SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	12 Months Ended
Sep. 30, 2011
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES	2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of American Soil Technologies, Inc, and its wholly-owned subsidiary, Smart World Organics, Inc. All intercompany balances and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The Company's significant estimates made in connection with the preparation of the accompanying financial statements include the valuation of inventories, impairment of property and equipment, carrying value of the intangible assets, and valuation of stock options. CASH AND CASH EQUIVALENTS Cash and cash equivalents includes all short-term highly liquid investments that are readily convertible to known amounts of cash and have original maturities of three months or less. ACCOUNTS AND NOTES RECEIVABLE The Company utilizes the allowance method to provide a reserve for uncollectible accounts. The Company determines any required allowance by considering a number of factors including length of time trade accounts receivable are past due and the Company's previous loss history. The Company records a reserve account foraccounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. The Company performs ongoing credit evaluations and continually monitors its collection of amounts due from its customers. The Company adjusts credit limits and payment terms granted to its customers based upon payment history and the customer's current creditworthiness. The Company does not require collateral from its customers to secure amounts due from them. Reserves for uncollectible amounts are provided based on past experience and a specific analysis of the accounts which management believes is sufficient. INVENTORIES Inventories consist primarily of purchased polymer soil amendments. Inventories are stated at the lower of cost (on a first-in, first-out basis) or market. PROPERTY AND EQUIPMENT Property and equipment are stated at cost less accumulated depreciation. Depreciation is recorded on a straight-line basis over the estimated useful lives of the assets ranging from three to 15 years. Betterments, renewals and extraordinary repairs that extend the lives of the assets are capitalized. Repairs and maintenance costs are expensed as incurred. The cost and related accumulated depreciation applicable to assets disposed or retired are removed from the accounts, and the gain or loss on disposition is recognized in the respective period. LONG-LIVED ASSETS The Company reviews its fixed assets and certain identifiable intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted operating cash flow expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Long-lived assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell. GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE LIVES ASC No. 805, "Business Combinations", requires that all business combinations be accounted for under the purchase method. The statement further requires separate recognition of intangible assets that meet certain criteria. ASC No. 350, "Intangible, Goodwill and Other", requires that an acquired intangible asset meeting certain criteria shall be initially recognized, and measured based on its fair value. The statement also provides that goodwill and other indefinite-lived assets should not be amortized, but shall be tested for impairment annually or more frequently, if circumstances indicate potential impairment, through a comparison of fair value to their carrying amount. In accordance with ASC No. 350, "Intangible, Goodwill and Other", the goodwill impairment test has two steps. The first step of the impairment test identifies potential impairment by comparing the fair value with the carrying amount of the reporting unit, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the second step of the impairment test shall be performed to measure the amount of the impairment loss, if any. Intangibles with indefinite useful lives are measured for impairment by the amount that the carrying value exceeds the estimated fair value of the intangible. The fair value is calculated using the income approach. Intangible assets with definite useful lives will continue to be amortized over their estimated useful lives. Any impairment is recorded at the date of determination. ACCOUNTING FOR CONVERTIBLE DEBT Convertible debt is accounted for under the guidelines established by ASC No. 470 Topic 20, "Debt with Conversion and Other Options" and ASC No. 740, "Income Tax". The Company records a beneficial conversion feature ("BCF") related to the issuance of convertible debt that have conversion features at fixed or adjustable rates that are in-the-money when issued and records the fair value of warrants issued with those instruments. The BCF for the convertible instruments is recognized and measured by allocating a portion of the proceeds to warrants and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features, both of which are credited to paid-in-capital. The Company calculates the fair value of warrants issued with the convertible instruments using the Black-Scholes valuation method, using the same assumptions used for valuing employee options for purposes of ASC No.718, "Compensation, Stock Compensation", except that the contractual life of the warrant is used. Under these guidelines, the Company allocates the value of the proceeds received from a convertible debt transaction between the conversion feature and any other detachable instruments (such as warrants) on a relative fair value basis. The allocated fair value is recorded as a debt discount or premium and is amortized over the expected term of the convertible debt to interest expense. DERIVATIVE FINANCIAL INSTRUMENTS Derivative financial instruments, as defined in ASC No. 815, "Derivatives and Hedging", consist of financial instruments or other contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other variable), require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets. The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including convertible debt that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. As required by ASC No. 815, in certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in the Company's consolidated financial statements. The Company estimates the fair values of its derivative financial instrument using the Black-Scholes option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of our common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company's operating results reflect the volatility in these estimate and assumption changes in each reporting period. INTELLECTUAL PROPERTY Intellectual property includes the exclusive licenses to the patented polymer application techniques and certain acquired intellectual property which are being amortized using the straight-line method over the respective estimated useful lives. ADVERTISING The Company expenses advertising costs as incurred. Advertising expense was $254 and $309, for year ended September 30, 2011 and 2010, respectively. REVENUE RECOGNITION In accordance with ASC No. 605, "Revenue Recognition", revenue