
Pawdoodle also allowed pet owners to store pet microchip data.



In September, 2012, the Company decided not
to continue to pursue the development of Pawdoodle. The Company, during its annual impairment review of long-lived assets determined
that the fair value of the goodwill was zero based that the software purchased was not finished and internally developed and therefore,
wrote off the value of the goodwill of $1,035,168 as impaired per the Statement of Operations.



4. Property and Equipment



Property and equipment consist of the following at:



|                                                |  | For
    the Years ended December 31, |         
|----------------------------------------------- |  | ------------------------------------ | --------
|                                                |  | 2012                                 |         
|Equipment and furniture                         |  | $                                    | 13,312  
|Leasehold improvements                          |  |                                      | -       
|Airport facility equipment                      |  |                                      | -       
|Website development                             |  |                                      | 155,824 
|                                                |  |                                      | 169,136 
|Less: accumulated depreciation and amortization |  |                                      | (116,753
|Property and equipment, net                     |  | $                                    | 52,383  



Depreciation
and amortization expense was$53,098 for the year ended December 31, 2012, that comprised of $1,497 and $51,601 of
expense, related to discontinued and continuing operations, respectively, compared to $63,078 of depreciation expense for the
year ended December 31, 2011. In January 2012, the Company abandoned equipment located in several
formerly rented facilities related to the airline business therefore, recognizing a loss due to abandonment of equipment of
$49,053.



F-9







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



5. Capital



Common Stock



The Company is authorized to issue up to
350,000,000 shares of common stock, no par value. There were 86,509,928 and 46,201,182 shares of common outstanding as of
December 31, 2012 and 2011, respectively. Holders of the common stock are entitled to one vote per share on all matters to be
voted upon by the stockholders. Holders of common stock are entitled to receive ratably such dividends, if any, as may be
declared by the Board of Directors out of funds legally available therefore. Upon the liquidation, dissolution, or winding up
of our Company, the holders of common stock are entitled to share ratably in all of our assets which are legally available
for distribution after payment of all debts and other liabilities and liquidation preference of any outstanding common stock.
Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common
stock are validly issued, fully paid and non-assessable.



During the year ended December 31, 2012, the
Company issued an aggregate of 6,820,950 shares of common stock to non-employees valued at $818,541. During the year ended December
31, 2012, the Company issued 1,200,000 shares of common stock to employees for services rendered valued at $144,000.



Pursuant to the terms of the unsecured, convertible
debentures (“debentures”), the Company has elected to issue shares of common stock to satisfy the accrued interest
due to the debenture holders. For the year ended December 31, 2012 the Company elected to issue 176,507 shares of common stock
valued at $6,638 using the closing stock price at the close of the quarter end, in lieu of cash to satisfy interest payable at
each reporting quarter period end to the convertible debentures holders.



There were no stock warrants or stock options
exercised during the years ended December 31, 2012 and 2011.



Preferred Stock



The Company is authorized to issue up to 10,000,000
shares of preferred stock, no par value. The 10,000,000 shares of preferred stock authorized are undesignated as to preferences,
privileges and restrictions. As the shares are issued, the Board of Directors must establish a “series” of the shares
to be issued and designate the preferences, privileges and restrictions applicable to that series. As of December 31, 2012 and
2011, there were no shares of any series of preferred stock outstanding.



6. Private Placements



Common Stock Sale



Socius CG II, Ltd. Agreement



On June 3, 2011, we entered into a Securities
Purchase Agreement (the “Purchase Agreement”) with an accredited investor, pursuant to which we secured $500,000 of
immediate funding through the issuance and sale to accredited investor of 2,253,470 shares of the Company’s common stock
(such shares being the “Initial Purchase Shares” and such purchase being the “Initial Purchase”). In connection
therewith, (i) we also issued to accredited investor a warrant to purchase up to 20,476,707 shares of our common stock, and (ii)
accredited investor agreed to purchase from the Company up to $5.0 million (the “Aggregate Preferred Stock Purchase Price”)
of our newly created perpetual and non-convertible Series A Preferred Stock (the “Preferred Stock”), at a price per
share of $10,000, in one or more tranches (each a “Preferred Tranche”).The Preferred Stock participates with the common
stock in any dividends or distributions or change of control transactions as further described herein. In connection with the Purchase
Agreement, we also agreed to issue an additional 1,126,735 shares of common stock to accredited investor on the 75 day anniversary
of the Initial Purchase as consideration for executing and delivering the Purchase Agreement (the “Commitment Shares”).
The Commitment Shares shall not be issued to accredited investor and shall be held in abeyance (and accredited investor shall not
have the right to, or be deemed to have, beneficial ownership of such Commitment Shares) to the extent that such issuance would
result in accredited investor and its affiliates owning or being deemed the beneficial owner of more than 9.99% of the then issued
and outstanding common stock. The warrant also does not permit issuance of common stock there under to the extent that such issuance
would result in accredited investor and its affiliates owning or being deemed the beneficial owner of more than 9.99% of the then
issued and outstanding common stock. All of the foregoing was effectuated without registration under the Securities Act, in reliance
upon an exemption from registration provided by Section 4(2) under the Securities Act and Rule 506 of Regulation D promulgated
there under. These securities may not be transferred or sold absent registration under the Securities Act or an applicable exemption
therefrom.



F-10







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



Under the terms and subject to the conditions
of the Purchase Agreement, from time to time over the two-years following the Initial Purchase, beginning on August 17, 2011, at
the Company’s sole discretion, the Company may sell to the accredited investor, and the accredited investor will be obligated
to purchase, shares of the Preferred Stock. In order to effectuate such a sale, the Company will issue to the accredited investor,
subject to the terms and conditions of the Purchase Agreement (all of which conditions are outside of the accredited investor’s
control) one or more Preferred Tranche notices to purchase a certain dollar amount of such Preferred Stock (each such notice, a
“Preferred Notice”).Upon receipt of a Preferred Notice, the accredited investor will be obligated, subject to the terms
and conditions specified in the Purchase Agreement (which conditions are outside of the accredited investor’s control), to
purchase the Preferred Stock subject to such Preferred Notice on the 10th trading day after the date of the Preferred
Notice. Such conditions include, but are not limited to, the following: (i) the Common Stock must be listed for trading or quoted
on a trading exchange or market, (ii) the representations and warranties of the Company set forth in the Purchase Agreement must
be true and correct as if made on the date of each Preferred Notice (subject, however, to the Company’s ability to update
disclosure exceptions to such representations and warranties through the Company’s SEC reports), (iii) the Company must not
be in breach or default of the Purchase Agreement or any agreement entered into in connection therewith (the “Transaction
Documents”), or any other material agreement of the Company, (iv) there shall have occurred no material adverse effect involving
the Company or its business, operations or financial condition since the date of the Initial Purchase, (v) the absence of any law
or judicial action prohibiting the transactions contemplated by the Purchase Agreement, or any lawsuit seeking to prohibit or adversely
affect such transactions, and (vi) all necessary governmental, regulatory or third party approvals and consents must have been
obtained. The maximum amount of each Preferred Tranche is limited to a dollar amount of Preferred Stock equal to the lesser of
(a) 20% of the cumulative dollar trading volume of the Common Stock for the 10 trading day-period immediately preceding the applicable
Preferred Notice date and (b) $5.0 million less the amount of any previously noticed and funded Preferred Tranches. In addition,
each Preferred Notice after the first Preferred Notice may not be given sooner than the trading day after the date on which the
closing for the prior Preferred Tranche has occurred.



