UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K/A -2

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2010

Commission File Number 000-52904

ATTITUDE DRINKS INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware	65-0109088
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

10415 Riverside Drive, Suite # 101, Palm Beach Gardens, Florida 33410 USA

(Address of principal executive offices)          (Zip Code)

Telephone number:     (561) 799-5053

Securities registered under Section 12(b) of the Exchange Act:	None
Securities registered under Section 12(g) of the Exchange Act	Common Stock, $.001 par value
	(Title of class)

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

                                                                                                                                           Yes [  ]    No [X]

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

                                                                                                                                            Yes [  ]   No [X]

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

                                                                                                                                                Yes [  ]   No [X]

The issuer's revenues for its most recent fiscal year were $6,627.

The aggregate market value of the voting stock held by non-affiliates of the issuer on July 9, 2010, based upon the $.045 per share close price of such stock on that date, was $215,727 based upon 4,793,928 shares held by non-affiliates of the issuer.  The total number of issuer's shares of common stock outstanding held by affiliates and non-affiliates as of July 9, 2010 was 5,145,561.

Transitional Small Business Disclosure Format (check one): Yes [   ] No [X]

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TABLE OF CONTENTS

		Page
PART I
ITEM 1	Description of Business	3
ITEM 2	Description of Property	6
ITEM 3	Legal Proceedings	6
ITEM 4	Submission of Matters to Vote of Security Holders	7

PART II

ITEM 5	Market for Common Equity and Related Stockholder Matters	7
ITEM 6	Selected Financial Data	9
ITEM 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
ITEM 8	Financial Statements	32
ITEM 9	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure	32
ITEM 9A	Controls and Procedures	32
ITEM 9B	Other Information	33

PART III

ITEM 10	Directors, Executive Officers, Promoters and Control Persons	33
ITEM 11	Executive Compensation	35
ITEM 12	Security Ownership of Certain Beneficial Owners and Management	37
ITEM 13	Certain Relationships and Related Transactions	38
ITEM 14	Principal Accountant Fees and Services	39

PART IV

ITEM 15	Exhibits	40
	Signatures	42
	Financial Statements and Financial Statement Schedules	F1-F-37

DOCUMENTS INCORPORATED BY REFERENCE:  See Exhibits

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FORWARD-LOOKING STATEMENTS

Statements that are not historical facts, including statements about our prospects and strategies and our expectations about growth contained in this report, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements represent our present expectations or beliefs concerning future events.  We caution that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to our future profitability; the accuracy of our performance projections; and our ability to obtain financing on acceptable terms to finance our operations until profitability.

PART I

ITEM 1 - DESCRIPTION OF BUSINESS

The Company

Attitude Drinks Incorporated (“Attitude”, “We” or “Our”) was formed in Delaware on May 10, 1988 under the name International Sportfest, Inc. In January 1994, we acquired 100% of the issued and outstanding common stock of Pride Management Services Plc ("PMS"). PMS was a holding company of six subsidiaries in the United Kingdom engaged in the leasing of motor vehicles throughout the United Kingdom. Simultaneously with the acquisition of PMS, we changed our name to Pride, Inc. From January 1994 through October 1999, we engaged in the leasing of motor vehicles throughout the United Kingdom. On October 1, 1999, we acquired all of the issued and outstanding stock of Mason Hill & Co. and changed our name to Mason Hill Holdings, Inc. During the quarter ended June 30, 2001, our operating subsidiary, Mason Hill & Co., was liquidated by the Securities Investors Protection Corporation. As a result, we became a shell corporation whose principal business was to locate and consummate a merger with an ongoing business.

On September 19, 2007, we acquired Attitude Drink Company, Inc., a Delaware corporation (“ADCI”), under an Agreement and Plan of Merger among Mason Hill Holdings, Inc., MH 09122007, Inc. and ADCI.  Pursuant to the Merger Agreement, each share of ADCI common stock was converted into 40 shares of Company common stock, resulting in the issuance of 4,000,000 shares of our common stock.  The acquisition was accounted for as a reverse merger (recapitalization) with ADCI deemed to be the accounting acquirer, and Attitude deemed to be the legal acquirer.  Accordingly, the financial information presented in the financial statements is that of ADCI as adjusted to give effect to any difference in the par value of the issuer’s and the accounting acquirer’s stock with an offset to capital in excess of par value.  The basis of the assets, liabilities and retained earnings of ADCI, the accounting acquirer, has been carried over in the recapitalization.  On September 30, 2007, we changed our name to Attitude Drinks Incorporated. Our wholly owned subsidiary, ADCI, was incorporated in Delaware on June 18, 2007. Our principal executive offices are located at 10415 Riverside Drive, Suite 101, Palm Beach Gardens, Florida 33410. The telephone number is 561-799-5053.  Our company’s common stock shares (OTCBB: ATTD) began trading in June, 2008.

We are a development stage enterprise as defined in the FASB Accounting Standards Codification.   All losses accumulated since inception will be considered as part of our development stage activities.  All activities to date relate to our organization, history, merger of our subsidiary, funding activities and product development.  Our fiscal year ends on March 31.

Nature of Business

Currently we are a development stage company, and our plan of operation during the next 12 months is to focus on the non-alcoholic single serving beverage business, developing and marketing of milk based products in three fast growing segments: sports recovery, functional dairy and milk/juice blends. We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and contract packers.

The Business

Since 2001, we have been a shell corporation, whose principal business was to locate and consummate a merger with an ongoing business which occurred on September 19, 2007.  Once the merger was completed, we developed our first product which is a “healthful” energy drink called VisViva™. This particular product was formulated as a juice blend with our proprietary IQZOL™ energy formula in 12 ounce “slim” cans.  This additive blend provides a unique energy boost with low calories, carbohydrates and caffeine levels, thereby revolutionizing the energy experience derived from energy drinks.  Production began in January 2008 with the first generated sales in late March 2008. Our initial co-packer for the VisViva ™ product was Carolina Beer & Beverage LLC in Mooresville, North Carolina, and our co-packer for our new dairy based products is O-AT-KA Milk Products Cooperative, Inc. in Batavia, New York. Other relationships for raw materials are with Rexam Beverage Can Company in Illinois and Ball Corporation in Colorado.  As our company grows and matures, a disruption or delay in production of any of such products could significantly affect our revenues. During April 16, 2008, we entered into a Strategic Relationship and Supply Agreement with NutraGenesis LLC for the protected supply of Essentra® and other specific product blends. In return for this loyalty and partnership, we issued 5,000 warrants at a strike price of $15.00, expiring in five (5) years for this agreement.

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Our ability to estimate demand for our products is imprecise and may be less precise during periods of rapid growth, particularly in new markets.  If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials, we might not be able to satisfy demand on a short-term basis.

We completed development on our second product which is branded as “Phase III™ Recovery” and was introduced to address the growing need for sophisticated, exercise recovery solutions while offering a natural protein/carbohydrate ratio optimal for fitness recovery. This product contains 35 grams of protein that are naturally inherent in ultra filtered milk.  The product is packaged as a retort processed shelf stable dairy-based 100% milk based sports recovery drink, currently a chocolate flavor and soon to be released in a vanilla flavor, in new, state of the art, eco-friendly convenient re-sealable 14.5 oz aluminum bottles. We began distribution of this product in early 2010.  Storage, distribution and sale of this product can be done at room temperature.

Other products to be considered in the future will be Blenders™ ‘Meal on the Move’ which will be a lactose free milk and fruit blend meal replacement in various flavors.  This product is expected to be developed and marketed in late 2010. We also will consider an option to introduce VisViva™ Natural in early 2010 which will be a new product that is geared to “green living” and will be formulated with all natural products.  This product will be sold as a “focus” drink.

In House Intellectual Property

Applications for trademarks for the energy drink Vis Viva™, IQZOL™ and Phase III™ have been filed with the U.S. Trademark Service which approvals are pending.

While working on trademark and brand development for the dairy platform of functional drinks and protein delivery, we were approached by the owners of the entire intellectual property portfolio once developed and commercialized at Bravo Brands, Inc. On August 8, 2008, we entered into an Asset Purchase Agreement with RFC BB Holdings, LLC (seller) with a $507,500 secured convertible promissory note to purchase the right, title and interest to this intellectual property portfolio, notably “Slammers” and “Blenders”.

Third Party License Agreement

Sub-license Agreement

On August 19, 2008, we signed an exclusive, non transferable sub-license agreement with Nutraceutical Discoveries, Inc. (licensor) for the use of exclusive rights to certain intellectual property which would have permitted unique structure-function metabolic health and weight management claims for dairy functional beverages.  We had planned to develop, market and sell to the public dairy functional beverage products based on the licensed technology. On February 24, 2010, both parties signed a termination agreement and release for this license agreement.  As part of this agreement, we gave up the exclusive and non-exclusive rights to the ingredient Innutria™ in dairy functional beverages and negotiated a final settlement amount that will be paid to Nutraceutical Discoveries, Inc. in the form of a note payable in the amount of $34,000 (thirty-four thousand dollars).  Prior to this agreement, we had paid $21,000 (twenty-one thousand dollars) of the original $55,000 (fifty-five thousand dollars).   This principal amount will be paid in equal payments of $4,250 (four thousand two hundred fifty dollars) each month for 8 (eight) months beginning on May 1, 2010 and continuing through December 1, 2010 until the balance is paid.  One payment in the amount of $4,250 has been paid.  Upon completion of the terms of the promissory note, Nutraceutical Discoveries, Inc. will forgive all debt incurred in the License Agreement and will consider the contract expired but paid-in-full, although the contract will remain expired as of September 17, 2009.   The agreement previously would have terminated on December 31, 2011.  In the event we default in not being able to pay the balance in accordance with the above schedule, Nutraceutical Discoveries retains the right to pursue the full amount due according to the license agreement through the contract expiration date of September 17, 2009 in the amount of $130,670.   During 2008, we also issued 17,500 stock options to Nutraceutical at an exercise price of $13.00 per option. 

Production Contracts/Administration

Our operations are only in the United States and are run directly by our subsidiary, Attitude Drink Company, Inc.  On December 16, 2008, the company signed a manufacturing co-packing agreement with O-AT-KA Milk Products Cooperative, Inc. for the production of our latest product, Phase III™ Recovery, and future new dairy-based products.  The manufacturer shall manufacture, package and ship such products.  All products shall be purchased F.O.B., the facility by the company.  

Industry Trends

We are a start up beverage brand-development company that was formed to exploit the accelerating shift in beverage consumption patterns of Americans. Consumers are embracing two distinct trends which have redefined the ever-growing single serve beverage industry. First, consumers representing all demographics are purchasing fewer “empty-calorie”, sugar sweetened, carbonated beverages, a trend that has continued for the last seven years. Second, consumers are demanding drinks with functionality, delivering either nutritional or experiential impact. During recent years, beverage consumers have demonstrated growing enthusiasm to pay significant premiums for these functional beverages while exhibiting passionate brand loyalty to the brands.

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Management has extensive experience innovating functional products and pioneered the milk-based platform of this beverage “revolution” working with Coca-Cola Enterprises (CCE) to launch branded milk beverages nationwide. We enjoy strategic relationships, know-how, creativity and perspective in this space. The three platforms that we will address represent the fastest growing, most innovative and highest priced drinks ever seen in the beverage industry. These platforms will include sports recovery, functional dairy, liquid supplements and functional water.

Market Analysis

While there may be more current information, our limited capital resources allowed us to only purchase 2007 information. As reported in the Beverage Digest annual “Fact Book” for 2007, the non-alcoholic single serve beverage business is $106 billion in size and grew 4.1% by volume in 2006. Carbonated soft drinks (CSD’s) declined in volume in 2005 and 2006 for the first time in 20 years. Both Coke Classic and Pepsi Cola have declined each of the last six years with Coke declining 13.2% and Pepsi declining 18%. Classic Coke declined 2% in 2006 while Pepsi Cola declined 2.5%. Emerging as leaders within the beverage industry are single serve non-carbonated brands in tea, coffee, fortified water, juice, sports drinks, milk drinks and energy drinks (carbonated). This “new age” beverage category grew 15% to $25.9 billion in 2006. Fueled by rapidly increasing consumer demand, these brands command great premiums and deliver incremental profits to brand owners, distributors and retailers. They are enjoying dominance in their respective drink platforms, and recent valuations in public security markets, and acquisitions of private companies have validated the remarkable profitability and resultant near and long term worth of these innovative brands.

Market Segment Strategy

As we are a development stage company and have operated for over three years, our future strategy will be to develop our products in the four fast growing segments: sports recovery, functional milk, liquid supplements and functional water. We already have produced our first product, VisViva™, which is an energy drink; however, that product has been tabled with the intent to reintroduce this product in late 2011 as a “focus” drink. Phase III™ Recovery is our second product which is a protein sports recovery drink. We expect to develop two to three new products in the next two fiscal years.

We know from experience that the largest retailers of milk products are demanding new and more diverse refreshment drinks, thus our response to consumer interest and demand with our latest dairy based product, “Phase III™ Recovery” that was introduced in early 2010.

Competition

The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, development of new products and flavors and marketing campaigns. Our products will compete with a wide range of drinks produced by a relatively large number of manufacturers, any of which have substantially greater financial, marketing and distribution resources than we do.

Important factors affecting our ability to compete successfully include taste and flavor of products, trade and consumer promotions, rapid and effective development of new, unique cutting edge products, attractive and different packaging, branded product advertising and pricing. We will also compete for distributors who will concentrate on marketing our products over those of our competitors, provide stable and reliable distribution and secure adequate shelf space in retail outlets. Competitive pressures in the energy beverage market could cause our products to be unable to gain market share, or we could experience price erosion, which could have a material adverse effect on our business and results.

We compete not only for customer acceptance but for maximum marketing efforts by multi-brand licensed bottlers, brokers and distributors, many of which have a principal affiliation with competing companies and brands. Certain large companies such as The Coca-Cola Company and Pepsico Inc. market and/or distribute products in that market segment.

Marketing

Management believes that the impact of the internet and the enhanced communication systems that it has enabled have dramatically changed the way we live our lives today. There is vastly improved access to information, and the public is bombarded with messages that have diminished the value and impact of traditional media advertising.