is recognized when products are shipped to a customer and the risks and rewards of ownership have passed based on the terms of the sale. Royalty revenues are recognized monthly based on customer usage as defined by individual agreements. SHIPPING AND HANDLING COST Shipping and handling fees charged to customers are included in revenue in accordance with ASC No. 605, "Revenue Recognition". The shipping and handling costs incurred by the Company are included in cost of sales. INCOME TAXES Deferred income taxes are determined using the liability method in accordance with ASC No. 740, Income Taxes. The Company records a valuation allowance to reduce its deferred tax assets to the amount it expects is more likely than not to be realized. While the Company has considered future taxable income and its ongoing tax planning strategies in assessing the need for the valuation allowance, if it were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the deferred tax asset would decrease income inthe period such determination was made. Effective September 30, 2007, the Company adopted ASC No. 740 Topic 10, "Income Taxes", General ("ASC 740.10"). ASC 740.10 prescribes, among other things, a recognition threshold and measurement attributes for the financial statement recognition and measurement of uncertain tax positions taken or expected to be taken in a company's income tax return. The Company utilizes a two-step approach for evaluating uncertain tax positions. Step one or recognition, requires a company to determine if the weight of available evidence indicates a tax position is more likely than not to be sustained upon audit, including resolution of related appeals or litigation processes, if any. Step two or measurement, is based on the largest amount of benefit, which is more likely than not to be realized on settlement with the taxing authority. FAIR VALUE OF FINANCIAL INSTRUMENTS On October 1, 2009, the Company adopted ASC 820 ("ASC 820") Fair Value Measurements and Disclosures. The Company did not record an adjustment to retained earnings as a result of the adoption of the guidance for fair value measurements, and the adoption did not have a material effect on the Company's results of operations. Fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. The guidance also establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability and are developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company's assumptions about the factors market participants would use in valuing the asset or liability. The guidance establishes three levels of inputs that may be used to measure fair value: Level 1. Observable inputs such as quoted prices in active markets; Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. As of September 30, 2011 and 2010, the Company had no material level 1,2, or 3 assets or liabilities. RESEARCH AND DEVELOPMENT EXPENSES The Company expenses research and development costs as incurred. CONCENTRATION OF CREDIT RISK Accounts receivable from individual customers representing 10% or more of the net accounts receivable balance consists of the following as of September 30: 2011 2010 ---- ---- Percent of accounts receivable 83% 46% Number of customers 3 1 Sales from individual customers representing 10% or more of sales consist of the following customers for the years ended September 30: 2011 2010 ---- ---- Percent of sales 82% 67% Number of customers 4 3 As a result of the Company's concentration of its customer base, the loss or cancellation of business from, or significant changes in scheduled deliveries of product sold to the above customers or a change in their financial position could materially and adversely affect the Company's consolidated financial position, results of operations and cash flows. STOCK-BASED COMPENSATION The Company accounts for equity based compensation under the provisions of ASC No. 718, "Compensation, Stock Compensation" ("ASC 718"). ASC 718 requires therecognition of the fair value of equity-based compensation in net income. The fair value of the Company's stock option awards are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards is amortized over the vesting period of the award and the Company elected to usethe straight-line method for awards granted after the adoption of ASC 718. ACCOUNTING FOR STOCK OPTIONS ISSUED TO CONSULTANTS The Company measures compensation expense for its non-employee stock-based compensation under ASC No. 505 Topic 50, "Equity-Based Payments to Non-Employees". The fair value of the option issued or committed to be issued is used to measure the transaction, as this is more reliable than the fair value of the services received. The fair value is measured at the value of the Company's common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty's performance is complete. The fair value of the equity instrument is charged directly to stock-based compensation expense and credited to additional paid-in capital. NET LOSS PER SHARE Basic loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period. Diluted net loss per share reflects the potential dilution to basic EPS that could occur upon conversion or exercise of securities, options or other such items to common shares using the treasury stock method, based upon the weighted average fair value of our common shares during the period. For each period presented, basic and diluted loss per share amounts are identical as the effect of potential common shares is antidilutive. The following is a summary of outstanding securities which have been excluded from the calculation of diluted net loss per share because the effect would have been antidilutive for the following periods: 2011 2010 ---------- ---------- Series A convertible preferred stock 2,763,699 2,763,699 ---------- ---------- 2,763,699 2,763,699 ========== ========== LEGAL COSTS ASSOCIATED WITH LOSS CONTINGENCIES The Company expenses legal costs in connection with loss contingencies as incurred and included in accounts payable. RECENT ACCOUNTING PRONOUNCEMENTS In January 2010, the FASB amended authoritative guidance for improving disclosures about fair-value measurements. The updated guidance requires new disclosures about recurring or nonrecurring fair-value measurements including significant transfers into and out of Level 1 and Level 2 fair-value measurements and information on purchases, sales, issuances, and settlements on a gross basis in the reconciliation of Level 3 fair-value measurements. The guidance also clarified existing fair-value measurement disclosure guidance about the level of disaggregation, inputs, and valuation techniques. The guidance became effective for interim and annual reporting periods beginning on or after December 15, 2009, with an exception for the disclosures of purchases, sales, issuances and settlements on the roll-forward of activity in Level 3 fair-value measurements. Those disclosures will be effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company does not expect that the adoption of this guidance will have a material impact on the financial statements.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Sep. 30, 2011