On June 3, 2011, in connection
with our private placement transaction, we issued to the investor a five-year warrant to purchase up to 20,476,707 shares of Common
Stock at an initial Exercise Price of $1.02 per share (the “Original Exercise Price”). The warrant is also exercisable
on a cashless basis or through the issuance by the holder of a secured promissory note. Any secured promissory note issued in connection
with an exercise of the warrant shall bear interest at 2% per year calculated on a simple interest basis. The entire principal
balance and interest thereon shall be due and payable on the fourth anniversary of the date of the secured promissory note. Any
such secured promissory note shall be secured by the borrower’s right, title and interest in certain securities held in the
portfolio of the borrower with a fair market value equal to the principal amount of the secured promissory note. Additionally,
any portion of the warrant may also be exchanged for shares of common stock based on a Black-Scholes calculation as more fully
set forth in the warrant. The warrant contains certain provisions that protect against dilution in certain events such as stock
dividends, stock splits and other similar events. In addition, the warrant has price-based anti-dilution protection in the event
the Company issues securities at a value less than the Original Exercise Price, meaning the exercise price of the warrant would
be adjusted down to the lowest applicable issuance price following the issuance of the warrant to prevent dilution to the holder.
Pursuant to the warrant, any such anti-dilution adjustments shall be made on a pro-rata basis until such time as the Company has
made dilutive issuances which exceed $5.0 million. The warrant shall not be exercisable or exchangeable by the holder (or any future
holder) to the extent the holder (or such future holder) or any of its affiliates would beneficially own in excess of 9.9% of the
Common Stock as a result of such exercise or exchange.



In connection with the above transaction, we
recorded a net charge to operations of $5,673,053 and a charge to additional paid in capital of $470,000 during the year ended
December 31, 2011. The value of the derivative warrant liability was reduced to $2,930,955 at December 31, 2011 and $248,368 at
December 31, 2012. In connection with this transaction we recorded deferred financing fees of $427,073. However, because access
to the financing is based on a percentage formula of the dollar value of stock traded, the Company determined that it is unlikely
that sufficient stock volume will be reached over the balance of the term of the financing and has expensed the deferred financing
fees of $427,073 during the quarter ended September 30, 2012.



On December 29, 2011, the Company completed
a private placement with three investors where we issued and sold a total of 280,000 shares of our common stock and a warrant to
purchase 280,000 shares of our common stock at an exercise price of $0.20, for gross proceeds of $56,000. The exercise price equaled
the quoted per share market price at the date of the sale of the shares.



On January 26, 2012 the Company issued 45,833
shares of common stock valued, using the closing stock price, at $5,500 as compensation for a license fee to non-employees.



On February 23, 2012 pursuant to the share
exchange agreement by which the Company acquired ISN, the Company issued 7,394,056 shares of its common stock, no par value per
share. These shares were issued pursuant to the exemption from registration provided under Section 4(2) of the Securities Act.



On February 26, 2012 the Company issued 45,833
shares of common stock valued at $6,417 using the closing stock price of the day, as compensation for a license fee to non-employees.



F-11







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



On March 26, 2012 the Company issued 45,833
shares of common stock valued at $4,583 using the closing stock price of the day, as compensation for a license fee to non-employees.



On March 31, 2012 the Company elected to issue
49,394 shares of common stock valued, using the closing stock price of the day valued at $4,442 in lieu of cash to satisfy interest
payable at March 31, 2012 to the convertible debentures holders.



On April 2, 2012 the Company sold 200,000 shares
of common stock for cash consideration of $10,000.



On April 10, 2012 the Company issued 6,170,950
shares of common stock valued at $740,514 using the closing stock price of the day, as compensation for services rendered to employees
and non-employees.



On April 20, 2012 the Company issued 1,500,000
shares of common stock valued at $180,000 using the closing stock price of the day, as compensation for services rendered to non-employees.



On April 27, 2012 the Company issued 350,000
shares of common stock valued at $42,000, using the closing stock price of the day, as compensation for services rendered to non-employees.



On April 30, 2012 the Company issued 250,000
shares of common stock following the conversion of $100,000 of a $350,000 14% convertible debenture.



On May 1, 2012 the Company issued 595,836 shares
of common stock valued at $41,709 using the closing stock price of the day, as compensation for a license fee to non-employees.



On June 7, 2012 the Company sold 1,500,000
shares of common stock for cash consideration of $15,000.



On June 15, 2012 the Company sold 10,000,000
shares of common stock for cash consideration of $100,000.



On June 30, 2012 the Company sold 10,000,000
shares of common stock for cash consideration of $100,000.



On June 30, 2012 the Company elected to issue
44,063 shares of common stock valued at $1,763, using the closing stock price of the day, in lieu of cash to satisfy interest payable
at June 30, 2012 to the convertible debentures holders.



On September 4, 2012 the Company issued 2,033,898
shares of common stock following the conversion of $12,000 of a $47,500 8% convertible debenture.



On September 30, 2012 the Company elected to
issue 41,545 shares of common stock valued at $228, using the closing stock price of the day, in lieu of cash to satisfy interest
payable at September 30, 2012 to the convertible debentures holders.



On December 31, 2012 the Company elected to
issue 41,545 shares of common stock valued at $206 using the closing stock of the day, in lieu of cash to satisfy interest payable
at December 31, 2012 to the convertible debentures holders.



7. Stock Options Plan



The Company has a Stock Incentive Plan (the
“Plan”).Under the Plan, at December 31, 2012 and 2011, the Company had 4,000,000, reserved for the issuance of stock
options to employees, officers, directors and outside advisors. Under the Plan, the options may be granted to purchase shares of
the Company’s common equity at fair market value, as determined by the Company’s Board of Directors, at the date of grant.



Through December 31, 2012, the Company granted 1,222,000 options
to purchase shares of our common stock to officers and employees with an exercise price of $0.17 per share, the fair market value
at the date of grant. The options vest from zero to three years. The option compensation value will be expensed to operations over
the option's vesting schedule. Using the Black-Scholes option pricing model and on an estimated forfeiture rate, the remaining
value to be expensed based on 722,000 outstanding options is approximately $13,000. The expense amortized during the years ended
December 31, 2012 and 2011, was $25,173 and $39,679, respectively.



F-12







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



|                                 |  | Shares     |       |   | Weighted Average |   |      | Weighted Average | 
|-------------------------------- |  | ---------- | ----- | - | ---------------- | - | ---- | ---------------- | 
|                                 |  | (in        |       |   | Exercise         |   |      | Fair             | 
|Options                          |  | thousands) |       |   | Price            |   |      | Value            | 
|At December 31, 2010             |  |            | —     |   |                  | $ | —    |                  | 
|Granted                          |  |            | 1,222 |   |                  |   | 0.16 |                  | 
|Exercised                        |  |            | —     |   |                  |   | —    |                  | 
|Forfeiture and cancelled         |  |            | (50   | ) |                  |   | 0.17 |                  | 
|At December 31, 2011             |  |            | 1,172 |   |                  | $ | 0.17 |                  | 
|Granted                          |  |            | —     |   |                  |   | —    |                  | 
|Exercised                        |  |            | —     |   |                  |   | —    |                  | 
|Forfeiture and cancelled         |  |            | (450  | ) |                  |   | 0.17 |                  | 
|At December 31, 2012             |  |            | 722   |   |                  | $ | 0.16 |                  | 
|Exercisable at December 31, 2012 |  |            | 722   |   |                  | $ | 0.16 |                  | 
|Available for future grant       |  |            | 3,278 |   |                  |   |      |                  | 



The following table summarizes information about options
outstanding at December 31, 2012:





|                          |               |  | Outstanding
    options                      |  |     | Vested
    options             | 
|------------------------- | ------------- |  | -------------------------------------------- |  | --- | ------------------------------ | 
|Range
    ofExercisePrice |               |  | NumberOutstanding atDecember 31, 2012 (000s) |  |     | Weighted
Average
RemainingLife | 
|                          | $0.14 - $0.17 |  |                                              |  | 722 |                                | 