Strong emphasis will be placed on public relations initiatives in an effort to capture and maintain consumer awareness. Validation of the advanced science behind each introduced brand will provide clear and reliable messaging behind each functional line. Carefully developed and executed focus groups will also be conducted, designed to raise awareness about the true functionality and lifestyle enhancement offered with each innovative line.  We plan to focus on gorilla and grass roots marketing programs, investing in sponsorships and spokespeople in venues of competitive sports and racing activities.  This strategy allows promoters to develop brand essence, communicate directly with spectators and participants and promote trial with consumers directly. This marketing approach, best executed by the Red Bull energy drink brand, escapes the filters that consumers use to reduce messaging. When executed properly, as Red Bull has, this technique defines the brand image while consumers embrace the branding as trend setting entertainment. In addition, we have developed relationships with various health organizations, most notably the American Heart Association and the American Diabetes Association and intend to continue participating in nationwide events and programs supporting the unique causes.

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Government Regulation

The production, distribution and sale in the United States of many of our products are subject to the Federal Food, Drug and Cosmetic Act; the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and various other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, labeling and ingredients of such products.

Measures have been enacted in various localities and states that require that a deposit be charged for certain non-refillable beverage containers. The precise requirements imposed by these measures vary. Other deposit, recycling or product stewardship proposals have been introduced in certain states and localities and in Congress, and we anticipate that similar legislation and regulations may be proposed in the future at the local, state and federal levels, both in the United States and elsewhere.

We do not expect that compliance with these provisions will have a material adverse effect upon our capital expenditures, net income or competitive position.

Employees

We currently have eight total employees, all of which are full time.  Most of these individuals are employed at the corporate office with one sales representative in New York.

Recent developments (Increase of authorized shares and reverse stock split one-for-twenty)

Increase of authorized shares

On March 8, 2010, a notice of written consent in lieu of a special meeting was sent to the shareholders of Attitude Drinks Incorporated whereas the Board of Directors and shareholders with a majority of the Company’s voting power as of the record date (February 9, 2010) authorized the amendment to the Company’s Certificate of Incorporation to increase its authorized common shares from one hundred million (100,000,000) to one billion (1,000,000,000). This amendment was approved by the state of Delaware on April 5, 2010.  Even though this approval was done after the year ended March 31, 2010, the applicable financial statements will be reflected with this increase of authorized shares to one billion (1,000,000,000).  The authorized shares for the Series A Preferred Stock remain the same at twenty million (20,000,000) (see Item 4).

Reverse stock split one-for-twenty

On July 7, 2010, we implemented a reverse stock split in which all the issued and outstanding shares of our common stock as of the close of business on such date were combined and reconstituted as a smaller number of shares of common stock in a ratio of one share of common stock for every twenty (20) shares of common stock.  We rounded up any fractional shares of new common stock issuable in connection with the reverse stock split.   Even though the reverse stock split occurred after the year ended March 31, 2010, we have restated all applicable financial data throughout this report for the years ended March 31, 2010 and March 31, 2009 for proper disclosure and comparability purposes.

ITEM 2 - DESCRIPTION OF PROPERTY

As of June 1, 2008, we moved to our current office at 10415 Riverside Drive, Suite 101, Palm Beach Gardens, Florida 33410.   This new five-year lease began on June 1, 2008 and will expire on May 31, 2013.  The monthly base rental is $7,415 and the lease provides for annual 4% increases throughout its term.

ITEM 3 - LEGAL PROCEEDINGS

Members of our board of directors, Mr. Warren and Mr. Edwards, and our Chief Financial Officer, Mr. Kee, served as executive officers of Bravo! Brands Inc. (“Bravo!’).  On September 21, 2007, Bravo! Brands Inc. reported that it filed a voluntary petition in the United States Bankruptcy Court for the Southern District of Florida pursuant to Chapter 7 of Title 11 of the United States Code, Cash No. 07-17840-PGH.  The filing occurred after Mr. Warren, Mr. Edwards and Mr. Kee ended their relationship with Bravo!.  The bankruptcy trustee had named Mr. Warren and Mr. Kee as defendants in an Adversary Complaint for damages based upon certain allegations.  The proceeding does not involve Attitude and was pending in the United States Bankruptcy Court for the Southern District of Florida as part of the Chapter 7 proceedings of Bravo!.  On December 17, 2009, the United States Bankruptcy Court, Southern District of Florida, West Palm Beach Division, ordered a “Stipulation of Settlement” approved.  The Settlement included a “general release of claims by the defendants” and a “release of claims by the trustee” against the defendants.  In the Compromise, “the parties agree and acknowledge that this Agreement is the result of a compromise and shall not be construed as an admission by any Party of any liability, coverage, wrongdoing, or responsibility on its, his or her par or on the part of directors, employees, or attorneys.  Indeed, the Parties expressly deny any such liability, coverage, wrongdoing or responsibility.”  On January 27, 2010, the United States Bankruptcy Court, Southern District of Florida, Fort Lauderdale Division, issued a “Voluntary Dismissal of Adversary Proceeding with Prejudice.”

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On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008.  This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Denton County, Texas for a total sum of $22,347.  This claim has been recorded on the Company’s records.   Due to the lack of adequate capital financing, we have not been able to make any payments.  We expect to resolve this matter as soon as practical.

On June 5, 2009, Tuttle Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. During May, 2010, Tuttle Motor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company.

On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services.  The claim is for $2,106 plus interest and legal costs.  This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. This amount was recorded on our records.  A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095.  On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount.  No other payments have been paid.

On November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide storage and warehouse fees. The Court approved a final judgment on January 11, 2010 in the sum of $3,650, court costs of $350 and  interest fees of $959 for a total sum of $4,959.   We have already recorded a similar amount in our records.  As of April 2, 2010, we received a letter of notification from Nationwide Distribution Services, Inc. that at 12:00 noon on April 19, 2010, the products owned by us and stored at their facilities were sold at public auction.  This sale constituted satisfaction of the final judgment brought against us.

ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

A notice of written consent in lieu of a special meeting was sent on March 8, 2010 to the shareholders of Attitude Drinks Incorporated whereas the Board of Directors and shareholders with a majority of the Company’s voting power as of the record date (February 9, 2010) authorized the following actions:

  1.  Amendment to the Company’s Certificate of Incorporation to increase its authorized common shares from One Hundred Million (100,000,000) to One Billion (1,000,000,000) shares; and

  2.  Amendment to the Company’s Certificate of Incorporation at the Board of Directors’ discretion at any time within the next twelve months to effect a reverse stock split of the Company’s common stock at a reverse split ratio of between 1 for 5 and 1 for 20, pursuant to which any whole number of outstanding shares between and including 5 and 20 would be combined into one share of common stock, which ratio will be selected by the Company’s Board of Directors.  There will be no change to the authorized shares of common stock of the Company as a result of any reverse stock split, and any fractional shares will be rounded up.

The Certificate of Amendment to the Certificate of Incorporated was approved by the state of Delaware to be filed and effective on April 5, 2010. See Exhibit (3) (1) (ii).

Further on July 7, 2010, the Company amended its Certificate of Incorporation to effect a one-for-twenty reverse stock split of its issued and outstanding shares of common stock, par value $.001.  There will be no change to the authorized shares of common stock of the Company as a result of the reverse stock split.

PART II

ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Common stock market price

The Company’s common stock began trading on the OTC Electronic Bulletin Board (ticker symbol ATTD.OB) on June 19, 2008. The approximate number of record holders of the Company’s common stock at April 9, 2010 was 1,295. The stock prices listed below have been restated to account for the 1-for-20 reverse stock split.

The following quarterly quotations for common stock transactions on the OTC Bulletin Board reflect inter-dealer prices, without retail mark-up, markdown or commissions and may not represent actual transactions.

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QUARTER	HIGH BID PRICE		LOW BID PRICE
Fiscal year – 2008/2009
First Quarter	$	20.40	$	20.40
Second Quarter	$	22.00	$	4.00
Third Quarter	$	4.00	$	0.20
Fourth Quarter	$	1.00	$	0.40
Fiscal year – 2009/2010
First Quarter	$	1.20	$	0.20
Second Quarter	$	1.00	$	0.20
Third Quarter	$	1.00	$	0.20
Fourth Quarter	$	1.60	$	0.40

Dividends

The holders of common stock are entitled to receive, pro rata, such dividends and other distributions as and when declared by our board of directors out of the assets and funds legally available therefore.  We have not paid dividends on our common stock and do not anticipate paying dividends to holders of our common stock in the foreseeable future.  Management intends to retain future earnings, if any, to finance working capital and to expand our operations.

Sale of unregistered securities

Quarter Ended March 31, 2010

On January 10, 2010, the Company entered into modification and amendment agreements with one institutional investor (Alpha Capital Anstalt) for the Company’s convertible notes with an aggregate face value of $1,624,341 (less conversions of $174,000 for a net amount of $1,450,341) as well as another institutional investor (Whalehaven  Capital Fund, Ltd.) for the Company’s convertible notes with an aggregate face value of $545,556 (total net amount for debt holders of $1,995,897) to extend the maturity dates of these notes to June 30, 2010.  As consideration for the extension, the Company issued two secured convertible notes in principal amounts of $50,000 each to both institutional investors (total of $100,000) with interest at an annual rate of 12%.  The notes mature on June 30, 2010 and are convertible into common stock at a conversion rate equal to the lower of $1.00 or 80% of the average of the three lowest closing bid prices of the Company’s common stock during the twenty consecutive trading days preceding the conversion date.  As additional consideration for the extension of the maturity date, the Company lowered the exercise price of warrants held by the institutional investors representing the right to purchase 2,587,537 shares to $0.16 in connection with the extended notes.

On January 28, 2010, the Company executed allonges to the March 2009 secured convertible notes increasing the aggregate face values of these notes from $208,334 to $233,334 for Alpha Capital Anstalt, an institutional investor, and from $180,556 to $205,556 for Whalehaven Capital Fund, Ltd., a second institutional investor, in exchange for $40,000 of cash from both debt holders, net of financing fees.

On January 28, 2010, the Company entered into modification and amendment agreements with four institutional investors to modify and amend the terms of warrants to purchase common stock issued in connection with the various financings that occurred from October 2007 through July 2009.  The agreements increased the number of shares the holders are entitled to purchase pursuant to the warrants from an aggregate of 1,164,133 to 2,799,925 shares. From this total aggregate, one institutional investor’s applicable warrants (Alpha Capital Anstalt) increased from the right to purchase 637,065 shares to the right to purchase 1,455,167 shares, a second institutional investor’s applicable warrants (Whalehaven Capital Fund, Ltd.) increased from the right to purchase 481,613 shares to the right to purchase 890,703 shares, a third institutional investor applicable warrant holdings (Monarch Capital Fund Ltd.) increased from the right to purchase 30,303 to the right to purchase  303,003 shares while a fourth institutional investor (Smivel LLC) increased their specific warrants from the right to purchase 15,152 shares to the right to purchase 151,052 shares.  The agreements also reduced the exercise prices of the warrants to $0.16 per share and extended the expiration date of the warrants to July 15, 2015. In addition, the Company issued 104,167 warrants at an exercise price of $0.16 to expire in five years.

On February 1, 2010, the Company entered into an agreement to issue 55,000 shares of its restricted common stock to a consultant for financial public relations services.  The shares were valued at $0.60 per share or $33,000. The shares could not be issued at that time, pending the approval of the increase of the Company’s authorized common stock to one billion shares.  Approval was subsequently authorized, and these shares will be issued in May or June of 2010.

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On February 10, 2010, the Company entered into an agreement to issue 37,500 shares of its restricted common stock to members of the Scientific Advisory Board for their services (7,500 restricted shares each to three of the four members and 15,000 restricted shares to the other member). All shares were valued at $.60 per share or $22,500 as the shares could not be issued at that time, pending the approval of the increase of the Company’s authorized common stock to one billion shares.  Such approval was authorized in which these shares will be issued in May or June of 2010. In addition, 50,000 non-qualified stock options were issued to the four members of the Scientific Advisory Board, (10,000 stock options each to three members and  20,000 stock options to the fourth member) at an exercise price of $.60 with the options to expire February 9, 2015.

In addition, the Company ratified the issuance of 12,000 restricted shares of common stock valued at $.60 per share or $7,200 which shares will be issued in either May or June 2010, an agreement to issue warrants to purchase 12,000 shares of common stock upon the exercise of previously issued Class A Common Stock Warrants and reduction of the exercise price of all warrants held by one of the earlier accredited investors (Steven Stock) of the non-convertible short-term bridge loans to $1.00 per share.

Also on February, 10, 2010, Endorsement Agreements were signed with two professional athletes whereas the Company agreed to issue 62,500 shares of its restricted common stock to each athlete for a total of 125,000 restricted shares of common stock as the shares were valued at $.60 (total of 125,000 restricted shares at $75,000). In addition, the Company issued 50,000 shares of its restricted common stock to our outside legal counsel for past due legal services as each share was valued at $.60 or $30,000 as well as 75,000 non-qualified stock options with an exercise price of $1.00 with the stock options to expire in five years.  All of the above restricted shares will be issued in either May or June 2010.

On February 11, 2010 and in reference to the above January 10, 2010  two new  issued notes, the Company entered into a modification and amendment agreement with two institutional investors to increase the number of warrants by a total of 104,166 warrants (from 1,455,167 warrants to 1,507,250 warrants for Alpha Capital Anstalt) an institutional investor, and from 890,703 warrants to 942,786 warrants for Whalehaven Capital Fund, Ltd., the second institutional investor, as well as modify the terms of these issued warrants whereas the exercise price of the total 104,166 warrants was reduced to $0.16, and the expiration date of the warrants was July 15, 2015.

On February 19, 2010, the Company executed an allonge for Alpha Capital Anstalt, an institutional investor, for a March 2009 secured convertible note, increasing the aggregate face value of this note from $233,334 to $288,334 in exchange for $55,000. In addition, additional 104,167 warrants were issued at an exercise price of $0.16 with an expiration date of five years.

On March 26, 2010, the Company executed two allonges to institutional investors of the March 2009 secured convertible notes increasing the aggregate face values of these notes from $493,890 to $631,390 (from $288,334 to $359,834 for Alpha Capital Anstalt and from $205,556 to $271,556 for Whalehaven Capital Fund Ltd. in which both companies are the institutional investors) in exchange for $124,400 of cash, net of financing fees which $65,000 was received in March, 2010 and which $59,400 will be received in April, 2010.  In addition, a total of 286,458 warrants (148,958 warrants to Alpha Capital Anstalt and 137,500 warrants to Whalehaven Capital Fund, Ltd,) were issued at an exercise price of $0.16 with an expiration date of five years.