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The  consolidated  financial  statements  include the accounts of American  Soil

Technologies,  Inc, and its wholly-owned subsidiary,  Smart World Organics, Inc.

All   intercompany   balances  and   transactions   have  been   eliminated   in

consolidation.

USE OF ESTIMATES

The  preparation  of  consolidated   financial  statements  in  conformity  with

accounting  principles  generally  accepted  in the  United  States of  America,

requires  management to make estimates and assumptions  that affect the reported

amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and

liabilities at the date of the financial  statements and the reported amounts of

revenues and expenses during the reporting periods.  Actual results could differ

from those  estimates.  The Company's  significant  estimates made in connection

with the  preparation  of the  accompanying  financial  statements  include  the

valuation of inventories,  impairment of property and equipment,  carrying value

of the intangible assets, and valuation of stock options.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents includes all short-term highly liquid investments that

are readily convertible to known amounts of cash and have original maturities of

three months or less.

ACCOUNTS AND NOTES RECEIVABLE

The Company utilizes the allowance method to provide a reserve for uncollectible

accounts.  The Company determines any required allowance by considering a number

of factors  including length of time trade accounts  receivable are past due and

the  Company's  previous  loss history.  The Company  records a reserve  account

foraccounts receivable when they become uncollectible, and payments subsequently

received  on  such  receivables  are  credited  to the  allowance  for  doubtful

accounts.

The Company  performs  ongoing credit  evaluations and continually  monitors its

collection of amounts due from its customers.  The Company adjusts credit limits

and payment terms granted to its  customers  based upon payment  history and the

customer's  current  creditworthiness.  The Company does not require  collateral

from its customers to secure amounts due from them.  Reserves for  uncollectible

amounts are provided  based on past  experience  and a specific  analysis of the

accounts which management believes is sufficient.

INVENTORIES

Inventories consist primarily of purchased polymer soil amendments.  Inventories

are stated at the lower of cost (on a first-in, first-out basis) or market.

PROPERTY AND EQUIPMENT

Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.

Depreciation  is recorded on a  straight-line  basis over the  estimated  useful

lives of the assets  ranging from three to 15 years.  Betterments,  renewals and

extraordinary  repairs  that  extend the lives of the  assets  are  capitalized.

Repairs and  maintenance  costs are expensed as  incurred.  The cost and related

accumulated  depreciation  applicable to assets  disposed or retired are removed

from the  accounts,  and the gain or loss on  disposition  is  recognized in the

respective period.

LONG-LIVED ASSETS

The Company  reviews its fixed assets and certain  identifiable  intangibles for

impairment  whenever  events  or  changes  in  circumstances  indicate  that the

carrying amount of an asset may not be recoverable.  Recoverability of assets to

be held and used is measured by a comparison of the carrying  amount of an asset

to the future  undiscounted  operating cash flow expected to be generated by the

asset.  If such assets are  considered  to be  impaired,  the  impairment  to be

recognized  is measured by the amount by which the carrying  amount of the asset

exceeds  the fair value of the asset.  Long-lived  assets to be  disposed of are

reported at the lower of carrying amount or fair value less costs to sell.