The following table summarizes information about non-vested
options outstanding at December 31, 2012:



|                             |  | Number of         |       |   | Weighted Average Grant |  
|---------------------------- |  | ----------------- | ----- | - | ---------------------- | -
|Total
    Non-vested options |  | shares
    (000s) |       |   | Date
    Fair Value    |  
|At December 31, 2010         |  |                   | —     |   |                        | $
|Granted                      |  |                   | 1,222 |   |                        |  
|Vested                       |  |                   | (337  | ) |                        |  
|Forfeited                    |  |                   | (50   | ) |                        |  
|At December 31, 2011         |  |                   | 835   |   |                        |  
|Granted                      |  |                   | —     |   |                        |  
|Vested                       |  |                   | (229  | ) |                        |  
|Forfeited                    |  |                   | (450  | ) |                        |  
|At December 31, 2012         |  |                   | 156   |   |                        | $



F-13







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



8. Debt Obligations



Convertible Debentures



In August 2010, in a series of transactions,
the Company issued five unsecured, convertible debentures, with an aggregate principal balance of $500,000, with interest rates
of 8% per annum and a maturity date of August 2013. The debentures are convertible into shares of the Company’s stock at
a conversion price of $0.50 per share. Also, in August 2010, the Company issued an unsecured, convertible debenture in the principal
amount of $500,000 with an interest rate of 8% and a maturity date of August 2013. The debenture is convertible into shares of
the Company’s stock at a conversion price of $0.40 per share. Interest on the above debentures is payable quarterly. At the
Company’s option, interest due may be settled in cash or shares of Company common stock.



In January 2011, the debenture holders of aggregate
$525,000 principal amount of 8% convertible debentures elected to convert their debentures into 1,300,000 shares of common stock.



In June 2010, Pet Airways, Inc. (Florida) issued
a $250,000 principal amount unsecured debenture, with an interest rate of 14% per annum and a maturity date of June 18, 2011 (“14%
debenture”). Interest on the 14% debenture is payable quarterly starting January 1, 2011. At the Company’s option,
interest due may be settled in cash or shares of Company common stock.



On June 3, 2011, the Company extinguished the
$250,000 principal amount 14% debenture in exchange for a $350,000 principal amount convertible debenture with a coupon interest
rate of 14% per annum, a conversion price of $0.50 per share of common stock and a maturity date of August 14, 2013 (“14%
convertible debenture”) and a detached warrant for the purchase of 875,000 shares of common stock at an exercise price of
$0.50 per share with an expiration date of June 3, 2016. The extinguishment of the $250,000 principal amount 14% debenture resulted
in a total loss on the extinguishment of debt of $571,122 including $10,128 of accrued interest payable.



The 14% convertible debenture and detached
warrant issued above is subject to derivative liability accounting. Using the Black-Scholes option pricing model, a fair value
of the debenture’s beneficial conversion feature and warrant component derivative was determined to be $342,632 and has been
recorded as APIC and debt discount. Using the Black-Scholes option pricing model, a fair value of the detached warrant was determined
to be $481,250 and has been recorded as APIC and element of the total loss on the extinguishment of debt.



On March 2, 2012 the Company issued an 8% convertible
debenture, with a principal balance of $47,500, and a maturity date of November 29, 2012.



On April 25, 2012 the Company issued an 8%
convertible debenture, with a principal balance of $27,500, and a maturity date of January 18, 2013.



On April 30, 2012, the debenture holder of
$350,000 principal amount of 14% convertible debentures elected to convert $100,000 of the debenture into 250,000 shares of common
stock.



On July 24, 2012 the Company issued an 8% convertible
debenture, with a principal balance of $27,500, and a maturity date of April 19, 2013.



On September 4, 2012 the Company issued 2,033,898
shares of common stock following the conversion of $12,000 of a $47,500 8% convertible debenture.



At December 31, 2012, an aggregate of $565,500
and $250,000 principal amount 8% and 14% convertible debentures, respectively, were outstanding.



Convertible debentures, net of unamortized discounts, consist of
the following:



|                                                            |  | December 31, 2012 |          |   | December 31, 2011 |  
|----------------------------------------------------------- |  | ----------------- | -------- | - | ----------------- | -
|Principal amount 8% convertible debenture short term        |  | $                 | 565,500  |   |                   | $
|Principal amount 8% convertible debenture long term         |  |                   | -        |   |                   |  
|Principal amount 14% convertible debenture                  |  |                   | 250,000  |   |                   |  
|Unamortized debt discount                                   |  |                   | (160,067 | ) |                   |  
|Net carrying amount                                         |  | $                 | 655,433  |   |                   | $
|Equity component (recognized in additional paid-in capital) |  | $                 | 879,528  |   |                   | $



F-14







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



The discount is amortized as interest
expense over the period of the debentures term. Interest expense of $411,332 was recorded to operations related to the
amortization of debenture debt discounts during the year ended December 31, 2012. This included $2,747 of accelerated
amortization due to the conversion of $12,000 of 8% convertible debentures, in addition to $56,333 due to the conversion of
$100,000 of 14% convertible debentures.



Warrants



On January 4, 2011, the Company issued a warrant
with an exercise price of $1.00 for the purchase of 100,000 shares of common stock valued at $1.50 per share, or $150,000, as settlement
of services rendered by non-employee in 2010.



On February 4, 2011, the Company issued a warrant
with an exercise price of $1.00 purchase of 16,575 shares of common stock valued at $1.15 per share, or $19,061, as settlement
of services rendered by non-employee in 2010.



On June 3, 2011, the Company issued a warrant
with an exercise price of $0.50 purchase of 875,000 shares of common stock valued at $0.70 per share, or $ 612,500.



On June 3, 2011, the Company issued a warrant
with an exercise price of $1.02 purchase of 20,476,707 shares of common stock valued at $0.70 per share, or $14,333,694.



On December 29, the Company issued a warrant
with an exercise price of $0.20 purchase of 738,678 shares of common stock valued at $0.14 per share, or $103,414.



On February 23, 2012, 4,336,503 warrants were
issued to Socius with an exercise price of $0.14 per share to reflect an anti-dilution adjustment.



On March 2, 2012, 252,449 warrants were issued
to Socius with an exercise price of $0.14 per share to reflect an anti-dilution adjustment.



On April 2, 2012, an additional 53,811 warrants
were issued to Socius with an exercise price of $0.05 per share to reflect an anti-dilution adjustment.



On April 10, 2012, an additional 3,995,247
warrants were issued to Socius with an exercise price of $0.12 per share to reflect an anti-dilution adjustment.



On April 20, 2012, an additional 405,839 warrants
were issued to Socius with an exercise price of $0.12 per share to reflect an anti-dilution adjustment.



On April 20, 2012, an additional 828,089 warrants
were issued to Socius with an exercise price of $0.12 per share to reflect an anti-dilution adjustment.



On April 25, 2012, an additional 184,335 warrants
were issued to Socius with an exercise price of $0.12 per share to reflect an anti-dilution adjustment.



On April 27, 2012, an additional 302,046 warrants
were issued to Socius with an exercise price of $0.12 per share to reflect an anti-dilution adjustment.



On June 7, 2012, an additional 109,489 warrants
were issued to Socius with an exercise price of $0.01 per share to reflect an anti-dilution adjustment.



On June 15, 2012, an additional 733,848 warrants
were issued to Socius with an exercise price of $0.01 per share to reflect an anti-dilution adjustment.



F-15







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



On June 30, 2012, an additional 761,126 warrants
were issued to Socius with an exercise price of $0.01 per share to reflect an anti-dilution adjustment.



On July 24, 2012, an additional 217,390 warrants
were issued to Socius with an exercise price of $0.01 per share to reflect an anti-dilution adjustment.