All of the net proceeds from the above new financings were used for research and development activities as well as working capital purposes.

The foregoing securities were issued in reliance upon an exemption from registration under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.  All of the investors were accredited investors and/or had preexisting relationships with the Company, there was no general solicitation or advertising in connection with the offer or sale of securities and the securities were issued with a restrictive legend.

ITEM 6 - SELECTED FINANCIAL DATA

Not applicable.

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

EXECUTIVE LEVEL OVERVIEW

Our Business Model

We are a development stage company with negligible product sales from inception through March 31, 2010.  Our plan of operation during the next 12 months is to focus on the non-alcoholic single serving beverage business, developing and marketing of milk based products in three fast growing segments; sports recovery, functional dairy and milk juice blends.  We do not directly manufacture our products but instead outsource the manufacturing process to third party bottlers and contract packers. Our efforts to date were focused in our first full year operations primarily on developing our first energy drink which is called VisViva™ in which sales began in late March 2008. We have since tabled that product with the intent to possibly reintroduce this product in a new format and as a “focus” drink in late 2011.

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 Milk, while the second highest beverage consumed in America in terms of overall volume, is still under-represented in the American single serve ready-to-drink beverage industry.  While known for generations by nutritionists and more recently identified by sports, hydration, metabolism and protein professionals and scientists as “mother nature’s most perfect food”, milk has yet to be successfully branded and commercialized.

We have completed research and development work in developing our latest dairy based product which is called “Phase III™ Recovery” and is designed for the third phase of exercise, the “after phase” of before, during and after. This product is the first milk based protein drink ever to be produced in America and is shelf-stable with a twelve (12) month long shelf life. We started to sell this new product in February 2010. Our co-pack partner, O-AT-KA Milk Products, is the largest retort milk processor in America, located in Batavia, New York and has the most advanced retort processor and know-how to produce this product with state-of-the-art milk filtration systems as well as the packaging of this product in new Ball Container aluminum eco-friendly re-sealable bottles.    The primary target for Phase III Recovery ™ is active sports minded males and females from ages 15 to 35, but we will target active sports and exercise consumers at all levels.  Gyms, sports teams, body builders and even high-endurance athletes are all beginning to focus on sports recovery drinks which we consider the “next generation” sports drink. We anticipate the development of other dairy based drink products in the fourth calendar quarter of 2010.

We recently organized a Scientific Advisory Board of four well known experts that have extensive experience in sports nutrition.  This board will be helpful in communicating the scientific benefits of our sports recovery drink as well as new functional milk drinks.  Their contacts in the world of sports will be very important in our sales efforts, especially in the early days.

We plan to initially focus on the largest markets for beverages in the eastern United States.  We intend to develop key working partnerships with regional direct store delivery (DSD) beverage distributors in these markets and will support them with field representatives to assure sufficient shelf compliance.  Regional distributors have lost four major beverage lines in the last few months including Monster Energy (moved to Anheuser Bush), Fuze (purchased by Coca-Cola), Vitamin Water (purchased by Coca-Cola, and the V-8 brands (now distributed by Coca-Cola).  We will develop regionally exclusive DSD agreements that are desperately needed by the distributors to replace these losses as well as shipping direct to our customers via our own warehouse system.

We will pre-sell in four sales channels; grocery, convenience, drug, and sports and gym specialty.  Certain accounts like chained convenience stores, grocery and drug stores will require warehouse distribution.  The shelf-stable and long shelf life attributes of our products will accommodate any and all distribution and warehouse systems. To accommodate this business, we will employ beverage brokers and work with the “tobacco & candy” and food service warehouse distributors like McLane Company and Sysco Foods for this business.

The pricing and gross profit margin for the products will vary. Each product delivers different functionality and utilizes different types of packaging and package sizes.  Without exception, these products will command premium pricing due to the functionality and value-added formulation and will therefore be priced according to the nearest competitive brands in their respective spaces.  The functional milk drinks (once produced) are also expected to command approximately the same percentage margin due to the premium pricing commanded by the experiential functionality.  Clearly singles will command higher margin than multi-packs.

Plan of Operations

We are continuing to seek other sources of financing to develop our business plan, implement our sales and marketing plan and to meet other operational expense requirements.  Historically, we have had to rely on convertible debt financings to cover operating costs. We have no assurance that we will be able obtain additional funding to sustain our limited operations beyond twelve months based on the available cash.  If we do not obtain additional funding, we may need to cease operations until we do so and, in that event, may consider a sale of the rights to our product line(s) and intangible assets such as our trademarks or a joint venture partner that will provide funding to the enterprise. Our future operations are totally dependent upon obtaining additional funding.  Past fundings have been subject to defaults by the company’s inability to meet due dates for certain notes payable, thereby triggering anti-dilution rights which created the need to issue additional shares of common stock and/or additional warrants to purchase additional shares of common stock in order to extend the applicable due dates for  certain notes payable.  There can be no assurance that these defaults will not happen again in the future, thereby creating the potential need for additional issuances of shares of common stock and/or warrants.

We will consider equity and/or convertible debt financings, either or both of a private sale or a registered public offering of our common stock; however, at this time and with the current economy, it seems unlikely that we can obtain an underwriter.

We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly on the fact that we may not be able to generate enough gross profits from our sales to cover our operating expenses and to increase our sales and marketing efforts.   Although our most recently developed “Phase III™ Recovery” drink product was recently introduced, based on historical spending, we anticipate a need of funding in the range of $1,750,000 to $2,000,000 for the next twelve months to meet our business plan and operating needs only.  This figure does not include any new product research and development activities. We have no commitments for material funding at this time.

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Summary of Certain Key Events from merger date through March 31, 2010:

Here is a list of the key events from the merger date through March 31, 2010:

·       Acquisition of Attitude Drink Company, Inc. on September 19, 2007

·       Securities Purchase Agreement on October 23, 2007 to sell up to $1,200,000 of our securities with proceeds received in

October, 2007 ($600,000), in February, 2008 ($500,000), and June, 2008 ($100,000)

·       Receipt of net proceeds for $393,500 from January 8, 2008 borrowings

·       Completion of the research and development activities for our first product, VisViva™, with first sales generated in late

           March, 2008

·       March, 2008 authorization to sell Vis Viva in Duane Reade, largest drug chain in New York City

·       Short term bridge loan financing in April, 2008 for $300,000 face value

·       Short term bridge loan financing in May, 2008 for $33,000 face value

·       FINRA approval of company stock trading on June 18, 2008, OTCBB: ATTD

·       Exclusive license agreement for Innutria® with Dr. Zemel’s Nutraceutical Discoveries group in August, 2008

·       Acquisition of brand names and intellectual properties in August, 2008 formally marketed by Bravo Brands! Inc.

           including Slammers™ and Blenders™

·       Short term bridge loan financing in August, 2008 for $55,000 face value

·       Short term bridge loan financing in September, 2008 for $243,333 face value

·       Signing of co-packer agreement with O-AT-Ka Milk Products Cooperative, Inc.  in December, 2008

·       Short term bridge loan financing in December, 2008 for $60,833 face value

·       Short term bridge loan financing in January, 2009 for $120,000 face value

·       Short term bridge loan financing in February, 2009 for $60,000 face value

·       Short term bridge loan financing in March, 2009 for $200,000 face value

-       Short term bridge loan financing in July, 2009 for $161,112 face value

-       Short term bridge loan financing in October, 2009 for $27,778 face value

-       Short term bridge loan financing in November, 2009 for $111,111 face value

-       Short term bridge loan financing in January, 2010 for $150,000 face value

-       Completed first production run of new product, Phase III Recovery, in late January, 2010

-       Short term bridge loan financing in February, 2010 for $55,000 face value

-       Short term bridge loan financing in March, 2010 for $66,000 face value

-       Recorded first sales of the new Phase III Recovery product in March, 2010

This discussion and analysis of our consolidated financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles that are generally accepted in the United States of America.  Our fiscal year end is March 31.

Increase In Authorized Shares and Reverse Stock Split

The state of Delaware approved on April 4, 2010 the increase in our authorized shares of common stock from one hundred million (100,000,000) to one billion (1,000,000,000).  As such, we are reflecting that increase in our financial statements for the year ended March 31, 2010.

We implemented a 1-for-20 reverse stock split on July 7, 2010.  Since this change has occurred before the release of our March 31, 2010 audited financial statements, we have restated all applicable financial information for both the years ended March 31, 2010 and 2009.   In addition, we have provided key financial data before and after the stock split in the following table:

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TABLE REFLECTING THE EFFECTS OF THE 1-FOR-20 REVERSE STOCK SPLIT
THAT WAS EFFECTIVE AS OF JULY 7, 2010 FOR THE PERIODS
ENDED MARCH 31, 2010 AND MARCH 31, 2009
	Before			With
	Stock Split			Stock Split
For the year ended March 31, 2010
Shares issued and outstanding		86,128,731			4,306,437
Basic loss per common share	$	(0.72	)	$	(14.43	)
Diluted loss per common share	$	(0.72	)	$	(14.43	)
Weighted average common shares outstanding - basic		35,174,069			1,758,703
Weighted average common shares outstanding - diluted		35,174,069			1,758,703
For the year ended March 31, 2009
Shares issued and outstanding		14,400,121			720,006
Basic loss per common share	$	(0.31	)	$	(6.18	)
Diluted loss per common share	$	(0.31	)	$	(6.18	)
Weighted average common shares outstanding - basic		10,633,969			531,698
Weighted average common shares outstanding - diluted		10,633,969			531,698

Critical Accounting Policy

The preparation of financial statements in conformity with GAAP 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 period. The most critical estimates included in our financial statements are the following:

Financial Instrument Valuation

Estimating the fair value of our hybrid financial instruments that are required to be carried as liabilities at fair value pursuant to the FASB Accounting Standards Codification for the year ended March 31, 2010

We use all available information and appropriate techniques including outside consultants to develop our estimates. However, actual results could differ from our estimates.

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Derivative Financial Instruments

We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks.  However, we have and will frequently enter into certain other financial instruments and contracts, such as debt financing arrangements and freestanding warrants with features 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 to a financing transaction.  As required by the FASB Accounting Standards Codification, these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements.  However, we are allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis, rather than bifurcate the derivative.  We believe that fair value measurement of the hybrid convertible promissory notes arising from our various financing arrangements provides a more meaningful presentation of that financial instrument.

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring of fair values.  In selecting the appropriate technique(s), we consider, among other factors, the nature of the instrument, the market risks that such instruments embody and the expected means of settlement.  For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique, since it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments.  For complex hybrid instruments, such as convertible promissory notes that include embedded conversion options, puts and redemption features embedded in them, we generally use techniques that embody all of the requisite assumptions (including credit risk, interest-rate risk, dilution   and exercise/conversion behaviors) that are necessary to fair value these more complex instruments.  For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weightage to multiple possible outcomes.

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, our income will reflect the volatility in these estimate and assumption changes.

Impairment of Long-Lived Assets

Our long-lived assets consist principally of intangible assets, and to a much lesser extent, furniture and equipment.  We evaluate the carrying value and recoverability of our long-lived assets when circumstances warrant such evaluation by applying the provisions of the FASB Accounting Standards Codification which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.

Recent accounting pronouncements

We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We believe that the following impending standards may have an impact on our future filings. The applicability of any standard is subject to the formal review of our financial management, and certain standards are under consideration.

In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, the ASU 2010-06 amends Codification Subtopic 820-10 to now require: a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.  In addition, ASU 2010-06 clarifies the existing requirements that reporting entities use judgment in determining the appropriate classes of assets and liabilities for purposes of reporting fair value measurement for each class of assets and liabilities and provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  The ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted.  The Company has not elected early application of this ASU but does not believe its adoption will have a significant impact on its financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“Codification”). The Codification is the single source for all authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009.  The implementation of the Codification did not impact our financial statements or disclosures other than references to authoritative accounting literature are now made in accordance with the Codification.

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In May 2009, the FASB issued guidance under ASC 855 “Subsequent Events” which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance required the Company to disclose the date through which the Company has evaluated subsequent events and the basis for the date. The guidance was effective for interim periods which ended after June 15, 2009. See Note 13, “Subsequent Events”, of the consolidated financial statements for information on the date to which subsequent events are disclosed.

In June 2008, the FASB issued authoritative guidance as required by the “Derivative and Hedging” ASC Topic 815-10-15-74 in Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. The objective is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock, and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative, for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception. This Issue also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock, regardless of whether the instrument has all the characteristics of a derivative. We currently have warrants that embody terms and conditions that require the reset of their strike prices upon our sale of shares or equity-indexed financial instruments at amounts less than the conversion prices. These features will no longer be treated as “equity” once it becomes effective. Rather, such instruments will require classification as liabilities and measurement at fair value. Early adoption is precluded. This standard did not have a material impact on the financial statements due to the Company’s warrants previously requiring liability classification.  See Note 8 Derivative Liabilities of the consolidated financial statements for additional disclosure data.

In March 2008, the FASB issued guidance under ASC 815 “Derivatives and Hedging”. The guidance is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for and its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company has provided the required disclosures in the accompanying Notes to Condensed Consolidated Financial Statements. See Note 8 Derivative Liabilities of the consolidated financial statements for additional disclosure data.

In December 2007, the FASB issued revised guidance under ASC 805 “Business Combinations”, which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. ASC 805 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of ASC 805 did not have a material impact on the Company’s financial position, results of operations or cash flows because the Company has not been involved in any business combinations during the year ended December 31, 2010.

In December 2007, the FASB issued guidance under ASC 810 “Consolidation” This guidance establishes new accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance will change the classification and reporting for minority interest and non-controlling interests of variable interest entities. The guidance requires the minority interest and non-controlling interest of variable interest entities to be carried as a component of stockholders’ equity. Accordingly we will reflect non-controlling interest in our consolidated variable interest entities as a component of stockholders’ equity. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier adoption is prohibited. The Company adopted this guidance beginning March 31, 2009. Since we do not currently have minority interest or Variable Interest Entities consolidated in our financial statements, adoption of this guidance has no impact on the Company’s financial statements.