GOODWILL AND INTANGIBLE ASSETS WITH INDEFINITE LIVES

ASC No. 805, "Business Combinations", requires that all business combinations be

accounted for under the purchase method. The statement further requires separate

recognition  of  intangible  assets  that meet  certain  criteria.  ASC No. 350,

"Intangible,  Goodwill and Other",  requires that an acquired  intangible  asset

meeting certain  criteria shall be initially  recognized,  and measured based on

its  fair  value.   The   statement   also  provides  that  goodwill  and  other

indefinite-lived  assets  should  not be  amortized,  but  shall be  tested  for

impairment  annually or more  frequently,  if circumstances  indicate  potential

impairment, through a comparison of fair value to their carrying amount.

In accordance with ASC No. 350,  "Intangible,  Goodwill and Other", the goodwill

impairment test has two steps.  The first step of the impairment test identifies

potential impairment by comparing the fair value with the carrying amount of the

reporting unit, including goodwill. If the carrying amount of the reporting unit

exceeds  its  fair  value,  the  second  step of the  impairment  test  shall be

performed to measure the amount of the impairment loss, if any. Intangibles with

indefinite  useful  lives are  measured  for  impairment  by the amount that the

carrying  value exceeds the  estimated  fair value of the  intangible.  The fair

value is calculated using the income approach.  Intangible  assets with definite

useful lives will continue to be amortized  over their  estimated  useful lives.

Any impairment is recorded at the date of determination.

ACCOUNTING FOR CONVERTIBLE DEBT

Convertible  debt is accounted for under the  guidelines  established by ASC No.

470 Topic 20, "Debt with Conversion and Other Options" and ASC No. 740,  "Income

Tax". The Company records a beneficial conversion feature ("BCF") related to the

issuance  of  convertible  debt  that  have  conversion  features  at  fixed  or

adjustable rates that are in-the-money when issued and records the fair value of

warrants issued with those instruments.  The BCF for the convertible instruments

is  recognized  and measured by allocating a portion of the proceeds to warrants

and as a reduction to the carrying amount of the convertible instrument equal to

the intrinsic  value of the conversion  features,  both of which are credited to

paid-in-capital.  The Company  calculates the fair value of warrants issued with

the convertible  instruments using the Black-Scholes valuation method, using the

same  assumptions  used for valuing employee options for purposes of ASC No.718,

"Compensation,  Stock  Compensation",  except that the  contractual  life of the

warrant is used. Under these guidelines,  the Company allocates the value of the

proceeds  received from a convertible  debt  transaction  between the conversion

feature and any other  detachable  instruments  (such as warrants) on a relative

fair value basis.  The  allocated  fair value is recorded as a debt  discount or

premium and is  amortized  over the  expected  term of the  convertible  debt to

interest expense.

DERIVATIVE FINANCIAL INSTRUMENTS

Derivative financial  instruments,  as defined in ASC No. 815,  "Derivatives and

Hedging",  consist of financial  instruments  or other  contracts that contain a

notional amount and one or more underlying (e.g.  interest rate,  security price

or other variable), require no initial net investment and permit net settlement.

Derivative  financial  instruments  may be  free-standing  or  embedded in other

financial instruments.  Further, derivative financial instruments are initially,

and subsequently, measured at fair value and recorded as liabilities or, in rare

instances, assets.

The Company does not use derivative financial  instruments to hedge exposures to

cash-flow,  market or foreign-currency  risks.  However,  the Company has issued

financial  instruments  including  convertible  debt  that  are  either  (i) not

afforded  equity  classification,  (ii)  embody  risks not  clearly  and closely

related to host contracts, or (iii) may be net-cash settled by the counterparty.

As required by ASC No. 815, in certain instances, these instruments are required

to be  carried  as  derivative  liabilities,  at fair  value,  in the  Company's

consolidated financial statements.