A summary of the warrant activity for the year
ended December 31, 2012 is as follows:



|                                           |  |                        |            |  |                |  |           |                 |  |  |                 |  |  | Weighted        |      |  |           | 
|------------------------------------------ |  | ---------------------- | ---------- |  | -------------- |  | --------- | --------------- |  |  | --------------- |  |  | --------------- | ---- |  | --------- | 
|                                           |  |                        |            |  |                |  |           |                 |  |  |                 |  |  | Average         |      |  |           | 
|                                           |  |                        |            |  |                |  |           |                 |  |  | Weighted        |  |  | Remaining       |      |  |           | 
|                                           |  |                        |            |  |                |  |           |                 |  |  | Average         |  |  | Contracted Term |      |  | Aggregate | 
|                                           |  | Number
    of Warrants |            |  | Exercise Price |  |           | (Years)         |  |  | Intrinsic Value | 
|                                           |  | Equity
    and         |            |  | 8% Convertible |  |           | 14% Convertible |  |  |                 |  |  |                 |      |  |           | 
|                                           |  | Services               |            |  | Debentures     |  |           | Debenture       |  |  |                 |  |  |                 |      |  |           | 
|Outstanding
    at December 31, 2011       |  |                        | 21,631,960 |  |                |  | 1,400,000 |                 |  |  | 875,000         |  |  | $               | 0.97 |  |           | 
|Granted                                    |  |                        | 4,336,503  |  |                |  |           |                 |  |  |                 |  |  | $               | 0.14 |  |           | 
|Granted                                    |  |                        | 252,499    |  |                |  |           |                 |  |  |                 |  |  | $               | 0.14 |  |           | 
|Granted                                    |  |                        | 53,811     |  |                |  |           |                 |  |  |                 |  |  | $               | 0.05 |  |           | 
|Granted                                    |  |                        | 5,715,606  |  |                |  |           |                 |  |  |                 |  |  | $               | 0.12 |  |           | 
|Granted                                    |  |                        | 1,821,853  |  |                |  |           |                 |  |  |                 |  |  | $               | 0.01 |  |           | 
|Exercised/Expired/Cancelled                |  |                        | -          |  |                |  |           |                 |  |  |                 |  |  | $               | -    |  |           | 
|Outstanding
    at December 31, 2012       |  |                        | 33,812,232 |  |                |  | 1,400,000 |                 |  |  | 875,000         |  |  | $               | 0.68 |  |           | 
|Exercisable
    at December 30, 2012       |  |                        | 33,812,232 |  |                |  | 1,400,000 |                 |  |  | 875,000         |  |  | $               | 0.68 |  |           | 
|                                           |  |                        |            |  |                |  |           |                 |  |  |                 |  |  |                 |      |  |           | 
|Weighted
    Average Grant Date Fair Value |  |                        |            |  |                |  |           |                 |  |  |                 |  |  | $               | 0.47 |  |           | 



9. Segment Information



The Company originally operated as a single
segment company; however, effective February 1, 2012 the Company became a development stage company and is no longer operating
as a segment. The Company intends to commence operations as another segment in the near future.



10. Income Taxes



As of December 31, 2012, the Company had deferred
tax assets primarily consisting of its net operating loss carry forwards, accrued expenses and capitalized start-up costs for tax
purposes. However, because the cumulative losses in several consecutive years, the Company has recorded a full valuation allowance
such that its net deferred tax asset is zero.



With respect to tax years prior to 2010, the
Company was taxed as a partnership. Accordingly, all of the losses of the Company flow through to the members of the partnership
and the Company has no deferred tax assets or loss carry forwards from this period.



The valuation allowance for the deferred tax
asset increased by $1,325,588 for the year ended December 31, 2012.



We must also make judgments whether the deferred
tax assets will be recovered from future taxable income. To the extent that we believe that recovery is not likely, we must establish
a valuation allowance. A valuation allowance has been established for deferred tax assets which we do not believe meet the “more
likely than not” criteria. Our judgments regarding future taxable income may change due to changes in market conditions,
changes in tax laws, tax planning strategies or other factors. If our assumptions and consequently our estimates change in the
future, the valuation allowances we have established may be increased or decreased, resulting in a respective increase or decrease
in income tax expense.



The Company accounts for income taxes using
the asset and liability approach in accordance with ASC 740, “Accounting for Income Taxes”., by prescribing a more-likely-than-not
(i.e., greater than 50% likelihood of receiving a benefit) threshold to recognize any benefit of a tax position taken or expected
to be taken in a tax return. Tax positions that meet the recognition threshold are reported in the consolidated financial statements.
The guidance further provides the benefit to be realized assuming a review by tax authorities having all relevant information and
applying current conventions. The interpretation also clarifies the consolidated financial statements classification of tax related
penalties and interest and set forth new disclosures regarding unrecognized tax benefits. The adoption of ASC 740-10 did not have
a material impact on our consolidated financial results.



F-16







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



At December 31, 2012, the Company had available
net operating loss carry forwards of approximately $7,169,146 for federal income tax purposes. Such carry forwards may be used
to reduce consolidated taxable income, if any, in future years through their expiration in 2032 subject to limitations of Section
382 of the Internal Revenue Code, as amended. Utilization of net operating loss carry forwards may be limited due to the ownership
changes and the Company’s acquisitions.



At December 31, 2012, the Company had not filed
the federal tax return for the years ended December 31, 2012, 2011 and 2010.



Deferred tax assets are comprised of the following
components:



|                                                    |  | Years Ended December
    31, |           
|--------------------------------------------------- |  | ---------------------------- | ----------
|                                                    |  | 2012                         |           
|Current:                                            |  |                              |           
|Deferred state taxes                                |  | $                            | (50,645   
|Accruals and reserves                               |  |                              | 874,248   
|                                                    |  |                              | 823,603   
|Non-current:                                        |  |                              |           
|Property, equipment and capitalized startup costs   |  |                              | 103,378   
|Net operating loss carry forwards                   |  |                              | 2,951,774 
|Deferred state taxes                                |  |                              | (177,483  
|Beneficial conversion feature discount amortization |  |                              | (58,917   
|                                                    |  |                              | 2,818,752 
|Total deferred tax asset                            |  |                              | 3,642,355 
|Deferred tax asset valuation allowance              |  |                              | (3,642,355
|Net deferred tax asset                              |  | $                            | -         



|                      |  | Years Ended December
    31, |           
|--------------------- |  | ---------------------------- | ----------
|                      |  | 2012                         |           
|Reconciliation roll:  |  |                              |           
|Book income (loss)    |  | $                            | (1,218,814
|Income tax expense    |  |                              | 1,600     
|Subtotal              |  |                              | (1,217,214
|                      |  |                              |           
|Permanent differences |  |                              | (2,151,965
|Temporary differences |  |                              | 1,884,648 
|Net loss              |  | $                            | (1,484,531



11. Net Loss per Share



Net loss per share is computed based on the
weighted average number of shares of common stock and potentially dilutive securities assumed to be outstanding during the period
using the treasury stock method. Potentially dilutive securities consist of our convertible debt securities, stock options and
warrants to purchase common stock.



F-17







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



12. Commitments and Contingencies



Operating lease
commitments



Rent expense charged to operations were $252,040
and $443,866 for the years ended December 31, 2012 and 2011, respectively. The entire amount of rent incurred during 2012 was related
to discontinued operations. The Company had no lease agreements with a term in excess of one year at December 31, 2012.



Employment Agreements



The Company had no employment agreements at December 31, 2012.



F-18







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



13. Legal Proceedings



On March 4, 2013, a judgment was entered against
us in District Court of Douglas County, Nebraska by Suburban Air Freight in the sum of $87,491 for services rendered, including
statutory interest and attorneys’ fees. Except for the foregoing, there were no ongoing legal proceedings nor is the Company
aware of any material un-asserted claims for the year ended December 31, 2012. From time to time, we may become involved in various
lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties,
and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently
not aware of any such legal proceedings or claims other than those mentioned above that it believes will have, individually or
in the aggregate, a material adverse effect on its business, financial condition or operating results.