In July 2006, the FASB issued guidance under ASC 740 “Income Taxes”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on a tax return. The adoption of this guidance did not have any impact on our financial statements.

RESULTS OF OPERATIONS

Revenues

We are a development stage company and generated our first revenues in late March 2008. As such there is no meaningful comparison with prior periods. 

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Consolidated Revenues
	For The Years Ended March 31,
	2010			2009			$ Change			% Change
Revenues	$	12,974		$	54,684		$	(41,710	)		(76.3	)%
Less Slotting expense		(5,210	)		(30,050	)		24,840			82.7	%
Less Discounts		(1,137	)		(981	)		(156	)		(15.9	)%
Net Revenues	$	6,627		$	23,653		$	(17,026	)		(72.0	)%

All revenues were generated in the United States. The decrease in our revenues for the year ended March 31, 2010 as compared to the prior year ended March 31, 2009 is the result of the Company’s decision to withdraw from the market our first energy drink which is called VisViva™.  The Company plans to reintroduce this product in a new format and as a “focus” drink in the future, possibly as early as late 2011.

Slotting fees are common in the large store channels and represent cash payments made for rights to place our products on customer retail shelves for a stipulated period of time.  A component of our growth plan includes increasing penetration in the large store channel.  Slotting fees in the amount of $5,210 and $30,050 were recorded for the periods ended March 31, 2010 and March 31, 2009, respectively. The decrease in slotting expense for the year ended in March 31, 2010 as compared to the year ended March 31, 2009 is the direct result of the Company’s decision to table its VisViva™ product, resulting in decreased slotting expense for the period ended March 31, 2010 as compared to the period ended March 31, 2009.

We plan to increase our revenues during the next twelve months by implementing marketing and sales promotion programs to introduce our new “Phase III™ Recovery” drink to new markets in the first half of the 2010 calendar year, increasing our internal sales force, securing additional national distributors, expanding our products offering, increasing our volume per outlet and implementing new grass roots marketing and sample programs.

Consolidated Product and Shipping Costs	For The Years Ended March 31
	2010		2009		$ Change
Product costs	$	7,491	$	25,735	$	(18,244	)
Shipping costs		1,381		7,997		(6,616	)
Inventory Obsolescence		90,042		42,577		47,465
Total costs	$	98,914	$	76,309	$	22,605

Note:  The Company is presently a development stage company, as such no material revenues have been reported.  The computation of the percentage of expenses to revenues is not meaningful at this time and is not representative of expected future operations.

As stated in the above revenue section, the Company tabled its VisViva™ product line as well as stopped the production of this product, resulting in lower product and shipping costs for the year ended March 31, 2010 as compared to the year ended March 31, 2009.  In addition, the Company wrote off the remaining unsold inventory and other inventory with expired shelf lives for the VisViva™ product during the year ended March 31, 2010, resulting in an increase of $47,465 for inventory obsolescence cost.

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Operating Expenses	For The Years Ended March 31
	2010		2009		$ Change			% Change
Salaries, taxes and employee benefit costs	$	780,010	$	1,563,184	$	(783,174	)		(50.1	)%
Marketing and promotion		258,623		1,430,082		(1,171,459	)		(81.9	)%
Consulting fees		22,131		159,867		(137,736	)		(86.2	)%
Professional and legal fees		207,323		237,135		(29,812	)		(12.6	)%
Travel and entertainment		6,191		105,329		(99,138	)		(94.1	)%
Product development costs		22,550		2,450		20,100			820.4	%
Stock compensation expense		1,758,600		-		1,758,600			N/A
Other overhead expenses		326,852		393,601		(66,749	)		(17.0	)%
Total operating expenses	$	3,382,280	$	3,891,648	$	(509,368	)		(13.1	)%

Salaries, taxes and employee benefit costs

Due to limited capital and further development of our new products, the company reduced its labor force by an average of ten employees for the year ended March 31, 2010 as compared to the prior year ended March 31, 2009, resulting in lower costs of $783,174.

Marketing and promotion

Again due to limited capital, ceasing the promotion of our VisViva™ product line and further development of our new products, the company spent less money for marketing and promotion for the year ended March 31, 2010 as compared to the prior year ended March 31, 2009, resulting in decreased costs of $1,171.459.   The major contributor to this decrease was the cancellation of the company’s sponsorship in 2009 of a Top Fuel Dragster in the National Hot Rod Association (NHRA) circuit for approximately $1,123,000.

Consulting fees

Similar to the above, limited capital and continued development of our Phase III new product plus the elimination of three outside consultants reduced these costs for the year ended March 31, 2010 as compared to the prior year ended March 31, 2009, resulting in decreased costs of $137,736.

Professional and legal fees

These costs relate to the use of outside legal, accounting and auditing firms. Additional costs ($237.135 in 2009 compared to $207,323 in 2010) were incurred for the year ended March 31, 2009 due to the hiring of new auditors in which they audited both the 2009 and 2008 fiscal year ends.

Travel and entertainment

As the company was concentrating most of its energy in the development of new products for the year ended March 31, 2010, there were fewer travel demands placed upon the company. Further, for the year ended March 31, 2010, we employed an average of  ten fewer employees and three fewer outside consultants as many of these eliminated positions incurred travel expenses for the year ended March 31, 2009.

Product development costs

These costs increased over the prior year ending March 31, 2009 mainly for development of our next product, Phase III™.  The majority of these costs relate to the development of the packaging for $10,050 and labels for $10,000.

Stock compensation expense

For the year ended March 31, 2010, these costs relate to the recording of costs associated with the issuance of shares of common stock for $138,600 and preferred stock for $1,620,000 as stock compensation expense for being late in paying for services.

Other operating expenses

The total costs decreased by $66,749 or 17.0% over the prior year again due to limited operating capital and reduced activities, mainly for associated costs such as telephone and office expenses of $32,088 as we had fewer costs due to fewer employees and consultants for the year ended March 31, 2010.  The other main components of this category represent Board of Directors’ fees, rent expense and investors relations costs.

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Other Income (Expense)

Derivative income/(expense)

Derivative income/(expense) arises from changes in the fair value of our derivative financial instruments and, in rare instances, day-one losses when the fair value of embedded and freestanding derivative financial instruments issued or included in financing transactions exceed the proceeds or other basis.  In addition, the fair value of our financial instruments that are recorded at fair value will change in future periods based upon changes in our trading market price and changes in other assumptions and market indicators used in the valuation techniques.  Future changes in these underlying internal and external market conditions will have a continuing effect on derivative expense associated with our derivative financial instruments.

The following table summarizes the effects on our income (expense) associated with changes in the fair values of our financial instruments that are carried at fair value from inception through March 31, 2010:

	Inception through
Our financing arrangements giving rise to	March 31,
derivative financial instruments and the income effects:	2010
Day-one derivative losses:
$  600,000 Original Face Value Convertible Note Financing	$	(2,534,178	)
$  500,000 Original Face Value Convertible Note Financing		(899,305	)
$  100,000 Original Face Value Convertible Note Financing		(1,285,570	)
$    55,000 Original Face Value Short Term Bridge Loan Note Financing		(12,700	)
$  120,000 Original Face Value Convertible Note Financing		(72,251	)
$    60,000 Original Face Value Convertible Note Financing		(38,542	)
$  200,000 Original Face Value Convertible Note Financing		(119,136	)
$    27,778 Original Face Value Convertible Note Financing		(6,378	)
$  161,111 Original Face Value Convertible Note Financing		(45,846	)
$  111,112 Original Face Value Convertible Note Financing		(185,657	)
$   50,000 Original Face Value Convertible Note Financing		(182,843	)
$   55,000 Original Face Value Convertible Note Financing		(80,135	)
$ 137,500 Original Face Value Convertible Note Financing		(1,023,463	)
Total day-one derivative losses:	$	(6,486,004	)

	Inception through
	March 31,
Derivative income (expense):	2010
$ 600,000  Original Face Value Convertible Note Financing	$	1,483,364
$ 500,000 Original Face Value Convertible Note Financing		273,533
$ 100,000 Original Face Value Convertible Note Financing		886,436
$ 120,000 Original Face Value Short Term Bridge Loan Financing		177,147
$ 120,000 Original Face Value Short Term Bridge Loan Financing		177,147
$   60,000 Original Face Value Short Term Bridge Loan Financing		88,574
$   33,000 Original Face Value Short Term Bridge Loan Financing		48,716
$   55,000 Original Face Value Short Term Bridge Loan Financing		45,265
$ 243,333 Original Face Value Convertible Note Financing		134,424
$   60,833 Original Face Value Convertible Note Financing		6,602
$ 120,000 Original Face Value Convertible Note Financing		(63,120	)
$   60,000 Original Face Value Convertible Note Financing		(24,720	)
$ 200,000 Original Face Value Convertible Note Financing		(250,000	)
$ 161,111 Original Face Value Convertible Note Financing		(143,520	)
$   50,000 Original Face Value Convertible Note Financing		(45,208	)
$   55,000 Original Face Value Convertible Note Financing		(41,667	)
$137,500 Original Face Value Convertible Note Financing		55,000
Total income arising from fair value adjustments	$	2,807,973

17

	Inception through
	March 31,
Interest income (expense) from instruments recorded at	2010
fair value:
$ 600,000 Original Face Value Convertible Note Financing	$	(2,112,311	)
$ 500,000 Original Face Value Convertible Note Financing		(2,823,019	)
$ 100,000 Original Face Value Convertible Note Financing		(314,989	)
$ 312,000 Original Face Value Convertible Note Financing		(1,755,062	)
$ 120,000 Original Face Value Convertible Note Financing		(652,868	)
$     5,000 Original Face Value Convertible Note Financing		(27,019	)
$     5,000 Original Face Value Convertible Note Financing		(27,202	)
$   60,000 Original Face Value Convertible Note Financing		(326,379	)
$   70,834 Original Face Value Convertible Note Financing		(385,376	)
$ 200,000 Original Face Value Convertible Note Financing		(1,077,768	)
$  27,778 Original Face Value Convertible Note Financing		(148,582	)
$ 161,111 Original Face Value Convertible Note Financing		(864,080	)
$ 111,112 Original Face Value Convertible Note Financing		(536,079	)
$ 507,500 Original Face Value Convertible Note Financing		(2,386,971	)
$   50,000 Original Face Value Convertible Note Financing		(146,542	)
$   55,000 Original Face Value Convertible Note Financing		(270,187	)
$ 137,500 Original Face Value Convertible Note Financing		(47,269	)
$ 100,000 Original Face Value Convertible Note Financing		(492,958	)
	$	(14,394,661	)

The following tables summarize the effects on our income (expense) associated with changes in the fair values of our financial instruments that are carried at fair value from the years ended March 31, 2010 and March 31, 2009.

Our financing arrangements giving rise to	Twelve Months Ended			Twelve Months Ended
derivative financial instruments and the income effects:	March 31, 2010			March 31, 2009
Derivative income (expense):
$ 600,000 Original Face Value Convertible Note Financing	$	(925,054	)	$	1,690,346
$ 500,000 Original Face Value Convertible Note Financing		(658,891	)		926,364
$ 100,000 Original Face Value Convertible Note Financing		(166,048	)		1,052,484
$ 120,000 Original Face Value Short Term Bridge Loan Financing		(33,366	)		278,920
$ 120,000 Original Face Value Short Term Bridge Loan Financing		(33,366	)		110,620
$   60,000 Original Face Value Short Term Bridge Loan Financing		(16,683	)		55,310
$   33,000 Original Face Value Short Term Bridge Loan Financing		(9,176	)		139,325
$   55,000 Original Face Value Short Term Bridge Loan Financing		(16,950	)		62,215
$ 243,333 Original Face Value Convertible Note Financing		-			134,424
$   60,833 Original Face Value Convertible Note Financing		-			6,602
$ 120,000 Original Face Value Convertible Note Financing		(71,520	)		8,400
$   60,000 Original Face Value Convertible Note Financing		(31,800	)		7,080
$ 200,000 Original Face Value Convertible Note Financing		(250,000	)		-
$ 161,111 Original Face Value Convertible Note Financing		(143,520	)		-
$   50,000 Original Face Value Convertible Note Financing		(45,208	)		-
$   55,000 Original Face Value Convertible Note Financing		(41,667	)
$ 137,500 Original Face Value Convertible Note Financing		55,000
Total derivative income (expense) arising from fair value adjustments	$	(2,388,249	)	$	4,472,090

18

Interest income (expense) from instruments recorded at
Fair value:
$ 600,000 Original Face Value Convertible Note Financing	$	(2,240,995	)	$	(11,490	)
$ 500,000 Original Face Value Convertible Note Financing		(2,812,574	)		(9,576	)
$ 100,000 Original Face Value Convertible Note Financing		(555,983	)		240,994
$ 312,000 Original Face Value Convertible Note Financing		(1,755,062	)		-
$ 120,000 Original Face Value Convertible Note Financing		(652,699	)		(169	)
$     5,000 Original Face Value Convertible Note Financing		(26,994	)		(25	)
$     5,000 Original Face Value Convertible Note Financing		(27,177	)		(25	)
$   60,000 Original Face Value Convertible Note Financing		(326,324	)		(55	)
$   70,834 Original Face Value Convertible Note Financing		(385,376	)		(100	)
$  27,778 Original  Face Value Convertible Note Financing		(148,582	)		-
$ 200,000 Original Face Value Convertible Note Financing		(1,077,768	)		-
$ 111,112 Original Face Value Convertible Note Financing		(536,079	)		-
$ 161,111 Original Face Value Convertible Note Financing		(864,080	)		-
$ 507,500 Original Face Value Convertible Note Financing		(2,386,971	)		-
$   50,000 Original Face Value Convertible Note Financing		(146,542	)		-
$   55,000 Original Face Value Convertible Note Financing		(270,187	)		-
$ 137,500  Original Face Value Convertible Note Financing		(47,269	)		-
$ 100,000  Original Face Value Convertible Note Financing		(492,958	)		-
Total interest income (expense) arising from fair value adjustments		(14,753,520	)		219,554

The following tables summarize the effects on our income (expense) associated with changes in the fair values of our financial instruments that are carried at fair value from the three months ended March 31, 2010 and the three months ended March 31, 2009.