The Company  estimates the fair values of its  derivative  financial  instrument

using the  Black-Scholes  option valuation  technique because it embodies all of

the requisite  assumptions  (including trading  volatility,  estimated terms and

risk free rates)  necessary  to fair value these  instruments.  Estimating  fair

values  of  derivative   financial   instruments  requires  the  development  of

significant  and  subjective  estimates that may, and are likely to, change over

the duration of the  instrument  with  related  changes in internal and external

market  factors.  In addition,  option-based  techniques are highly volatile and

sensitive to changes in the trading market price of our common stock,  which has

a  high-historical  volatility.   Since  derivative  financial  instruments  are

initially  and  subsequently  carried at fair values,  the  Company's  operating

results reflect the volatility in these estimate and assumption  changes in each

reporting period.

INTELLECTUAL PROPERTY

Intellectual  property  includes the exclusive  licenses to the patented polymer

application  techniques  and certain  acquired  intellectual  property which are

being amortized  using the  straight-line  method over the respective  estimated

useful lives.

ADVERTISING

The Company expenses advertising costs as incurred. Advertising expense was $254

and $309, for year ended September 30, 2011 and 2010, respectively.

REVENUE RECOGNITION

In accordance  with ASC No. 605,  "Revenue  Recognition",  revenue is recognized

when  products  are shipped to a customer and the risks and rewards of ownership

have passed  based on the terms of the sale.  Royalty  revenues  are  recognized

monthly based on customer usage as defined by individual agreements.

SHIPPING AND HANDLING COST

Shipping  and  handling  fees  charged to  customers  are included in revenue in

accordance with ASC No. 605,  "Revenue  Recognition".  The shipping and handling

costs incurred by the Company are included in cost of sales.

INCOME TAXES

Deferred  income taxes are determined  using the liability  method in accordance

with ASC No. 740,  Income Taxes.  The Company  records a valuation  allowance to

reduce its  deferred tax assets to the amount it expects is more likely than not

to be realized.  While the Company has considered  future taxable income and its

ongoing  tax  planning  strategies  in  assessing  the  need  for the  valuation

allowance, if it were to determine that it would be able to realize its deferred

tax assets in the future in excess of its net recorded amount,  an adjustment to

the deferred tax asset would  increase  income in the period such  determination

was made. Likewise, should the Company determine it would not be able to realize

all or part of its net deferred tax assets in the future,  an  adjustment to the

deferred tax asset would  decrease  income inthe period such  determination  was

made.

Effective  September 30, 2007, the Company adopted ASC No. 740 Topic 10, "Income

Taxes",  General ("ASC 740.10").  ASC 740.10  prescribes,  among other things, a

recognition  threshold and  measurement  attributes for the financial  statement

recognition  and  measurement of uncertain tax positions taken or expected to be

taken in a company's income tax return. The Company utilizes a two-step approach

for evaluating  uncertain tax  positions.  Step one or  recognition,  requires a

company  to  determine  if the  weight of  available  evidence  indicates  a tax

position  is  more  likely  than  not  to be  sustained  upon  audit,  including

resolution  of related  appeals or  litigation  processes,  if any.  Step two or

measurement,  is based on the largest  amount of  benefit,  which is more likely

than not to be realized on settlement with the taxing authority.

FAIR VALUE OF FINANCIAL INSTRUMENTS

On  October  1,  2009,  the  Company  adopted  ASC 820 ("ASC  820")  Fair  Value

Measurements  and  Disclosures.  The  Company  did not record an  adjustment  to

retained  earnings as a result of the  adoption of the  guidance  for fair value

measurements,  and the adoption did not have a material  effect on the Company's

results of operations.

Fair value is defined as the exit price, or the amount that would be received to

sell an asset or paid to transfer a liability in an orderly  transaction between

market  participants as of the measurement date. The guidance also establishes a

hierarchy  for inputs used in  measuring  fair value that  maximizes  the use of

observable inputs and minimizes the use of unobservable inputs by requiring that

the most observable inputs be used when available.  Observable inputs are inputs

market  participants  would  use in  valuing  the  asset  or  liability  and are

developed based on market data obtained from sources independent of the Company.

Unobservable inputs are inputs that reflect the Company's  assumptions about the

factors  market  participants  would use in valuing the asset or liability.  The

guidance  establishes  three  levels of inputs that may be used to measure  fair

value:

Level 1.  Observable  inputs such as quoted prices in active  markets;  Level 2.

Inputs,  other than the quoted  prices in active  markets,  that are  observable

either directly or indirectly;  and Level 3. Unobservable  inputs in which there

is little or no market data,  which require the reporting  entity to develop its

own assumptions.

As of September 30, 2011 and 2010,  the Company had no material  level 1,2, or 3

assets or liabilities.

RESEARCH AND DEVELOPMENT EXPENSES

The Company expenses research and development costs as incurred.

