Note 4 - Loan Receivable and Lease Obligation	6 Months Ended
Jan. 31, 2014
Notes
Note 4 - Loan Receivable and Lease Obligation	Note 4 - Loan Receivable and Lease Obligation During the period January 25, 2005 (Inception) through January 1, 2010, the Company advanced funds to a limited liability company that has been identified as a Variable Interest Entity (“VIE”). These funds supported the operations of this VIE, which are to research and develop products that feature XYO and to market these products. The Company holds a note for these advances and the uncollected interest due, which calls for 9% interest per annum and has a maturity date of August 31, 2012 and is currently in default. In addition to the advancement of funds, the Company continues to have two other forms of involvement with the above VIE. The Company incurred marketing expenses for the six months ended January 31, 2014 and 2013 (Q1/Q2 ’14 and Q1/Q2 ’13) totalling approximately $2,400 and $146,700, respectively, for the three months ended January 31, 2014 and 2013 (Q2 ’14 and Q2 ’13), $0 and $45,300, respectively, and for the period January 25, 2005 (Inception) through January 31, 2014 (end of Q2 ’14), $575,600, for services performed by the VIE. In this regard there was no balance owing to the VIE at January 31, 2014 (end of Q2 ’14) and July 31, 2013 (YE ’13). The Company also leases its offices from the above VIE. The terms of the lease call for monthly rent of $3,000 through March 31, 2015. The Company’s involvement with this VIE is limited to the aforementioned transactions. Management has determined that although the above transactions created a variable interest in this entity, the Company is not the VIE’s primary beneficiary and, as such, the Company is not required to consolidate the financial statements of the VIE. In determining that it is not the primary beneficiary, the Company considered the VIE’s equity and voting interests, the percentage of the Company’s variable interest compared to the total of all other variable interests as well as an analysis determining the bearer of any losses and the benefactor of any gains from the VIE. The maximum exposure to loss from this variable interest is limited to the collection of the loan receivable. The Company’s variable interest in the VIE amounted to $809,245 as of July 31, 2010 prior to the establishment of a full allowance on that date. Factors considered in establishing the allowance included the current financial condition of the VIE coupled with the fact that the loan is not guaranteed and has no liquidation preference. The carrying amounts on the balance sheets as of January 31, 2014 (end of Q2 ’14) and July 31, 2013 (YE ’13) are zero, net of allowances. Total rent expense for the six months ended January 31, 2014 and 2013 (Q1/Q2 ’14 and Q1/Q2 ’13) was approximately $17,100 and $18,200, respectively, for the three months ended January 31, 2014 and 2013 (Q2 ’14 and Q2 ’13), $8,400 and $9,100, respectively, and for the period January 25, 2005 (Inception) through January 31, 2014 (end of Q2 ’14), $316,700. The future rent obligations under this lease will require approximately $18,000 for the remaining six months of the year ended July 31, 2014 and $24,000 for the year ended July 31, 2015. Since February 2012, the Company’s rent obligations have been met by recording the amount of rent expense as interest income in lieu of cash, and this arrangement may continue.

Note 4 - Loan Receivable and Lease Obligation

6 Months Ended

Jan. 31, 2014

Note 4 - Loan Receivable and Lease Obligation

Note 4 - Loan Receivable and Lease Obligation

During the period January 25, 2005 (Inception) through January 1, 2010, the Company advanced funds to a limited liability company that has been identified as a Variable Interest Entity (“VIE”). These funds supported the operations of this VIE, which are to research and develop products that feature XYO and to market these products. The Company holds a note for these advances and the uncollected interest due, which calls for 9% interest per annum and has a maturity date of August 31, 2012 and is currently in default. In addition to the advancement of funds, the Company continues to have two other forms of involvement with the above VIE. The Company incurred marketing expenses for the six months ended January 31, 2014 and 2013 (Q1/Q2 ’14 and Q1/Q2 ’13) totalling approximately $2,400 and $146,700, respectively, for the three months ended January 31, 2014 and 2013 (Q2 ’14 and Q2 ’13), $0 and $45,300, respectively, and for the period January 25, 2005 (Inception) through January 31, 2014 (end of Q2 ’14), $575,600, for services performed by the VIE. In this regard there was no balance owing to the VIE at January 31, 2014 (end of Q2 ’14) and July 31, 2013 (YE ’13). The Company also leases its offices from the above VIE. The terms of the lease call for monthly rent of $3,000 through March 31, 2015. The Company’s involvement with this VIE is limited to the aforementioned transactions.

Management has determined that although the above transactions created a variable interest in this entity, the Company is not the VIE’s primary beneficiary and, as such, the Company is not required to consolidate the financial statements of the VIE. In determining that it is not the primary beneficiary, the Company considered the VIE’s equity and voting interests, the percentage of the Company’s variable interest compared to the total of all other variable interests as well as an analysis determining the bearer of any losses and the benefactor of any gains from the VIE.

The maximum exposure to loss from this variable interest is limited to the collection of the loan receivable. The Company’s variable interest in the VIE amounted to $809,245 as of July 31, 2010 prior to the establishment of a full allowance on that date. Factors considered in establishing the allowance included the current financial condition of the VIE coupled with the fact that the loan is not guaranteed and has no liquidation preference. The carrying amounts on the balance sheets as of January 31, 2014 (end of Q2 ’14) and July 31, 2013 (YE ’13) are zero, net of allowances.

Total rent expense for the six months ended January 31, 2014 and 2013 (Q1/Q2 ’14 and Q1/Q2 ’13) was approximately $17,100 and $18,200, respectively, for the three months ended January 31, 2014 and 2013 (Q2 ’14 and Q2 ’13), $8,400 and $9,100, respectively, and for the period January 25, 2005 (Inception) through January 31, 2014 (end of Q2 ’14), $316,700. The future rent obligations under this lease will require approximately $18,000 for the remaining six months of the year ended July 31, 2014 and $24,000 for the year ended July 31, 2015. Since February 2012, the Company’s rent obligations have been met by recording the amount of rent expense as interest income in lieu of cash, and this arrangement may continue.