14. Discontinued Operations



In January, 2012, the Company decided to
discontinue its Pet Airways business. The remaining liabilities are presented on the balance sheet under the caption
“Accounts and accrued expenses payable, discontinued operations.”Liabilities
related to discontinued operations were as follows:



|Airways lease accruals                                         |  | $ | 375,090 | 
|-------------------------------------------------------------- |  | - | ------- | 
|Liability to merchant card processor                           |  |   | 224,228 | 
|Other liabilities and accruals                                 |  |   | 178,756 | 
|Accounts and accrued expenses payable, discontinued operations |  | $ | 778,074 | 



|Litigation accrual, discontinued operations |  | $ | 87,491 | 
|------------------------------------------- |  | - | ------ | 



The following table sets forth for the year ended December 31, 2012
indicated selected financial data of the Company’s discontinued operations of its pet airways business.



|Revenue                           |  | $ | -       | 
|--------------------------------- |  | - | ------- | 
|Cost of sales                     |  |   | -       | 
|Gross profit (loss)               |  |   | -       | 
|Operating expenses                |  |   | 290,517 | 
|Loss on abandonment of equipment  |  |   | 49,053  | 
|Loss from discontinued operations |  | $ | 339,570 | 



15. Going Concern Matters



The accompanying audited consolidated financial
statements 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 years ended December 31, 2012 and 2011, the Company incurred net losses of $(1,218,814)
and $(7,513,562), respectively, of which $(879,244) and $(7,513,562), in losses was derived from continuing operations respectively,
and $(339,570) and $0, related to losses from discontinued operations, respectively, for the years ended December 31, 2012 and
2011. As of December 31, 2012 the Company had an accumulated deficit of $(14,797,384) of which $(13,918,140) pertained to continuing
operations and $(879,244) related to discontinued operations; compared to a deficit of $($13,578,570) from continuing operations,
and no discontinued operations deficit as of December 31, 2011. We do not presently have adequate cash from operations or financing
activities to meet our long-term financing needs. As of December 31, 2012, we had $81,755 in cash on hand to use in executing our
business plan. We will require additional working capital to continue our operations during the next 12 months and to support our
long-term growth strategies, so as to enhance our service offerings and benefit from economies of scale. Our working capital requirements
and the cash flow provided by future operating activities, if any, will vary greatly from quarter to quarter, depending on the
volume of business and competition in the markets we serve. We may seek any necessary funding through one or more credit facilities,
if available, or through the sale of debt or additional equity securities. However, there is no assurance that funding of any type
would be available to us, or that it would be available at rates and on terms and conditions that would be financially acceptable
and viable to us in the long term. If we are unable to raise any necessary additional financing when needed, we may be required
to suspend operations, sell assets or enter into a merger or other combination with a third party, any of which could adversely
affect the value of our common stock, or render it worthless. If we issue additional debt or equity securities, such securities
may enjoy rights, privileges and priorities (including but not limited to coupon rates, conversion rights, rights to fixed or preferential
dividends, anti-dilution rights or preference as to the distribution of assets upon a liquidation) superior to those enjoyed by
holders of our common stock, thereby diluting the value of our common stock.



F-19







THE PAWS PET COMPANY, INC.

(A
Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)



16. Subsequent Events



On
March 9, 2013 The Company entered into a Securities Exchange Agreement whereby the Company issued 80,000shares of the Company’s
Series B Convertible Preferred Stock to the members of Advanced Access Pharmacy Services,LLC, a Nevada limited liability
company (“AAPS”) in exchange for 100% of the outstanding units of limited liability company membership interests of
AAPS.



AAPS
was created to exploit specific niche opportunities in wholesale and retail pharmacies. AAPS intends to focus on workers’ compensation
and in-office physician pharmacy distribution as well as the limited purchase and collection of pharmaceutical and services related
receivables. Leveraging decades of experience in pharmacy and medical receivables collections of the people being hired, the Company
believes that it should be able to achieve significant profitability in a very short period with very limited investment.



On March 15, 2013,
the Company issued one million shares of common stock to a consultant in connection to the engagement of the consultant.



Effective May 10,
2013, The PAWS Pet Company Inc. (“PAWS”) entered into (i) Settlement Agreements with Bellevue Holdings, Inc. and Fantasy
Funding, Inc; (ii) a Securities Exchange Agreement with Bellevue Holdings, Inc. and (iii) Securities Exchange Agreements with
Fantasy Funding, Inc. and Destiny Diversification Holdings Corp., whereby the parties exchanged PAWS convertible notes and common
stock purchase warrants for an aggregate of 2,415 shares of PAWS Series C preferred stock (the “Series C Stock”).



Each share of Series
C Stock is convertible into 20,000 shares of PAWS common stock, with a conversion ratio of $0.005. All the 2,415 shares of Series
C Stock issued in the foregoing exchange are convertible into a total of 48,300,000 shares of PAWS common stock. The exchanges
were effective pursuant to the exemption from registration under Section 3 (a)(9) of the Securities Act of 1933, as amended (the
“Securities Act”).



On May 10, 2013 PAWS
also entered into an agreement to sell 325 shares of Series C Stock to Destiny Diversification Holdings Corp for a cash payment
of $25,000 and an additional payment on June 1, 2013 of $7,500. The 325 shares of Series C Stock issued in that transaction are
convertible into a total of 6,500,000 shares of PAWS common stock. The foregoing transaction was effective pursuant to the exemption
from registration under Section 4 (a)(2) of the Securities Act and Rule 506 of Regulation D there under.



F-20







|ITEM 9A. | CONTROLS AND PROCEDURES
|-------- | -----------------------



Disclosure controls and procedures are controls
and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities
and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated
and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.



Disclosure Controls
and Procedures.



Our management has evaluated, under the
supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) as of the end of the period covered by this report pursuant to Rule 13a-15(b)
under the Exchange Act. Based on this evaluation, our Chief Executive Officer and acting Chief Financial Officer concluded
that, as of December 31, 2012, subject to the inherent limitations noted in this Part II, Item 9A as of December 31, 2012 our
disclosure controls and procedures were not effective due to the existence of material weaknesses in our internal controls
over financial reporting, as discussed below.



Management’s
Report on Internal Control over Financial Reporting.



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(e) and 15d – 15(e) under the
Exchange Act as amended. Internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance
with generally accepted accounting principles in the United States of America (“U.S. GAAP”).



Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, 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.



Our management assessed the effectiveness of
our internal controls over financial reporting as of December 31, 2012 using criteria 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. Our management has concluded that our internal control over financial reporting was not effective
as of December 31, 2012 due to material weaknesses in our internal controls.



A material weakness is a control
deficiency, or a combination of control deficiencies, that results in a more than remote likelihood that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our
management, in consultation with our independent registered public accounting firm, concluded that material weaknesses
existed in the following areas as of December 31, 2012:



(1)
we do not have in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding
certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue
to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions;



(2) we have inadequate segregation
of duties consistent with the control objectives including but not limited to the disbursement process, transaction or account
changes, account reconciliations and approval and the performance of bank reconciliations;



(3) we have ineffective controls
over the period end financial disclosure and reporting process caused by reliance on third-party experts and/or consultants and
insufficient accounting staff;



(4) we do not have 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, approvals and
procedures.



Management believes the material weaknesses
set forth in items 1 to 3 above did not have an effect on our financial results. However, management believes that the lack of
a functioning audit committee and a lack of a majority of outside directors on our board of directors results in a lack of oversight
in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement
in our consolidated financial statements in future periods.





17







Managements Remediation
Initiatives.



In order to remedy the
identified material weaknesses and other deficiencies and enhance our internal controls, management would initiate, when
funding permits, the following series of measures:1) create a financial position that adequately segregates financial
duties consistent with control objectives; 2) hire staff technically proficient at applying U.S. GAAP to financial
transactions and reporting; and 3) 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 perform the oversight in the establishment and
monitoring of required internal controls and procedures including but not limited to a) review and approval of significant
transactions; b) selection and approval of the services of the independent registered public accounting firm; and c) review
and approval of the report of the registered independent certified public accountants on the required periodic external
reports.