CONCENTRATION OF CREDIT RISK

Accounts  receivable from individual  customers  representing 10% or more of the

net accounts receivable balance consists of the following as of September 30:

                                      2011           2010

                                      ----           ----

Percent of accounts receivable         83%            46%

Number of customers                     3              1

Sales from individual customers representing 10% or more of sales consist of the

following customers for the years ended September 30:

                                      2011           2010

                                      ----           ----

Percent of sales                       82%            67%

Number of customers                     4              3

As a result of the Company's  concentration  of its customer  base,  the loss or

cancellation of business from, or significant changes in scheduled deliveries of

product  sold to the above  customers  or a change in their  financial  position

could  materially  and  adversely  affect the Company's  consolidated  financial

position, results of operations and cash flows.

STOCK-BASED COMPENSATION

The Company accounts for equity based  compensation  under the provisions of ASC

No. 718,  "Compensation,  Stock  Compensation"  ("ASC  718").  ASC 718  requires

therecognition of the fair value of equity-based compensation in net income. The

fair  value  of  the  Company's  stock  option  awards  are  estimated  using  a

Black-Scholes  option valuation  model.  This model requires the input of highly

subjective  assumptions and elections  including expected stock price volatility

and  the  estimated  life  of  each  award.  In  addition,  the  calculation  of

equity-based compensation costs requires that the Company estimate the number of

awards  that will be  forfeited  during the  vesting  period.  The fair value of

equity-based  awards is amortized  over the vesting  period of the award and the

Company  elected to usethe  straight-line  method for awards  granted  after the

adoption of ASC 718.

ACCOUNTING FOR STOCK OPTIONS ISSUED TO CONSULTANTS

The  Company  measures  compensation  expense for its  non-employee  stock-based

compensation   under  ASC  No.   505  Topic  50,   "Equity-Based   Payments   to

Non-Employees". The fair value of the option issued or committed to be issued is

used to measure the transaction, as this is more reliable than the fair value of

the services received.  The fair value is measured at the value of the Company's

common stock on the date that the commitment for performance by the counterparty

has been reached or the counterparty's  performance is complete.  The fair value

of the equity instrument is charged directly to stock-based compensation expense

and credited to additional paid-in capital.

NET LOSS PER SHARE

Basic loss per share is calculated by dividing net loss by the weighted  average

common shares outstanding during the period. Diluted net loss per share reflects

the potential dilution to basic EPS that could occur upon conversion or exercise

of  securities,  options or other such items to common shares using the treasury

stock  method,  based upon the weighted  average fair value of our common shares

during the period.  For each period presented,  basic and diluted loss per share

amounts are identical as the effect of potential common shares is antidilutive.

The following is a summary of  outstanding  securities  which have been excluded

from the calculation of diluted net loss per share because the effect would have

been antidilutive for the following periods:

                                                      2011               2010

                                                   ----------         ----------

Series A convertible preferred stock                2,763,699          2,763,699

                                                   ----------         ----------

                                                    2,763,699          2,763,699

                                                   ==========         ==========

LEGAL COSTS ASSOCIATED WITH LOSS CONTINGENCIES

The  Company  expenses  legal costs in  connection  with loss  contingencies  as

incurred and included in accounts payable.

RECENT ACCOUNTING PRONOUNCEMENTS

In  January  2010,  the  FASB  amended  authoritative   guidance  for  improving

disclosures  about fair-value  measurements.  The updated guidance  requires new

disclosures about recurring or nonrecurring  fair-value  measurements  including

significant   transfers  into  and  out  of  Level  1  and  Level  2  fair-value

measurements and information on purchases,  sales, issuances, and settlements on

a gross basis in the  reconciliation  of Level 3  fair-value  measurements.  The

guidance also clarified  existing  fair-value  measurement  disclosure  guidance

about  the  level of  disaggregation,  inputs,  and  valuation  techniques.  The

guidance became effective for interim and annual reporting  periods beginning on

or after December 15, 2009,  with an exception for the disclosures of purchases,

sales,  issuances and  settlements  on the  roll-forward  of activity in Level 3

fair-value  measurements.  Those  disclosures will be effective for fiscal years

beginning  after  December 15, 2010 and for interim  periods within those fiscal

years.  The Company does not expect that the adoption of this guidance will have

a material impact on the financial statements.

- Definition

The entire disclosure for all significant accounting policies of the reporting entity.

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