Our financing arrangements giving rise to	Three Months Ended			Three Months Ended
derivative financial instruments and the income effects:	March 31, 2010			March 31, 2009
Derivative income (expense):
$ 600,000 Original Face Value Convertible Note Financing	$	(794,291	)	$	62,000
$ 500,000 Original Face Value Convertible Note Financing		(587,679	)		34,243
$ 100,000 Original Face Value Convertible Note Financing		(151,563	)		6,849
$ 120,000 Original Face Value Short Term Bridge Loan Financing		(16,524	)		1,820
$ 120,000 Original Face Value Short Term Bridge Loan Financing		(39,952	)		2,020
$   60,000 Original Face Value Short Term Bridge Loan Financing		(8,252	)		1,010
$   33,000 Original Face Value Short Term Bridge Loan Financing		(6,799	)		775
$   55,000 Original Face Value Short Term Bridge Loan Financing		(11,383	)		1,615
$ 243,333 Original Face Value Convertible Note Financing		-			-
$   60,833 Original Face Value Convertible Note Financing		-			-
$ 120,000 Original Face Value Convertible Note Financing		(37,920	)		8,400
$   60,000 Original Face Value Convertible Note Financing		(15,000	)		7,080
$ 200,000 Original Face Value Convertible Note Financing		(127,500	)		-
$ 161,111 Original Face Value Convertible Note Financing		(121,868	)		-
$   50,000 Original Face Value Convertible Note Financing		(45,208	)		-
$   55,000 Original Face Value Convertible Note Financing		(41,667	)		-
$137,500 Original Face Value Convertible Note Financing		55,000			-
Total derivative income (expense) arising from fair value adjustments	$	(1,950,606	)	$	125,812

Interest income (expense) from instruments recorded at
Fair value:
$ 600,000 Original Face Value Convertible Note Financing	$	(1,921,811	)	$	(349,651	)
$ 500,000 Original Face Value Convertible Note Financing		(2,490,541	)		(291,376	)
$ 100,000 Original Face Value Convertible Note Financing		(495,192	)		(58,275	)
$ 312,000 Original Face Value Convertible Note Financing		(1,664,650	)		-
$ 120,000 Original Face Value Convertible Note Financing		(615,001	)		(169	)
$     5,000 Original Face Value Convertible Note Financing		(25,441	)		(25	)
$     5,000 Original Face Value Convertible Note Financing		(25,624	)		(25	)
$   60,000 Original Face Value Convertible Note Financing		(307,500	)		(55	)
$   70,834 Original Face Value Convertible Note Financing		(363,023	)		(100	)
$  27,778 Original Face Value Convertible Note Financing		(142,607	)		-
$ 200,000 Original Face Value Convertible Note Financing		(1,030,797	)		-
$ 111,112 Original Face Value Convertible Note Financing		(562,103	)		-
$ 161,111 Original Face Value Convertible Note Financing		(827,226	)		-
$507,500  Original Face Value Convertible Note Financing		(2,505,835	)		-
$   50,000 Original Face Value Convertible Note Financing		(146,542	)		-
$   55,000 Original Face Value Convertible Note Financing		(270,187	)		-
$ 137,500 Original Face Value Convertible Note Financing		(47,269	)		-
$ 100,000 Original Face Value Convertible Note Financing		(492,958	)		-
Total interest income (expense) arising from fair value adjustments	$	(13,934,307	)	$	(699,676	)

19

Our derivative liabilities as of March 31, 2010, and our derivative income and expense during the twelve months ended March 31, 2010 and from inception through March 31, 2010 are significant to our consolidated financial statements. The magnitude of derivative income (expense) reflects the following:

In connection with our accounting for the:

$600,000, $500,000, $100,000 face value convertible promissory notes and warrant financings for the October 23, 2007 financing arrangement,

the $55,000 face value short term bridge loan and warrant financing dated August 5, 2008,

the $120,000 face value convertible note and warrant financing dated January 27, 2009,

the $60,000 face value convertible note and warrant financing dated February 17, 2009,

the $200,000 face value convertible note and warrant financing dated March 30, 2009,

the $161,111 face value convertible note and warrant financing dated July 15, 2009,

the $27,778 face value convertible note and warrant financing dated October 1, 2009,

the  $111,112 face value convertible note issuance dated November 13, 2009,

the $50,000 face value convertible note issuance dated January 28, 2010,

the $50,000 face value convertible note and warrant financing dated January 28, 2010,

the $55,000 face value convertible note and warrant financing dated February 19, 2010, and

the $137,500 face value convertible note and warrant financing dated March 26, 2010.

We encountered the unusual circumstance of a day-one derivative loss related to the recognition of (i) the hybrid notes and (ii) the derivative instruments arising from the arrangement at fair values. That means that the fair value of the hybrid notes and warrants exceeded the proceeds that we received from the arrangement and we were required to record a loss to record the derivative financial instruments at fair value. We did not enter into any other financing arrangements during the periods reported that reflected day-one loss.

In addition, our financial instruments that are recorded at fair value will change in future periods based upon changes in our trading market price and changes in other assumptions and market indicators used in the valuation techniques.

Generally, the FASB Accounting Standards Codification provides for the exclusion of registration payment arrangements, such as the liquidated damage provisions that are included in the financing contracts underlying the convertible debt financing arrangements, from the consideration of classification of financial instruments. Rather, such registration payments will require recognition when they are both probable and reasonably estimable. As of March 31, 2010, our management concluded that registration payments are not probable.

Loss on extinguishment of debt

We recorded losses on extinguishment of debt for the fiscal year ended March 31, 2010 for $2,291,039 and $1,125,804 for the year ended March 31, 2009 as these costs represent the changes caused to common stock equivalents from certain modifications of terms normally associated with extending the due dates of certain debts.

Interest and Other Financing Costs:

We recorded interest expense for the fiscal year ended March 31, 2010 for $15,183,048 and $1,157,838 for the year ended March 31, 2009 in connection with our debt obligations at interest rates from 10% to 15%.  The increase of $14,025,210 over the prior fiscal year was attributed to the recording of debt instruments at fair value (debt discount expense) due to the increase in the stock price. We also recorded the amortization of associated deferred finance fees with these convertible note financings.

Impairment Loss

The $507,500 represents the write down of the costs incurred for the purchase of certain trademarks.

Net Loss

As we are a development stage company, we reported a net loss for the year ended March 31, 2010 and 2009 of $25,377,063 and $3,284,056, respectively.  The majority of the expenses for the year ended March 31, 2010 related to recording salary related costs, development and research activities for our next new products, stock compensation expense, recognition of the large derivative  and loss on extinguishment of debt expenses.  Most of the costs incurred in the prior year ended March 31, 2009 related to development of the Company, hiring of employees and various marketing programs such as NHRA racing along with the recognition of derivative income and a loss on the extinguishment of debt.   As a result, our current revenue volume was not sufficient to recover all of our operating expenses.  We expect that both our revenues and expenses will increase in the next fiscal year, new products will be developed and sold as well as the expectation of certain cost containment programs that will be based on incremental increased unit sales such as shipping of full truck loads of products, lower product production costs, etc.

20

Loss per Common Share Applicable to Common Stockholders

Since we implemented a 1-for-20 reverse stock split on July 7, 2010 which is before the release of this Form 10K report, we have restated all of the financial data in this section. The Company’s basic loss per common share applicable to common stockholders for the period ended March 31, 2010 and 2009 was $ (14.43) and $(6.18), respectively.  Because the Company experienced a net loss, all potential common share conversions existing in our financial instruments would have an anti-dilutive impact on earnings per share; therefore, diluted loss per common share equals basic loss per common share for this period.  The weighted average common shares outstanding for the period ended March 31, 2010 and 2009 was 1,758,703 and 531,698, respectively.  Potential common stock conversions (non-weighted) excluded from the computation of diluted earnings per share amounted to 71,643,760 and 4,610,232 for March 31, 2010 and   March 31, 2009, respectively.

LIQUIDITY AND CAPITAL RESOURCES

Being a development stage company that began in the 2007 calendar year, we have yet to achieve any substantial revenues or profitability, and our ability to continue as a going concern will be dependent upon receiving additional third party financings to fund our business at least throughout the next twelve months in our new fiscal year. Ultimately, our ability to continue is dependent upon the achievement of profitable operations.  We anticipate that, depending on market conditions and our plan of operations, we may incur operating losses in the future based mainly on the fact that we may not be able to generate enough gross profits from our sales to cover our operating expenses and to increase our sales and marketing efforts. There is no assurance that further funding will be available at acceptable terms, if at all, or that we will be able to achieve profitability or receive adequate funding for new product research and development activities.  These conditions raise substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not reflect any adjustments that may result from the outcome of this uncertainty.

Working Capital Needs and Major Cash Expenditures

We currently have monthly working capital needs of approximately $150,000.  This amount is, however, expected to increase in the next fiscal year, primarily due to the following factors:

·      Increased employees and related travel costs

·      Required interest payments on our convertible promissory notes payable

·      Increased product development costs for new products, packaging and marketing materials

External Sources of Liquidity-External Debt Financing and Use of Common Stock:

External Debt Financing:

On October 23, 2007, we entered into a Securities Purchase Agreement with a group of accredited investors.  Under this agreement, we agreed to sell up to $1,200,000 of our securities consisting of 10% convertible notes, shares of common stock and Class A and Class B common stock purchase warrants.  At the initial closing, we received gross proceeds of $600,000.  During January 2009, we entered into an agreement to extend the due date to July 1, 2009 in which the conversion price of the notes payable was changed from $6.60 to $1.00 as well as the exercise price of the applicable warrants from $10.00 to $1.00.  

On January 8, 2008, we borrowed $520,000 from three investors.  We agreed to repay these notes out of the proceeds from the Second Closing under the above Securities Purchase Agreement dated October 23, 2007 or on May 7, 2008.  We received net proceeds of $393,500 from this transaction after deducting an original issue discount of $90,000, due diligence fees of $21,500 and legal fees of $15,000.  In February 2008, we repaid $260,000 representing one half of the above borrowings.  The second half of $260,000 has not been paid, but we entered into a Modification and Waiver Agreement in June, 2008 to extend the due date to July 15, 2008 for an aggregate of 9,750 shares of common stock.  A second extension was completed in September, 2008 to extend the due date from July 15, 2008 until the sooner of January 31, 2009 or the closing of another funding to pay these notes. For this extension, the total payable amount of $260,000 was increased to $312,000.  In addition, a third extension was completed in January, 2009 to extend the due date from January 31, 2009 to July 1, 2009 in which these notes payable were converted to convertible notes payable at an conversion price of $1.00.  

On February 15, 2008, we received $500,000 gross proceeds towards the second tranche of $600,000 from the above referenced October 23, 2007 Securities Purchase Agreement.  The remaining $100,000 was received on June 26, 2008, less $8,000 for due diligence fees.  From this gross $500,000 amount, we received net proceeds of $200,000 after paying $260,000 towards the January 8, 2008 borrowings (see above paragraph) as well as $40,000 for due diligence fees. During January, 2009, we entered into an agreement to extend the due date to July 1, 2009 in which the conversion price of the notes payable was changed from $6.60 to $1.00 as well as the exercise price of the applicable warrants from $10.00 to $1.00.  

21

On April 2, 2008, we entered into a financing arrangement that provided for the issuance of $120,000 face value short term bridge loans, due June 30, 2008, plus warrants to purchase 10,000 shares of our common stock and additional warrants to purchase another 10,000 shares of our common stock, representing an aggregate 20,000 shares. We received the purchase price of $100,000 as gross proceeds.  On June 23, 2008, we extended the due date from June 30, 2008 to July 30, 2008 by the issuance of warrants to purchase another 5,000 share of our common stock and additional warrants to purchase another 5,000 shares of our common stock as consideration for this extension.  During the quarter ended September 30, 2008, we issued 12,000 shares of restricted stock to extend the terms of the note until December 15, 2008. Later in January 2009, we extended the due date of the loan from December 15, 2008 until April 30, 2009 by reducing the exercise price of the applicable warrants from $10.00 to $1.00 as well as issuing 12,000 shares of restricted stock and additional warrants to purchase another 12,000 shares of our common stock at $1.00 per warrant.  We are now in default.  In the past, these note holders have agreed to waive the default and extend the maturity date of the notes in exchange for common stock and warrants as we are now addressing this issue with these note holders.

On April 9, 2008, we entered into a financing arrangement that provided for the issuance of $120,000 face value short term bridge loans, due July 10, 2008, plus warrants to purchase 10,000 shares of our common stock and additional warrants to purchase another 10,000 shares of our common stock, representing an aggregate 20,000 shares.  We received the purchase price of $100,000 as gross proceeds. During the quarter ended September 30, 2008, we issued warrants indexed to 10,000 shares of common stock to extend the terms of the note until August 10, 2008, and we further extended the note until December 16, 2008 by issuing 12,000 shares of restricted stock as consideration.  Later in January 2009, we extended the due date of the loan from December 16, 2008 until April 30, 2009 by reducing the exercise price of the applicable warrants from $10.00 to $1.00 as well as issuing 12,000 shares of restricted stock and additional warrants to purchase another 12,000 shares of our common stock at $1.00 per warrant.  Later in February 2010, we extended the due date to June 30, 2010 by issuing 12,000 Class B warrants indexed to shares of common stock at an exercise price of $.75 as well as 12,000 shares of restricted common stock. In the past, these note holders have agreed to waive the default and extend the maturity date of the notes in exchange for common stock and warrants as we are now addressing this issue with these note holders.

On April 14, 2008, we entered into another financing arrangement that provided for the issuance of $60,000 face value short term bridge loan notes payable, due July 15, 2008, plus warrants to purchase 5,000 shares of our common stock and additional warrants to purchase another 5,000 shares of our common stock, representing an aggregate 10,000 shares. We received the purchase price of $50,000 as gross proceeds. During the quarter ended September 30, 2008, we issued warrants indexed to 5,000 shares of common stock to extend the terms of the note until August 15, 2008, and we further extended the note until December 16, 2008 by issuing 6,000 shares of restricted stock as consideration.  Later in January 2009, we extended the due date of the loan from December 16, 2008 until April 30, 2009 by reducing the exercise price of the applicable warrants from $10.00 to $1.00 as well as issuing 6,000 shares of restricted stock and additional warrants to purchase another 6,000 shares of our common stock at $1.00  per warrant.  We are now in default.  In the past, these note holders have agreed to waive the default and extend the maturity date of the notes in exchange for common stock and warrants as we are now addressing this issue with these note holders.