This annual report does not include an
attestation report of our registered independent certified public accountants regarding internal control over financial
reporting. Management’s report was not subject to attestation by our registered independent certified public accounting
firm pursuant to rules adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act that permit us to provide
only management’s report in this annual report.



Changes in Internal
Control over Financial Reporting.



There have not been any changes in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the
calendar quarter and for the year ended December 31, 2012 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.



18







PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------



The following table sets forth the name, age
and position of each of our executive officers and directors:



|Name                  |  | Age |  | Position                                                           
|--------------------- |  | --- |  | -------------------------------------------------------------------
|                      |  |     |  |                                                                    
|Dan Wiesel            |  | 57  |  | Chairman, Chief Executive Officer and Director                     
|                      |  |     |  |                                                                    
|Alysa Binder          |  | 49  |  | Executive Vice President and Chief Development Officer and Director
|                      |  |     |  |                                                                    
|Evon L. Midei         |  | 62  |  | Director                                                           
|                      |  |     |  |                                                                    
|Jonathan Renkas, M.D. |  | 45  |  | Director                                                           



Business Experience



We believe that our board should be composed
of individuals with sophistication and experience in many substantive areas that impact our business. We believe the experience,
qualifications, or skills in the following areas are most important: sales and marketing; strategic planning; human resources and
development practices; and board practices from other corporations. These areas are in addition to the personal qualifications
described in this section. We believe that all of our current board members possess the professional and personal qualifications
necessary for board service, and have highlighted particularly noteworthy attributes of each Board member in the individual biographies
below. The principal occupation and business experience, for at least the past five years, of each current director is as follows;



Dan Wiesel co-founded Pet Airways
in 2005 and has served as our Chairman of the board of directors and Chief Executive Officer since August 2009. Mr. Wiesel
has also served as our President and Chief Financial Officer until January 2011. From 1983 to 1985, Mr. Wiesel served as Vice
President of Acquisitions for a national real estate investment company, where Mr. Wiesel was responsible for the negotiation
and purchase of over $300 million in commercial real estate. Subsequently, in 1985 Mr. Wiesel founded The Wendemere Group, a
real estate development firm, which built custom homes with a total value of more than $20 million. In 1990, Mr. Wiesel
founded StitchIt Corporation, a manufacturer of women’s swim wear. In 1995, as principal of Interlink Recruiting, Mr.
Wiesel was responsible for the creation of this boutique executive recruiting firm. Mr. Wiesel holds an MBA in
Entrepreneurship from the University of Southern California and holds a private pilot’s license. As a result of these
and other professional experiences, Mr. Wiesel possesses particular knowledge and experience in business development, sales
strategy and management that strengthen the board’s collective qualifications, skills, and experience.



Alysa Binder co-founded Pet Airways
in 2005 and has served as our Executive Vice President and Chief Development Officer since August 2009. Ms. Binder began her career
in the premium incentive industry, responsible for marketing and sales to large corporate customers. Ms. Binder later founded a
retail jewelry operation, expanding the business to include custom creations for high-profile clients. In 1995, Ms. Binder founded
Interlink Recruiting. Ms. Binder is Dan Wiesel’s wife. In 2005, Ms. Binder joined Dan in founding Pet Airways. As a result
of these and other professional experiences, Ms. Binder possesses particular knowledge and experience in business development,
strategic planning and marketing that strengthen the board’s collective qualifications, skills, and experience.



Evon L. Midei is a registered pharmacist
with over 35 years’ experience in pharmacy operations, pharmacy management and executive level hospital administration. Since
2011, Mr. Midei has served as independent consultant with Empire Pharmacy Consultations in Miami, Florida, providing management
and other operational consulting services to various pharmacy and healthcare organizations. From 1995 to 2010, he was a pharmacist
with CVS in Allentown, Pennsylvania. In 1996, he was Director of Operations for Raytel Medical Corporation in Windsor, Canada.
From 1982 to 1995, he was employed by St. Luke’s Hospital in Allentown, Pennsylvania, where he initially was Risk Manager/Special
Projects Administrator. During his tenure at the hospital, he rose to become Senior Vice President and Chief Operating Officer,
serving in such position from 1993 to 1995. In such capacity, he was responsible for day to day operations of the hospital and
its affiliated businesses. He also negotiated managed care contracts of all types with manage care organizations, physicians, employers
and government agencies. Prior to joining St. Luke’s, Mr. Midei occupied various positions in the healthcare and pharmacy
industry, including Pharmacist Manager of Thrift Drugs, in Bethlehem, Pennsylvania from 1973 to 1979, where he managed all aspects
of the operation of this multi-million dollar community pharmacy.



19







Jonathan Renkas, M.D., is a practicing
emergency room physician in the Chicago, Illinois area, where he has been affiliated with West Suburban Medical Center since March
2013 and Ingalls Community Hospital since 2011. Prior thereto, he was affiliated with various hospitals in Wisconsin and Indiana
since 2006. From 2004 to 2006, he served as Senior Vice President and Chief Medical Officer of U.S. Asthma Care, based in Fort
Worth, Texas and contemporaneously as Utilization Management Medical Director of Midland Management Company. Since 2006, he has
also served on a consulting basis as Senior Quality Management Analyst for Sterling HealthCare Initiatives in Chicago, Illinois.



Directors serve at the discretion of the board
of directors. Executive officers are appointed by and serve at the discretion of the board of directors.



Family Relationships



Mr. Wiesel, our Chief Executive Officer and
Chairman of our board of directors, and Ms. Binder, our Executive Vice President and a director, are married.



Compliance with Section
16(a) of the Exchange Act



The SEC has adopted rules relating to the filing
of ownership reports under Section 16 (a) of the Exchange Ac. Section 16(a) of the Exchange Act requires our directors, officers
and stockholders who beneficially own more than 10% of any class of our equity securities registered pursuant to Section 12 of
the Exchange Act to file initial reports of ownership and reports of changes in ownership with respect to our equity securities
with the SEC. All reporting persons are required by SEC regulations to furnish us with copies of all reports that such reporting
persons file with the SEC pursuant to Section 16(a). Based solely on our review of the copies of such forms received by us and
upon written representations of such reporting persons, we believe that all reporting persons are in compliance with all Section
16(a) filing requirements applicable to such reporting persons, except that the Daniel T. Zagorin Trust, Ms. Binder and Mr. Wiesel
failed to timely file a Form 3 and Mr. Warner failed to file a Form 3 and Form 4.



Audit Committee and
Audit Committee Financial Expert



Due to the size of our operation, members of
the board of directors serve collectively as the Audit Committee and have primary responsibility for monitoring the quality of
internal financial controls and ensuring that the financial performance of our company is properly measured and reported on. It
receives and reviews reports from management and auditors relating to the annual, periodic and interim accounts and the accounting
and internal control systems in use throughout our company.



Our Audit Committee also consults with our
independent registered public accounting firm prior to the presentation of financial statements to stockholders and, as appropriate,
initiates’ inquiries into aspects of our financial affairs. Our Audit Committee is responsible for establishing procedures
for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters,
and for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
The Audit Committee meets not less than quarterly and has unrestricted access to our auditors.



Code of Business Conduct and
Ethics



Due to our small size and limited number of
persons comprising our management, we have not adopted a code of ethics that applies to our principal executive officer, principal
accounting officer, or persons performing similar functions.



Shareholder Communications



We have not implemented any formal procedures
for shareholder communication with our board of directors. Any matter intended for our board of directors, or for any individual
member or members of our board of directors, should be directed to our corporate secretary at The PAWS Pet Company, Inc. 777 E.
Atlantic Avenue Suite C2 265, Delray Beach, Florida 33483. In general, all shareholder communications delivered to the corporate
secretary for forwarding to the board of directors or specified members of the board of directors will be forwarded in accordance
with shareholder’s instructions. However the corporate secretary reserves the right to not forward to members of the board
of directors any abusive, threatening or otherwise inappropriate materials.



