Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The financial information presented represents The Guitammer Company (the “Company”) incorporated on March 6, 1990, under the laws of the State of Ohio, prior to the creation of the Nevada holding company that was formed on May 18, 2011.

In April 2011, the Board of Directors approved a resolution to create a holding company to own 100% of the Company. The holding company is incorporated in the State of Nevada and has 150 million authorized common shares. Existing shareholders of the Company received 31,206 shares in the holding company for each share they currently own, resulting in a total of 50,001,374 shares of Common Stock, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio. The purpose of creating a holding company structure in the State of Nevada is because the legal environment in Nevada is more conducive to being a public company with public shareholders than in the State of Ohio. The per share numbers and the per share amounts in the financial statements and the notes to the financial statements reflect the retroactive application of our stock split.

Creation of the holding company has not impacted the Company’s operations and the Company does not intend to relocate its operations or headquarters.

The Company is involved in the design and distribution of a low frequency audio transducer branded as the original ButtKicker® products. The Company, headquartered in Ohio, sells products internationally.

Basis of Presentation

All inter-company transactions and accounts and have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they may not include all of the information and footnotes required by U.S. GAAP for complete financial statements. All adjustments that are, in the opinion of management, of a normal recurring nature and considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2011 are not indicative of the results that may be expected for the year ending December 31, 2011 or for any other future period. These condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements and notes thereto included in our Form 10 for the year ended December 31, 2010 filed with the Securities and Exchange Commission (the “SEC”) on July 26, 2011.

Use of Estimates

The preparation of financial statements in conformity with accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures 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.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.

Subject to certain limitations, the Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation.

Accounts Receivable

Accounts receivable are carried at cost less an allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on current economic conditions.

Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within 30 days from the invoice date. The Company recorded an allowance of approximately $27,000 and $8,000 at September 30, 2011 and December 31, 2010 respectively.

Inventory

Inventory, consisting of finished goods, is stated at the lower of cost or market. Cost is determined using the weighted average method. Inventory that is determined to be in a condition of obsolescence or not sellable is expensed immediately.

Property and Equipment, net

Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the assets’ economic lives or the lease term. Depreciation is provided using the straight- line method over the estimated useful lives of the assets as follows:

Equipment and electronics	5 - 7 years
Furniture and fixtures	7 years
Leasehold improvements	Shorter or lease terms or 7 years

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. Determination of recoverability is generally based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition. If the evaluation indicates that the carrying amount of an asset is not recoverable from our undiscounted cash flows, then an impairment loss is measured by comparing the carrying amount of the asset to its fair value.

Revenue Recognition

The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collectibility is reasonably assured.

Deferred Revenue

The Company received prepayment for products from two of its customers for approximately $250,000 and $62,000. As of September 30, 2011 and December 31, 2010 the Company had deferred revenue of $190,092 and $131,492, respectively. The Company recognizes revenue and decreases deferred revenue upon delivery of products and services.

Income Taxes

Prior to the creation of the Nevada holding company that was formed on May 18, 2011, the Company had elected S Corporation status for Federal and for Ohio state income tax purposes. Under these elections, the Company’s taxable income is includable by the stockholders on their individual income tax returns, and the Company makes no provision for Federal and State income tax.

Effective with the Company formation of the Guitammer-Nevada holding company, the Company is now a C Corporation for both Federal and State income tax purposes.

There were no uncertain tax positions at September 30, 2011 or December 31, 2010, as the Company’s tax positions for open years meet the recognition thresholds of more likely than not to be sustained upon examinations. Tax returns for the years 2007 through 2010 are currently open to examination.

Fair Value of Financial Instruments

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The levels are defined as follows:

Level 1 – quoted prices for identical instruments in active markets;

Level 2 – quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and

Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amount reported in the balance sheets for cash and cash equivalents, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The majority of the Company’s debt had fixed rates and the fair value was estimated at $3.1 million based on a discounted cash flow model as of September 30, 2011 and December 31, 2010.

Advertising

Costs of advertising and marketing are expensed as incurred. Advertising and marketing costs were $3,040 and $66,030 for the nine months ended September 30, 2011 and 2010, respectively

Shipping and Handling

Shipping and handling costs of approximately $88,567and $107,228 for the periods ended September 30, 2011 and 2010, respectively, are included in general and administrative expenses in the statements of operations.

Research and development costs

The costs of research and development activities are expensed when incurred. Research and development activities consist of costs related to development of reduced size ButtKicker transducers.

Earnings (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.

Stock Based Compensation

Share-based compensation is measured as the fair value of the award at its grant date based on the estimated number of awards that are expected to vest and is recorded over a defined service period. In the absence of an observable market price for share-based award, the fair value is based upon a valuation methodology that takes into consideration various factors, including the exercise price of the award, the term of the award, the current price of the underlying shares, the expected volatility of the underlying share price, the expected dividends on the underlying shares, and a risk-free interest rate. Compensation expense is recognized based on the estimated grant date fair value method using a Black-Scholes valuation model.

Subsequent Events

On November 1, The Company sold 400,000 shares of stock and 400,000 stock warrants at $.25 per share. On November 3, The Company sold 400,000 shares of stock and 400,000 stock warrants at $.25 per share. The total amount raised from both sales was $200,000.