On May 19, 2008, we entered into another financing arrangement that provided for the issuance of $33,000 face value short term bridge loan notes payable, due June 19, 2008, plus warrants to purchase 5,000 shares of our common stock and additional warrants to purchase another 5,000 shares of our common stock, representing an aggregate 10,000 shares. We received the purchase price of $30,000 as gross proceeds. On June 23, 2008, we extended the term on the note to July 30, 2008 by issuing additional warrants to purchase 2,500 shares of our common stock and additional warrants to purchase another 2,500 shares of our common stock as consideration.  During the quarter ended September 30, 2008, we issued 3,300 shares of restricted stock to extend the note until December 15, 2008. Later in January 2009, we extended the due date of the loan from December 15, 2008 until April 30, 2009 by reducing the exercise price of the applicable warrants from $10.00 to $1.00 as well as issuing 3,300 shares of restricted stock and additional warrants to purchase another 3,300 shares of our common stock at $1.00 per warrant.  We are now in default.  In the past, these note holders have agreed to waive the default and extend the maturity date of the notes in exchange for common stock and warrants as we are now addressing this issue with these note holders.

On June 26, 2008, we received gross proceeds of $100,000 for the last $100,000 payment financing (third closing) from the October 23, 2007 Subscription Agreement for $1,200,000 in convertible notes and 15,152 Class A and B warrants.  We extended the due date of this loan until July 1, 2009 and reduced the conversion price of the notes from $6.60 to $1.00 as well as the exercise price of the applicable warrants from $10.00 to $1.00.

22

On August 5, 2008, we entered into a financing arrangement with H. John Buckman, Board Director that provided for the issuance of $55,000 face value short term bridge loans, due September 5, 2008, plus warrants to purchase 5,000 share of our common stock at an exercise price of $10.00 plus additional warrants to purchase another 5,000 shares of our common stock at an exercise price of $15.00, representing an aggregate of 10,000 shares. We received the purchase price of $50,000 as gross proceeds. The due date of the loan was extended to December 15, 2008 with 5,500 restricted shares of common stock issued as consideration.  Later in January 2009, we extended the due date of the loan from December 15, 2008 until April 30, 2009 by reducing the exercise price of the applicable warrants from $10.00 to $1.00 as well as issuing 5,500 shares of restricted stock and additional warrants to purchase another 5,500 shares of our common stock at $1.00 per warrant.  We are now in default.  In the past, this note holder has agreed to waive the default and extend the maturity date of the notes in exchange for common stock and warrants as we are now addressing this issue with this note holder.

On September 29, 2008, we entered into a financing arrangement that provided for the issuance of $243,333 face value convertible notes, due March 29, 2009, plus warrants to purchase 28,334 shares of our common stock at an exercise price of $10.00 and additional warrants to purchase another 28,334 shares of our common stock at an exercise price of $15.00, representing an aggregate of 56,768 shares. We received the purchase price of $200,000 as gross proceeds. During the quarter ended December 31, 2008, the exercise price of the warrants and the conversion price of the notes were reduced to $3.30 when we issued additional convertible instruments with a lower conversion rate.   During January 2009, the maturity date was extended to July 1, 2009 in which the conversion price of the convertible note was changed from $3.30 to $1.00.  The first 28,334 warrants were redeemed at $2.00 by the company in January 2009 for an aggregate $56,667, payable in the form of another note payable (see the section below for the quarter ended March 31, 2009) which also cancelled the second set of 28,334 warrants.   In addition, we incurred a 10% finders’ fee note payable in the amount of $20,000 under the same terms as above except this note did not include any warrants.  

On December 18, 2008, we entered into a financing arrangement that provided for the issuance of $60,833 face value convertible notes with a purchase price of $50,000, due March 29, 2009, plus warrants to purchase 7,084 shares of our common stock at an exercise price of $10.00 and additional warrants to purchase 7,084 shares of our common stock at an exercise price of $15.00, representing an aggregate 14,168 shares.  We received the purchase price of $50,000 as gross proceeds. During January 2008, the maturity date was extended to July 1, 2009 in which the conversion price was reduced from $6.60 to $1.00. The first 7,084 warrants were redeemed at $2.00 by the company in January 2009 for an aggregate of $14,167 that was added to the previous January 2009 note payable of $56,667 for a new note payable total of $70,834 (see the section below for the quarter ended March 31, 2009) which also cancelled the second set of 7,084 warrants.  

On January 27, 2009, the company entered into a subscription agreement with two subscribers whereas the Company issued and sold promissory convertible notes of the Company at an original discount of 20% (purchase price of $100,000 with the note principal to be $120,000) with interest of fifteen percent (15%).   We received the purchase price of $100,000 as gross proceeds. These convertible notes can be converted into common stock at the conversion price of $1.00. The due date is July 27, 2009.  In addition, the company paid total due diligence fees in the amount of 10% or $10,000 in which the due diligence fees will be payable in the form of a convertible note similar to the notes above.  For this financing, we agreed to issue 120,000 Class A warrants at the exercise price of $10.00 with an issue life of five years.  

On January 27, 2009 and as previously mentioned in the above “Quarter Ended December 31, 2008” section, an aggregate 28,334 Class A warrants issued to the holder of the September, 2008 note payable were redeemed at $2.00 for an aggregate $56,667, and later this note was increased to $70,834 for the additional redemption of 7,084 warrants at $2.00 from the December, 2008 financing for the additional $14,167.  The due date for this $70,834 note payable is July 27, 2009 with an interest rate of 15%.  

During February, 2009, the Company entered into an Amendment, Waiver and Consent Agreement with certain subscribers for their consent and approval for the Company to issue another convertible promissory note of the Company at an original discount of 20% (purchase price of $50,000 with the note principal to be $60,000) with interest of fifteen percent (15%). We received gross proceeds from the purchase price of $50,000.  This note will be combined into the above January 27, 2009 note with the due date to be July 27, 2009.  In addition, the Company agreed to issue 60,000 Class A warrants at an exercise price of $1.00 with an issue life of five years.  An additional 27,500 restricted shares of the Company’s stock was also issued for this consideration.  

On March 30, 2009, the company entered into a subscription agreement with two subscribers whereas the Company issued and sold promissory convertible notes of the Company at an original discount of 11% (purchase price of $180,000 with the note principal to be $200,000) with interest of twelve percent (12%).  We received the purchase price of $180,000 as gross proceeds. These convertible notes can be converted into common stock at the conversion price of $1.00. The due date is December 30, 2009.  For this financing, we agreed to issue 416,667 Class A warrants at the exercise price of $1.00 with an issue life of five years.

On July 14, 2009, we entered into another Modification, Waiver and Consent Agreement whereas the subscribers to the March, 2009 agreement agreed to invest an additional $145,000 at substantially the same terms as the March, 2009 funding.  The total principal amount to pay will be $161,112 with these two investors.  In addition, we issued each investor a total of 40,278 warrants for a total of 80,556 warrants.  

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On October 1, 2009, we executed a $27,778 allonge to the secured convertible note dated March 30, 2009 for consideration of $25,000.

On November 13, 2009, we issued an $111,111 secured convertible note in exchange for 20,000 freely tradable shares of EFT Biotech.  We have since sold all of those shares for a total cash consideration of $67,607.

On January 10, 2010, the Company entered into a modification and amendment agreement with certain holders of the Company’s convertible notes with aggregate face value of $2,169,897 less conversions of $174,000 for a net amount of $1,995,897 to extend the maturity dates of these notes to June 30, 2010.  As consideration for the extension, the Company issued two secured convertible notes in principal amounts of $50,000 each (total of $100,000) with interest at an annual rate of 12%.  The notes mature on June 30, 2010 and are convertible into common stock at a conversion rate equal to the lower of $1.00 or 80% of the average of the three lowest closing bid prices of the Company’s common stock during the twenty consecutive trading days preceding the conversion date.  As additional consideration for the extension of the maturity date, the Company lowered the exercise price of warrants to $0.16.

On January 28, 2010, the Company executed allonges to the March 2009 secured convertible notes increasing the aggregate face values of these notes from $388,890 to $438,890 in exchange for $40,000 of cash, net of financing fees.

On January 28, 2010, the Company entered into modification and amendment agreements to modify and amend the terms of warrants to purchase common stock issued in connection with the various financings that occurred from October 2007 through July 2009.  The agreements increased the number of shares the holders are entitled to purchase pursuant to the warrants from an aggregate of 1,164,133 to 2,799,925 shares.  The agreements also reduced the exercise prices of the warrants to $0.16 per share and extended the expiration date of the warrants to July 15, 2015. In addition, the Company issued warrants to purchase 104,167 shares of common stock at an exercise price of $0.16 to expire in five years.

On February 11, 2010, the Company entered into a modification and amendment agreement to modify the terms of the above January 28, 2010 previously issued 104,167 warrants whereas the exercise price was reduced to $0.16, and the expiration date of the warrants was extended to July 15, 2015.

On February 19, 2010, the Company executed an allonge to the March 2009 secured convertible notes increasing the aggregate face value of these notes from $233,334 to $288,334 in exchange for $55,000. In addition, additional 104,167 warrants were issued at an exercise price of $0.16 with an expiration date of five years.   

On March 26, 2010, the Company executed allonges to the March 2009 secured convertible notes increasing the aggregate face values of these notes from $493,890 to $631,390 in exchange for $124,400 of cash, net of financing fees which $65,000 was received in March, 2010 and which $59,400 will be received in April, 2010.  In addition, a total of 297,917 warrants were issued at an exercise price of $0.16 with an expiration date of five years.

All of the net proceeds from the above new financings were used for research and development activities as well as working capital purposes.

The foregoing securities were issued in reliance upon an exemption from registration under Section 4(2) and/or Regulation D of the Securities Act of 1933, as amended.  All of the investors were accredited investors and/or had preexisting relationships with the Company, there was no general solicitation or advertising in connection with the offer or sale of securities and the securities were issued with a restrictive legend.

Commitments for Common Stock:

On February 1, 2010, the Company entered into an agreement to issue 55,000 shares of its restricted common stock to a consultant for financial public relations services.  The shares were valued at $0.60 per share or $33,000 as the shares could not be issued at that time, pending the approval of the increase of the Company’s authorized common stock to one billion shares.  Approval was authorized in which these shares will be issued in May or June of 2010.

On February 10, 2010, the Company entered into an agreement to issue 37,500 shares of its restricted common stock to members of the Scientific Advisory Board for their services.   All shares were valued at $.60 per share or $22,500 as the shares could not be issued at that time, pending the approval of the increase of the Company’s authorized common stock to one billion shares.  Such approval was authorized in which these shares will be issued in May or June of 2010. In addition, 50,000 non-qualified stock options were issued to the Scientific Advisory Board at an exercise price of $.60 with the options to expire February 9, 2015.  In addition, the Company ratified the issuance of 12,000 restricted shares of common stock valued at $.60 per share or $7,200 which shares will be issued in either May or June 2010, an agreement to issue warrants to purchase 12,000 shares of common stock upon the exercise of previously issued Class A Common Stock Warrants and reduction of the exercise price of all warrants held by one of the short-term bridge loan investors to $1.00 per share.

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Also on February, 10, 2010, Endorsement Agreements were signed with two professional athletes whereas the Company agreed to issue 62,500 shares of its restricted common stock to each athlete as the shares were valued at $60 (total of 125,000 restricted shares at $75,000). In addition, the Company issued 50,000 shares of its restricted common stock for past due legal services as each share was valued at $.60 or $30,000 as well as 75,000 non-qualified stock options with an exercise price of $1.00 with the stock options to expire in five years.  All of the above restricted shares will be issued in either May or June 2010.

Information about our cash flows	For The Year Ended
	March 31, 2010			March 31, 2009
Cash provided by (used in):
Operating activities	$	(423,548	)	$	(993,039	)
Investing activities		61,733			(39,473	)
Financing activities		280,789			1,148,412

For the year ended March 31, 2010, the net cash used in operating activities was due to the following items.  We reported a net loss of $25,377,063 which was offset by recoding the fair value adjustment of the convertible notes for $14,753,520,derivative expense for $3,912,571, compensatory stock and warrants for $2,250,485 and the recording of a loss on debt extinguishment for $2,291,039.  Cash flows generated from our operating activities were inadequate to cover our cash disbursement needs as we had to rely on new convertible debt financings to cover operating costs. Cash provided by investing activities increased due to the proceeds from the sale of marketable securities for $67,663. Cash provided by financing activities increased due to the receipt of $330,000 from the issuance of additional convertible notes payable.

For the year ended March 31, 2009, the net cash used in operating activities is due to a number of factors.  We reported a net loss of $3,284,056 as well as a non-cash derivative income of $2,943,890 which were somewhat offset by an increase of $1,125,804 for the loss on debt extinguishment,  Changes in accounts payable and accrued expenses contributed to a increase in cash used by operating activities of $2,712,846.  Cash flows generated by our operating activities were inadequate to cover our cash disbursement needs for the period ended March 31, 2009, and we had to rely on new convertible debt financings to cover operating expenses. Cash used for the year ended March 31, 2009 for investing activities was $39,473 for equipment purchases and trademark costs. Net cash provided by our financing activities for the year ended March 31, 2009 was $1,148,412.  This is primarily attributed to proceeds received from short term bridge loans for $1,225,000 less financing costs.  The Company plans to continue its efforts to seek other sources of financing and will consider both equity and/or convertible debt financing, most likely from private sale offerings of our common stock.

Defaults for Convertible Notes Payable and Short-Term Non-Convertible Loans for the Year Ended March 31, 2010

Defaults on Convertible notes payable:

We did not have sufficient authorized shares as of March 31, 2010 to settle all of our equity indexed instruments which is an event of default on our convertible notes.    R emedies for an event of default include acceleration of principal and interest . at option of the holder, and a portion of the notes also include redemption provisions which allow the holders the option to redeem the notes for 120% of the principal balance plus interest.   Prior to March 31, 2010, the holders of these notes agreed to extend the due dates of the notes until June 30, 2010.  Notes with the redemption provision were recorded at 120% of face value.   If we are unable to obtain sufficient authorized shares by June 30, 2010 (the maturity date), default interest of 15% will begin accruing on these notes as of July 1, 2010.  On April 5, 2010, a Certificate of Amendment to the Certificate of Incorporation was filed with the state of Delaware effective on April 5, 2010 which cured the event of default for insufficient authorized shares.