20







|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------



Summary Compensation Table



The following Summary Compensation Table shows
the compensation for years 2012 and 2011 awarded to or earned by our Chairman and Chief Executive Officer, President and former
Chief Financial Officer and Executive Vice President and Chief Development Officer as of December 31, 2012. There were no other
highly compensated executive officers serving in such capacities as of December 31, 2011. The persons listed in the following Summary
Compensation Table are referred to herein as the “Named Executive Officers or NEOs.”



|                                                                                         |  |      |      |  |        |   |         |       |  |   | Stock  |  |  | All Other    |        |  |       |  
|---------------------------------------------------------------------------------------- |  | ---- | ---- |  | ------ | - | ------- | ----- |  | - | ------ |  |  | ------------ | ------ |  | ----- | -
|                                                                                         |  |      |      |  | Salary |   |         | Bonus |  |   | Awards |  |  | Compensation |        |  | Total |  
|Name and Principal
    Position                                                          |  | Year |      |  | ($)(2) |   |         | ($)   |  |   | ($)(3) |  |  | ($)          |        |  | ($)   |  
|Dan Wiesel                                                                               |  |      | 2012 |  |        | $ | 245,000 |       |  | $ | -      |  |  | $            | 48,000 |  |       | $
|Chairman of the Board and Chief
    Executive Officer and Acting Chief Financial Officer |  |      | 2011 |  |        | $ | 245,000 |       |  | $ | -      |  |  | $            | -      |  |       | $
|                                                                                         |  |      |      |  |        |   |         |       |  |   |        |  |  |              |        |  |       |  
|Andrew Warner (1)                                                                        |  |      | 2012 |  |        | $ | 175,000 |       |  | $ | -      |  |  | $            | 48,000 |  |       | $
|Former President and Chief Financial Officer                                             |  |      | 2011 |  |        | $ | 210,000 |       |  | $ | -      |  |  | $            | -      |  |       | $
|                                                                                         |  |      |      |  |        |   |         |       |  |   |        |  |  |              |        |  |       |  
|Alysa Binder                                                                             |  |      | 2012 |  |        | $ | 200,000 |       |  | $ | -      |  |  | $            | 48,000 |  |       | $
|Executive Vice President and
    Chief Development Officer                               |  |      | 2011 |  |        | $ | 200,000 |       |  | $ | -      |  |  | $            | -      |  |       | $



|(1) |  | Mr. Warner resigned from his position with the Company on October 29, 2012.                                                                                                                    
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                
|(2) |  | Includes accrued salary $143,294 $113,750 and $113,333 to Mr. Wiesel, Mr. Warner and Ms. Binder at December 31, 2011, No salary was paid during 2012 .                                         
|    |  |                                                                                                                                                                                                
|(3) |  | In
    April 2012 we granted Mr. Wiesel, Mr. Warner and Ms. Binder 400,000 shares each of restricted stock at a fair value of
    $48,000 each. All shares were fully vested on the grant date.



We have not entered into any employment agreements
with our named executive officers.



Outstanding Equity
Awards at Year-End



As of December 31, 2012, there were
350,000 outstanding vested awards owned by a former executive officer with an exercise price of $0.17 that expired in January
2013.



Director Compensation



Effective March 2011, the Company pays each
non-employee director a fee of $1,500 for each “in-person” board or committee meeting and $500 for every telephonic
board or committee meeting. All directors are reimbursed for all reasonable expenses incurred in connection with the performance
of their respective duties as a director. No payments were made to directors during the year ended December 31, 2012.



|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------



The following table sets forth information
regarding beneficial ownership of our common stock as of December 31, 2012 (i) by each person who is known by us to beneficially
own more than 5% of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors
as a group. Unless otherwise specified, the address of each of the persons set forth below is in care of The PAWS Pet Company,
Inc., 455 NE 5th Ave, Suite D464, Delray Beach, FL 33483.



|                                                  |  | Amount and Nature of         |            |  | Percent of    | 
|------------------------------------------------- |  | ---------------------------- | ---------- |  | ------------- | 
|Name of Beneficial Owner                          |  | Beneficial
    Ownership (1) |            |  | Class
    (2) | 
|Officers
    and Directors                        |  |                              |            |  |               | 
|Dan Wiesel and Alysa Binder (3)                   |  |                              | 17,923,273 |  |               | 
|All officers and directors as a group (2 persons) |  |                              | 17,923,273 |  |               | 
|                                                  |  |                              |            |  |               | 
|5% Security Holders                               |  |                              |            |  |               | 
|The Daniel T. Zagorin Trust (4)                   |  |                              | 27,444,078 |  |               | 
|Socius CG II Ltd (5)                              |  |                              | 36,495,762 |  |               | 



| | 1) | Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole
voting power and investment power with respect to the shares of our common stock.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                       

| | 2) | A total of 86,509,928 shares of our common stock are considered to be outstanding pursuant to SEC
Rule 13d-3(d) (1) as of December 31 2012. For each beneficial owner above, any options exercisable within 60 days are included
in the denominator.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                     

| | 3) | Dan Wiesel and Alysa Binder are husband and wife and own their shares jointly with right of survivorship.
| | -- | ---------------------------------------------------------------------------------------------------------
| |    |                                                                                                          

| | 4) | Daniel T. Zagorin has voting and dispositive control over the shares held by the Daniel T. Zagorin
Trust.
| | -- | ---------------------------------------------------------------------------------------------------------
| |    |                                                                                                          

| | 5) | Includes 33,115,557 warrants.
| | -- | -----------------------------



21







Equity Compensation
Plan Information



The following is certain information about
our equity compensation plans as of December 31, 2012.



|                                                           |  | Number ofSecurities
    to beissued upon theexercise ofoptions, warrantsand rights |         |  | Weighted averageexercise
    price ofoutstanding optionswarrants and rights |   |      | Number of securities
    remaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected
    in column (a) | 
|---------------------------------------------------------- |  | ---------------------------------------------------------------------------------- | ------- |  | --------------------------------------------------------------------------- | - | ---- | --------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity Compensation Plans approved by security holders     |  |                                                                                    | -       |  |                                                                             |   | -    |                                                                                                                                               | 
|Equity Compensation Plans not approved by security holders |  |                                                                                    | 722,000 |  |                                                                             | $ | 0.16 |                                                                                                                                               | 



Stock Incentive Plan



In 2010, we adopted our Stock Incentive Plan
(the “Plan”). Under the Plan at December 31, 2011 and 2010 we had 4,000,000 shares reserved for the issuance of stock
options to employees, officers, directors and outside advisors. Under the plan, the options may be granted to purchase shares of
our common stock at fair market value at the date of grant.



There are options to purchase 722,000 shares
and 1,172,000 shares under the Plan as of December 31, 2012 and 2011, respectively.



|ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|------- | -------------------------------------------------------------------------------



The following includes a summary of transactions
through December 31, 2012, or any currently proposed transaction, in which we were or are to be a participant and the amount involved
exceeded or exceeds the lesser of $21,000 or approximately five percent of the average of our total assets at year end for the
last two completed years, and in which any related person had or will have a direct or indirect material interest (other than compensation
described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received,
as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would
be paid or received, as applicable, in arm’s-length transactions.



|● |  | Other
    compensation $0 and$445,000, for the twelve months ended December 31, 2012 and 2011, respectively.
|- |  | ------------------------------------------------------------------------------------------------------------



|● |  | In June 2012, we issued to the Daniel T. Zagorin Trust who remains a holder in excess of 5% of our issued and outstanding shares of common stock 20,000,000 shares of common stock at a price of $0.10 per share for gross proceeds of $200,000.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Director Independence



Pursuant to Item 407 (a) (i)(ii) of regulation
S-K promulgated under the Securities Act, we have adopted the definition of “independent director” as set forth in
Rules 5000 (a)(19) and 5605(a)(2) of the rules of the NASDAQ Stock Market. There is no independent director serving on our board
presently. Our board of directors has not created separately designated standing committees. Officers are appointed annually by
our board of directors and serve at the discretion of our board of directors.



22







|ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
|-------- | --------------------------------------



Audit Fees



The fees billed for professional services rendered
by KBL LLP, our independent accountant, for the audit of our annual consolidated financial statements for the years ended December
31, 2012 and 2011 and the review of the consolidated financial statements included in each of our interim reports during the years
ended December 31, 2012 and 2011 were $112,500 and $61,750 respectively.



Tax Fees



During the fiscal years ended December 31,
2012 and 2011, respectively, there were no fees billed for tax compliance, tax advice and /or tax planning by our independent accountants.



All Other Fees



During the years ended December 31, 2012 and
2011, there were additional fees of zero and $8,250, respectively billed for products and services provided by the independent
accountant.



Audit Committee Approval



Our board of directors serves as our audit
committee. It approves the engagement of our independent auditors including the scope of accounting services to be perform.



23







PART IV



|ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|-------- | ---------------------------------------



|1. | Consolidated financial statements:
|-- | ----------------------------------



The consolidated financial statements included
in Item 8. Consolidated Financial Statements and Supplementary Data above are filed as part of this annual report.



|2. | Financial Statement Schedules:
|-- | ------------------------------



There are no consolidated financial statements
schedules filed as part of this annual report, since the required information is included in the consolidated financial statements,
including the notes thereto, or the circumstances requiring inclusion of such schedules are not present.



|3. | Exhibits:
|-- | ---------





|Exhibit No. |  | Description                                                                                                                                                                                                                                                                                                                                               
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|3.1         |  | Amended and Restated Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the registration statement Form SB-2, File No. 333-130446, initially filed with the SEC on December 19, 2005, as amended)                                                                                                                                     
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|3.2         |  | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to registration statement Form SB-2, File No. 333-130446, initially filed with the SEC on December 19, 2005, as amended)                                                                                                                                                            
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|3.3         |  | Amendment
    to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K filed with the SEC
    on October 25, 2010)                                                                                                                                                                                        
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|3.4         |  | Amendment
    to Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K filed with the SEC
    on July 20, 2012)                                                                                                                                                                                           
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.1        |  | Form of Share Exchange Agreement, dated as of June 25, 2010, among the Registrant, Pet Airways, Inc., a Florida corporation (“PAWS”), the shareholders of PAWS, and Joseph A. Merkel, Kevin T. Quinlan, and Bellevue Holdings, Inc. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on July 1, 2010)      
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.2        |  | Form of 8% Convertible Debenture (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on August 17, 2010)                                                                                                                                                                                                      
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.3        |  | Form of Subscription Agreement for 8% Convertible Debentures and Share Purchase Warrants (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC on August 17, 2010)                                                                                                                                              
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.4        |  | Form of Common Stock Subscription Agreement (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on November 9, 2010)                                                                                                                                                                                          
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.5        |  | Form of Share Exchange Agreement, dated as of February 23, 2012, among the Registrant, The PAWS Pet Company, Inc, an Illinois corporation (“PAWS”), and all the shareholders of Impact Social Networking Inc., a Georgia corporation, (incorporated by reference to Exhibit 2.1 to the current report on Form 8-K filed with the SEC on February 29, 2012)
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.6        |  | Form of Security Purchase Agreement, dated February 27, 2012 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed with the SEC on March 7, 2012)                                                                                                                                                                             
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.7        |  | Form of 8% Convertible Promissory Note, dated as of February 27, 2012, (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on March 7, 2012)                                                                                                                                                                  
|            |  |                                                                                                                                                                                                                                                                                                                                                           
|10.8        |  | Form of Security Purchase Agreement, dated April 16, 2012 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed with the SEC on April 26, 2012)                                                                                                                                                                               



24







|10.9  |  | Form of 8% Convertible Promissory Note, dated as of April 16, 2012, (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on April 26, 2012)                          
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                 
|10.9  |  | Stock Incentive Plan, dated as of February 9, 2012, (incorporated by reference to Exhibit 4.1 to the Form S-8 filed with the SEC on April 26, 2012)                                                             
|      |  |                                                                                                                                                                                                                 
|10.10 |  | Form of Subscription Agreement(incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on June 19, 2012)                                                                 
|      |  |                                                                                                                                                                                                                 
|10.11 |  | Form of Subscription Agreement(incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on July 7, 2012)                                                                  
|      |  |                                                                                                                                                                                                                 
|10.12 |  | Form of Security Purchase Agreement, dated July 17, 2012 (incorporated by reference to Exhibit 4.1 to the current report on Form 8-K filed with the SEC on July 26, 2012)                                       
|      |  |                                                                                                                                                                                                                 
|10.13 |  | Form of 8% Convertible Promissory Note, dated as of July 17, 2012, (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on July 26, 2012)                            
|      |  |                                                                                                                                                                                                                 
|10.14 |  | Securities Exchange Agreement dated March 9, 2013, (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on March 15, 2013)                                           
|      |  |                                                                                                                                                                                                                 
|10.15 |  | Exhibit B to the Securities Exchange Agreement dated March 9, 2013, (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC March 15, 2013)                             
|      |  |                                                                                                                                                                                                                 
|10.16 |  | Bellevue Securities Exchange Agreement 2011 Warrants effective as of May 10, 2013, (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K filed with the SEC on June 7, 2013)             
|      |  |                                                                                                                                                                                                                 
|10.17 |  | Bellevue Settlement Agreement effective as of May 10, 2013, (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K filed with the SEC on June 7, 2013)                                    
|      |  |                                                                                                                                                                                                                 
|10.18 |  | Fantasy Securities Exchange Agreement 2010 Note effective as of May 10, 2013, (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K filed with the SEC on June 7, 2013)                  
|      |  |                                                                                                                                                                                                                 
|10.19 |  | Fantasy Securities Exchange Agreement 2011 Warrants effective as of May 10, 2013, (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K filed with the SEC on June 7, 2013)              
|      |  |                                                                                                                                                                                                                 
|10.20 |  | Fantasy Settlement Agreement effective as of May 10, 2013, (incorporated by reference to Exhibit 10.5 to the current report on Form 8-K filed with the SEC on June 7, 2013)                                     
|      |  |                                                                                                                                                                                                                 
|16.1  |  | Letter from Cordovano and Honick LLP regarding the resignation of the independent accountant (incorporated by reference to Exhibit 16.1 to the current report on Form 8-K filed with the SEC on August 31, 2010)
|      |  |                                                                                                                                                                                                                 
|21.1  |  | Subsidiaries of the Registrant.                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                 
|31.1  |  | Certification of Chief Executive Officer pursuant to Section 302, of the Sarbanes-Oxley Act of 2002.                                                                                                            
|      |  |                                                                                                                                                                                                                 
|32.1  |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                              



25







SIGNATURES



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



| | The
    PAWS Pet Company, Inc.
| | ------------------------------
| |                               
| | By:                           
| |                               
| |                               
| |                               
| |                               



Pursuant to the
requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.



|Signatures |                               | Title(s) |                                                       | Date
|---------- | ----------------------------- | -------- | ----------------------------------------------------- | ----
|           |                               |          |                                                       |     
|By:        | /s/
    Daniel Wiesel         |          | Chairman
and Chief Executive Officer, Acting Chief    |     
|           | Daniel Wiesel                 |          | Financial Officer and Acting Chief Accounting Officer |     
|           |                               |          |                                                       |     
|By:        | /s/
    Alysha Binder         |          | Chief Development Officer and Director                |     
|           | Alysha Binder                 |          |                                                       |     
|           |                               |          |                                                       |     
|By:        | /s/
    Evon L. Midei         |          | Director                                              |     
|           | Evon L. Midei                 |          |                                                       |     
|           |                               |          |                                                       |     
|By:        | /s/
    Jonathan Renkas, M.D. |          | Director                                              |     
|           | Jonathan Renkas, M.D          |          |                                                       |     



26