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Defaults on Short-Term Bridge loans :

	RECAP ANALYSIS OF ALL CONVERTIBLE NOTES PAYABLE
	AND SHORT-TERM BRIDGE NON-CONVERTIBLE LOANS
	FOR THE YEAR ENED MARCH 31, 2010
			Event of				Default	Accrued
Original Note	Issue		Default	Default	$ Amount	Interest	Interest	Default
Amount	Date	Due Date	Yes/No	Yes/No	Past Due	Rate	Rate	Interest
CONVERTIBLE NOTES (a)
$         600,000	October, 2007	6/30/2010	Yes	No	$           -	10%	15%	$         -
$         312,000	January, 2008	6/30/2010	Yes	No	-	None-discount note	15%	-
$         500,000	February, 2008	6/30/2010	Yes	No	-	10%	15%	-
$         100,000	June, 2008	6/30/2010	Yes	No	-	10%	15%	-
$         263,333	September, 2008	6/30/2010	Yes	No	-	None-discount note	15%	-
$           60,833	December, 2008	6/30/2010	Yes	No	-	None-discount note	15%	-
$         200,834	January, 2009	6/30/2010	Yes	No	-	15%	15%	-
$           60,000	February, 2009	6/30/2010	Yes	No	-	15%	15%	-
$         361,112	March, 2009	6/30/2010	Yes	No	-	12%	20%	-
$           27,778	October, 2009	6/30/2010	Yes	No	-	12%	20%	-
$         618,612	November, 2009	(b)	Yes	No	-	12%	20%	-
$         150,000	January, 2010	6/30/2010	Yes	No	-	12%	20%	-
$         192,500	March, 2010	6/30/2010	Yes	No	-	12%	20%	-
$      3,447,002	Total amount				$           -			$         -
(a) As of March 31, 2010, we did not have sufficient authorized shares to settle all of our equity indexed instruments which is an event of default on all of our convertible notes payable.  Remedies for an event of default include acceleration of principal and interest at the option of the holder, and a portion of the notes also include redemption provisions which allow the holders to redeem the notes at 120% of the principal balance plus interest at the holder's election following an event of default.  The holders did not exercise their option to accelerate principal and interest or redeem the notes based upon the event of default at March 31, 2010, therefore the notes were not deemed in default at March 31, 2010, and no default interest was recorded.  A Certificate of Amendment to the Certificate of Incorporation was filed with the state of Delaware to be effective on April 5, 2010 to increase the authorized shares to one billion shares which cured the aforementioned event of default due to insufficient authorized shares.  In addition, the notes due March 31, 2010 were extended until June 30, 2010.
(b) $507,500 of the total balance has a due date of 6/15/2010 while the remaining balance of $111,112 has a due date of 6/30/2010.
				(a)			Default	Accrued
Original Note	Issue			Default	$ Amount	Interest	Interest	Default
Amount	Date	Due Date		Yes/No	Past Due	Rate	Rate	Interest
SHORT-TERM BRIDGE LOANS (b)
$         120,000	April 2, 2008	Past due		Yes	$ 120,000	None-discount note	15%	$ 28,140
$         120,000	April 9, 2008	6/30/2010		No	N/A	None-discount note	-	-
$           60,000	April 14, 2008	Past due		Yes	$   60,000	None-discount note	15%	$ 14,070
$           33,000	May 19, 2008	Past due		Yes	$   33,000	None-discount note	15%	$   7,739
$           55,000	August 5, 2008	Past due		Yes	$   55,000	None-discount note	15%	$ 23,828
$         388,000	Total amount past due				$ 268,000			$ 73,777
(a) Notes indicated in default are in default because they are past due.

CERTAIN BUSINESS RISKS:

Investing in our securities involves a high degree of risk. You should carefully consider the risk factors discussed below, together with all the other information contained or incorporated by reference in this report and in our filings under the Securities Exchange Act of 1934, as amended, or the Exchange Act, before deciding whether to purchase any of our securities. Each of the risk factors could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our securities, and the occurrence of any of these risks might cause you to lose all or part of your investment.

Risks Relating to Our Business

We have a limited history of operating losses. If we continue to incur operating losses, we eventually may have insufficient working capital to maintain or expand operations according to our business plan.

As of March 30, 2010, we had an accumulated shareholders’ deficit of $27,837,246 and a working capital deficit of $27,923,071, compared to an accumulated shareholders’ deficit of $6,277,918 and a working capital deficit of $6,876,753 at March 31, 2009. Cash and cash equivalents were $38,611 as of March 31, 2010 as compared to $119,637 at March 31, 2009. This increase in our working capital deficit was primarily attributable to the increase in the fair value calculations for the valuation of our convertible notes payable as well an increase in the derivative liabilities.

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Ability to continue as a going concern.

Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

For the foreseeable future, we will have to fund all of our operations and capital expenditures from the net proceeds of equity or debt offerings we may have and cash on hand.  Although we plan to pursue additional financing, there can be no assurance that we will be able to secure financing when needed or obtain such financing on terms satisfactory to us, if at all, or that any additional funding we do obtain will be sufficient to meet our needs in the long term. Obtaining additional financing may be more difficult because of the uncertainty regarding our ability to continue as a going concern.  If we are unable to secure additional financing in the future on acceptable terms, or at all, we may be unable to complete planned development of certain products.

To date, we have generated no material product revenues. Our operating losses have negatively impacted our liquidity, and we are continuing our efforts to develop new products, while focusing on increasing net sales.  However, changes may occur that would consume our existing capital at a faster rate than projected, including, among others, the progress of our research and development efforts and hiring of additional key employees.  If we continue to suffer losses from operations, our working capital may be insufficient to support our ability to expand our business operations as rapidly as we would deem necessary at any time, unless we are able to obtain additional financing. There can be no assurance that we will be able to obtain such financing on acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to pursue our business objectives and would be required to reduce our level of operations, including reducing infrastructure, promotions, personnel and other operating expenses. These events could adversely affect our business, results of operations and financial condition. We cannot assure you that additional financing will be available on terms favorable to us, or at all. If adequate funds are not available or if they are not available on acceptable terms, our ability to fund the growth of our operations, take advantage of opportunities, develop products or services or otherwise respond to competitive pressures, could be significantly limited.   Any additional sources of financing will likely involve the sale of our equity securities, which will have a dilutive effect on our stockholders.  If we are unable to achieve profitability, the market value of our common stock will decline, and there would be a material adverse effect on our financial condition.

At March 31, 2010, we were in default on certain of our short-term bridge notes and have other substantial outstanding debt obligations

At March 31, 2010, we were in default on short term bridge notes totaling $268,000 in principal.  The remedy for default under the notes is acceleration of principal and interest due thereunder.  Although we have previously been able to obtain extension on the maturity dates of such obligations, we may be unable to continue to do so.  Further, we have secured convertible notes outstanding totaling $3,019,510 in principal face value at March 31, 2010.  Although we were able to extend the maturity dates of the notes until June 30, 2010, there is no assurance that we will be able to continue to extend these obligations.  Penalties for default under our convertible notes include but are not limited to acceleration of principal and interest, redemption provisions which allow the holders the option to redeem the notes for 120% of the principal balances plus interest and default interest rates up to 15%.

Defaults on these obligations could materially adversely affect our business operating results and financial condition to such extent that we may be forced to restructure, file for bankruptcy, sell assets or cease operation.  Further certain of these obligations are secured by our assets.  Failure to fulfill our obligations under these notes and related agreements could lead to the loss of these assets, which would be detrimental to our operations.

Subsequent to the year ended March 31, 2010, our long term convertible notes totaling $492,500 in principal face value were due June 15, 2010 while $2,455,676  convertible notes were due June 30, 2010.  We are in the process of negotiating the extension of the due dates of our convertible notes for nine (9) months.  If we are unable to do so, the expiration of these due dates could jeopardize the ownership of the assets and intellectual property of the Company.

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We may not be able to develop successful new beverage products which are important to our growth.

An important part of our strategy is to increase our sales through the development of new beverage products. We cannot assure you that we will be able to continue to develop, market and distribute future beverage products that will have market acceptance. The failure to continue to develop new beverage products that gain market acceptance could have an adverse impact on our growth and materially adversely affect our financial condition. Further, we may have higher obsolescent product expense if new products fail to perform as expected due to the need to write off excess inventory of the new products.

Our results of operations may be impacted in various ways by the introduction of new products, even if they are successful, including the following:

● sales of new products could adversely impact sales of existing products;

● we may incur higher cost of goods sold and selling, general and administrative expenses in the periods when we introduce new products due to increased costs associated with the introduction and marketing of new products, most of which are expensed as incurred; and

● when we introduce new platforms and bottle sizes, we may experience increased freight and logistics costs as our co-packers adjust their facilities for the new products.

The beverage business is highly competitive.

The premium and functional beverage drink industries are highly competitive. Many of our competitors have substantially greater financial, marketing, personnel and other resources than we do. Competitors in these industries include bottlers and distributors of nationally advertised and marketed products, as well as chain store and private label drinks. The principal methods of competition include brand recognition, price and price promotion, retail space management, service to the retail trade, new product introductions, packaging changes, distribution methods, and advertising. We also compete for distributors, shelf space and customers primarily with other premium beverage companies. As additional competitors enter the field, our market share may fail to increase or may decrease.

The growth of our revenues is dependent on acceptance of our products by mainstream consumers.

We have limited resources to introduce our products to the mainstream consumer. As such, we will need to increase our sales force and execute agreements with distributors who, in turn, distribute to mainstream consumers at grocery stores, club stores and other retailers. If our products are not accepted by the mainstream consumer, our business could suffer.

Our failure to accurately estimate demand for our products could adversely affect our business and financial results.

We may not correctly estimate demand for our products. Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products or are unable to secure sufficient ingredients or raw materials including, but not limited to, containers, labels, flavors or packing arrangements, we might not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain ingredients have been and could, from time to time in the future, be experienced, which could interfere with and/or delay production of certain of our products and could have a material adverse effect on our business and financial results. We do not use hedging agreements or alternative instruments to manage this risk.

The loss of our third-party distributors could impair our operations and substantially reduce our financial results.

We continually seek to expand distribution of our products by entering into distribution arrangements with regional bottlers or other direct store delivery distributors having established sales, marketing and distribution organizations. Many distributors are affiliated with and manufacture and/or distribute other beverage products. In many cases, such products compete directly with our products.

The marketing efforts of our distributors are important for our success. If our brands prove to be less attractive to our existing distributors and/or if we fail to attract additional distributors, and/or our distributors do not market and promote our products above the products of our competitors, our business, financial condition and results of operations could be adversely affected.

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Inability to secure co-packers for our products could impair our operations and substantially reduce our financial results.

We rely on third parties, called co-packers in our industry, to produce our products.  We currently have only one co-packing agreement for our products and at this time have only one milk-based product commercially available (Phase III).  Our co-packing agreement with our principal co-packer was signed on December 16, 2008 and will expire in less than two years (December 15, 2011).  After the initial term, this agreement shall automatically renew for consecutive one (1) year periods unless either party provides notice of cancellation at least one hundred twenty (120) calendar days prior to the end of the initial term or subsequent extension period.  Our dependence on one co-packer puts us at substantial risk in our operations.  If we lose this relationship and/or require new co-packing relationships for other products, we may be unable to establish such relationships on favorable terms, if at all.  Further, co-packing arrangements with potential new companies may be on a short term basis and such co-packers may discontinue their relationship with us on short notice.  Our dependence on co-packing arrangements exposes us to various risks, including:

● if any of those co-packers were to terminate our co-packing arrangement or have difficulties in producing beverages for us, our ability to produce our beverages would be adversely affected until we were able to make alternative arrangements; and

● our business reputation would be adversely affected if any of the co-packers were to produce inferior quality products.

We compete in an industry that is brand-conscious, so brand name recognition and acceptance of our products are critical to our success.

Our business is substantially dependent upon awareness and market acceptance of our products and brands by our targeted consumers. In addition, our business depends on acceptance by our independent distributors of our brands as beverage brands that have the potential to provide incremental sales growth rather than reduce distributors’ existing beverage sales.  We believe that the success of our product name brands will also be substantially dependent upon acceptance of our product name brands. Accordingly, any failure of our brands to maintain or increase acceptance or market penetration would likely have a material adverse affect on our revenues and financial results.

We compete in an industry characterized by rapid changes in consumer preferences and public perception, so our ability to continue to market our existing products and develop new products to satisfy our consumers’ changing preferences will determine our long-term success.

Consumers are seeking greater variety in their beverages. Our future success will depend, in part, upon our continued ability to develop and introduce different and innovative beverages. In order to retain and expand our market share, we must continue to develop and introduce different and innovative beverages and be competitive in the areas of quality and health, although there can be no assurance of our ability to do so. There is no assurance that consumers will continue to purchase our products in the future. Additionally, many of our products are considered premium products and to maintain market share during recessionary periods, we may have to reduce profit margins, which would adversely affect our results of operations. Product lifecycles for some beverage brands and/or products and/or packages may be limited to a few years before consumers’ preferences change. The beverages we currently market are in their early lifecycles, and there can be no assurance that such beverages will become or remain profitable for us. The beverage industry is subject to changing consumer preferences, and shifts in consumer preferences may adversely affect us if we misjudge such preferences. We may be unable to achieve volume growth through product and packaging initiatives. We also may be unable to penetrate new markets. If our revenues decline, our business, financial condition and results of operations will be materially and adversely affected.

Our quarterly operating results may fluctuate significantly because of the seasonality of our business.

As our products are relatively new, there may be seasonality issues that could cause our financial performance to fluctuate. In addition, beverage sales can be adversely affected by sustained periods of bad weather.

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Our business is subject to many regulations, and noncompliance is costly.

The production, marketing and sale of our unique beverages, including contents, labels, caps and containers, are subject to the rules and regulations of various federal, provincial, state and local health agencies. If a regulatory authority finds that a current or future product or production run is not in compliance with any of these regulations, we may be fined, or production may be stopped, thus adversely affecting our financial conditions and operations. Similarly, any adverse publicity associated with any noncompliance may damage our reputation and our ability to successfully market our products. Furthermore, the rules and regulations are subject to change from time to time and while we closely monitor developments in this area, we have no way of anticipating whether changes in these rules and regulations will impact our business adversely. Additional or revised regulatory requirements, whether labeling, environmental, tax or otherwise, could have a material adverse effect on our financial condition and results of operations.

We face risks associated with product liability claims and product recalls.

Other companies in the beverage industry have experienced product liability litigation and product recalls arising primarily from defectively manufactured products or packaging. Our co-packer maintains product liability insurance insuring our operations from any claims associated with product liability. This insurance may or may not be sufficient to protect us. We do not maintain product recall insurance. In the event we were to experience additional product liability or product recall claim, our business operations and financial condition could be materially and adversely affected.

Our intellectual property rights are critical to our success; the loss of such rights could materially, adversely affect our business.

We regard the protection of our trademarks, trade dress and trade secrets as critical to our future success. We have registered our trademarks in the United States that are very important to our business. We also own the copyright in and to portions of the content on the packaging of our products. We regard our trademarks, copyrights and similar intellectual property as critical to our success and attempt to protect such property with registered and common law trademarks and copyrights, restrictions on disclosure and other actions to prevent infringement. Product packages, mechanical designs and artwork are important to our success, and we would take action to protect against imitation of our packaging and trade dress and to protect our trademarks and copyrights, as necessary. We also rely on a combination of laws and contractual restrictions, such as confidentiality agreements, to establish and protect our proprietary rights, trade dress and trade secrets. However, laws and contractual restrictions may not be sufficient to protect the exclusivity of our intellectual property rights, trade dress or trade secrets. Furthermore, enforcing our rights to our intellectual property could involve the expenditure of significant management and financial resources. There can be no assurance that other third parties will not infringe or misappropriate our trademarks and similar proprietary rights. If we lose some or all of our intellectual property rights, our business may be materially and adversely affected.

If we are not able to retain the full time services of our management team, including Roy G. Warren, it will be more difficult for us to manage our operations and our operating performance could suffer.

Our business is dependent, to a large extent, upon the services of our management team, including Roy G. Warren, our founder and Chief Executive Officer and Chairman of the Board. We depend on our management team, but especially on Mr. Warren’s creativity and leadership in running or supervising virtually all aspects of our day-to-day operations. We do not have a written employment agreement with any member of our management team or Mr. Warren. In addition, we do not maintain key person life insurance on any of our management team or Mr. Warren. Therefore, in the event of the loss or unavailability of any member of the management team to us, there can be no assurance that we would be able to locate in a timely manner or employ qualified personnel to replace him. The loss of the services of any member of our management team or our failure to attract and retain other key personnel over time would jeopardize our ability to execute our business plan and could have a material adverse effect on our business, results of operations and financial condition.

We need to manage our growth and implement and maintain procedures and controls during a time of rapid expansion in our business.

If we are to expand our operations, such expansion would place a significant strain on our management, operational and financial resources.  Such expansion would also require improvements in our operational, accounting and information systems, procedures and controls.  If we fail to manage this anticipated expansion properly, it could divert our limited management, cash, personnel, and other resources from other responsibilities and could adversely affect our financial performance.

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Our business may be negatively impacted by a slowing economy or by unfavorable economic conditions or developments in the United States and/or in other countries in which we may operate.

A general slowdown in the economy in the United States or unfavorable economic conditions or other developments may result in decreased consumer demand, business disruption, supply constraints, foreign currency devaluation, inflation or deflation. A slowdown in the economy or unstable economic conditions in the United States or in the countries in which we operate could have an adverse impact on our business results or financial condition. Currently we do not have any international operations.

Risks Relating to Our Securities

There has been a very limited public trading market for our securities, and the market for our securities may continue to be limited and be sporadic and highly volatile.

There is currently a limited public market for our common stock. Our common stock has been listed for trading on the OTC Bulletin Board (the “OTCBB”). We cannot assure you that an active market for our shares will be established or maintained in the future. Holders of our common stock may, therefore, have difficulty selling their shares, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares, which may be purchased, may be sold without incurring a loss. Any such market price of our shares may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value and may not be indicative of the market price for the shares in the future.

 In addition, the market price of our common stock may be volatile, which could cause the value of our common stock to decline. Securities markets experience significant price and volume fluctuations. This market volatility, as well as general economic conditions, could cause the market price of our common stock to fluctuate substantially. Many factors that are beyond our control may significantly affect the market price of our shares. These factors include:

● price and volume fluctuations in the stock markets;

● changes in our revenues and earnings or other variations in operating results;

● any shortfall in revenue or increase in losses from levels expected by us or securities analysts;

● changes in regulatory policies or law;

● operating performance of companies comparable to us; and

● general economic trends and other external factors.

Even if an active market for our common stock is established, stockholders may have to sell their shares at prices substantially lower than the price they paid for it or might otherwise receive than if a broad public market existed.

Future financings could adversely affect common stock ownership interest and rights in comparison with those of other security holders.

Our board of directors has the power to issue additional shares of common or preferred stock without stockholder approval. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of our existing stockholders will be reduced, and these newly issued securities may have rights, preferences or privileges senior to those of existing stockholders. In addition, as of March 31, 2010, we had issued and outstanding options and warrants that may be exercised into 4,731,903 (restated for recent reverse stock split) shares of common stock and 9,000,000 shares of Series A Convertible Preferred Stock that may be converted into 54,000,000 shares of common stock.  The Series A votes with the common stock on an as converted basis.  Pursuant to the terms and conditions of the Company’s outstanding Series A, the conversion rate and the voting rights of the Series A will not adjust as a result of any reverse stock split.  Further, the authorized but unissued Series A will not adjust as a result of any reverse split.  As a result, in the event of a reverse split of our common stock, the voting power would be concentrated with the Series A holder.  Subsequent to the year ended March 31, 2010, effective July 7, 2010, the Company effected a one-for-twenty reverse split of its common stock (see “Subsequent Events”).

31

Further, if we issue any additional common stock or securities convertible into common stock, such issuance will reduce the proportionate ownership and voting power of each other stockholder. In addition, such stock issuances might result in a reduction of the book value of our common stock.

A substantial number of our shares are available for sale in the public market, and sales of those shares could adversely affect our stock price.

Sales of a substantial number of shares of common stock into the public market, or the perception that such sales could occur, could substantially reduce our stock price in the public market for our common stock, and could impair our ability to obtain capital through a subsequent financing of our securities. We have 4,306,437 (restated for recent reverse stock split) shares of common stock outstanding as of March 31, 2010.  

We are in the process of negotiating the extension of the due dates of our convertible notes for nine (9) months.  If we are unable to do so, the expiration of these due dates could jeopardize the ownership of the assets and intellectual property of the Company.

EFFECTS OF INFLATION

We believe that inflation has not had any material effect on our net sales and results of operations.

ITEM 8 – FINANCIAL STATEMENTS

The consolidated financial statements for the years ended March 31, 2010 and 2009 are contained on Pages F-1 to F-37 which follows.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A - CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), 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 and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2010. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under Rules 13a-15(e) and 15d-15(e) under the Exchange Act.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using framework similar to criteria referenced in the initial steps of the Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).  Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of the year ended March 31, 2010.

32

A material weakness is a significant deficiency (as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2), or a combination of significant deficiencies, that results in reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of the Company’s internal controls over financial reporting, management determined that there were control deficiencies as of the year ended March 31, 2010 that constituted material weaknesses, as described below.

* We have noted that there may be an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

* We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the management’s view that to have an audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company's financial statements. Currently, the Board does not have sufficient independent directors to form such an audit committee. Also, the Board of Directors does not have an independent director with sufficient financial expertise to serve as an independent financial expert.

* Due to the complex nature of recording derivatives and similar financial instruments, we noted a need for increased coordination and review of techniques and assumptions used in recording derivatives to ensure accounting in conformity with generally accepted accounting principles.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting

As a result of the findings from the evaluation conducted of the effectiveness of our internal control over financial reporting as set forth above, management intends to take practical, cost-effective steps in implementing internal controls, including the following remedial measures:

* Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control-Integrated Framework issued by COSO.

* The Company has hired an outside consultant to assist with controls over the review and application of derivatives to ensure accounting in conformity with generally accepted accounting principles.

* Board to review and make recommendations to shareholders concerning the composition of the Board of Directors, with particular focus on issues of independence. The Board of Directors to consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members as funds allow.

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control Over Financial Reporting

No change in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 2010, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

ITEM 9B - OTHER INFORMATION

None

PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The directors and executive officers as of March 31, 2010 are as follows. Our directors are elected at the annual meeting of our stockholders and serve until their successors are elected and qualified.

33

Name of Officer and Age	Position with the Company	Year Appointed
Roy Warren                            54	Chairman, Chief Executive Officer and President	2007
Michael Edwards                   50	Director	2007
H. John Buckman                   64	Director	2007
Tommy Kee                             61	Chief Financial Officer	2007 and 2010 *

* Mr. Kee resigned as CFO in July 2009 but rejoined the Company in April 2010. 

The experience and background of the Company’s directors, executive officers and significant employees follow:

Mr. Roy Warren – Chairman, Chief Executive Officer and President since September, 2007

Mr. Warren serves as our Chairman of the Board, Chief Executive Officer and President.  As Chief Executive Officer, Mr. Warren provides overall company leadership and strategy.  Mr. Warren also serves as a director of our wholly owned subsidiary, Attitude Drink Company, Inc.  For 15 years from 1981 through 1996, Mr. Warren was in the securities brokerage industry.  During those years, Mr. Warren acted as executive officer, principal, securities broker and partner with brokerage firms in Florida, most notably Kemper Financial Companies, Alex Brown & Sons and Laffer Warren & Company.  From 1999 to 2007, Mr. Warren was Chief Executive Officer of Bravo! Brands, Inc. in Florida, a public company which was a beverage brand-development company, similar to Attitude Drinks Incorporated.  This experience in the beverage industry as well as with a public company led to the conclusion that he should serve as a director of the Company.

Mr. Michael Edwards – Director since 2007

Mr. Edwards serves on the Board of Directors.  He currently is the sole proprietor of a chain of automobile car washes in Martin County, Florida.  Prior to this, he served as Chief Revenue Officer for Bravo! Brands, Inc. for over five years in which he led the sales team force for introduction and sales of the company’s various developed beverage brands and products.  This expertise in the development and sales of beverage products led to the conclusion that he should serve as a director of the Company.  Prior to that time, he worked for 5 years in beverage marketing research for Message Factors, Inc., a Memphis, Tennessee marketing research firm.  Mr. Edwards has a BS degree from Florida State University in Management and Marketing and spent 13 years in the banking industry, leaving CitiBank to join Message Factors in 1995.

Mr. H. John Buckman – Director since 2007

Mr. Buckman serves on the Board of Directors.  He is a principal and majority shareholder of Buckman, Buckman and Reid, a licensed broker-dealer co-founded by Mr. Buckman in 1988.  Mr. Buckman also joined the Board of Center for Vocational Rehabilitation (CVR) in 1994 and was a member for ten years.  Presently, Mr. Buckman is President of the Board of Directors for Asian Youth Ministries in New Jersey.  His many years of broker-dealer experience, which provide valuable direction in the Company’s interactions in the securities market as well as his management and director experience, supports his role as director of the Company.

Mr. Tommy Kee –Chief Financial Officer since 2007

Tommy Kee joined our company in November, 2007 as Chief Financial Officer.  Mr. Kee was previously the Chief Accounting Officer of Bravo! Brands, Inc.  He graduated with an MBA from the University of Memphis and a BS degree in accounting from the University of Tennessee.  Before joining us, he served for several years as CFO for Allied Interstate, Inc. in the West Palm Beach area.  Prior to that, Mr. Kee served as CFO and Treasurer for Hearx Ltd. a West Palm Beach, Florida public company.  He also served 18 years as International Controller and Financial Director with the Holiday Inns Inc. organization in Memphis and Orlando.  Mr. Kee gave his letter of resignation as CFO, effective July 10, 2009 but has since rejoined the Company in April, 2010.

Compliance With Section 16(a) of the Exchange Act

Based on a review of the appropriate Forms 3, 4 and 5 and any amendments to such forms filed pursuant to Section 16(a), we report the following:  (1) during the fiscal year ended March 31, 2010, Mr. Roy Warren (CEO) filed a Form 4 on January 20, 2010 late for making gifts of 6,068 shares of common stock  that occurred on December 16, 2009, transfers to a third party in a private transaction  that occurred on September 21, 2009 in exchange for debt forgiveness of notes in the principal amount of $100,000 plus attached warrants and the receipt of 9,000,000 Series A Convertible Preferred Stock that were issued to him on September 4, 2009;  (2) during the fiscal year ended March 31, 2010,  Mr. H. John Buckman, Board Director, filed a Form 4 on January 20, 2010 late for 150,000 restricted shares of Common Stock that were issued to him on January 7, 2010.

34

Code of Ethics

On May 14, 2009, the Board of Directors approved and ratified a Code of Ethics that is applicable to all directors, officers and employees.  A copy of the Code of Ethics was attached an Exhibit 14 in the Form 10-K/A-2 that was filed for the fiscal year that ended March 31, 2009. The Code of Ethics is also available for review on our website at www.attitudedrinks.com.  Furthermore, a copy of the code is available to any person free of charge upon request by writing to our company at 10415 Riverside Drive, Suite 101, Palm Beach Gardens, Florida 33410.

Audit and Compensation Committees

Although we have a majority of independent directors and due to the newness of the company, we do not have a separately designated audit committee, compensation committee or a person designated as an audit committee member financial expert.  We do not have a separately designated audit committee or an audit committee member financial expert because the cost of identifying, interviewing, appointing, educating, and compensating such persons would outweigh the benefits to our stockholders at the present time.  If we are successful in our efforts to secure additional capital, the resources may be available to appoint additional directors, have a separately designated audit committee, compensation committee and a person designated as an audit committee member financial expert.

ITEM 11 - EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth the compensation earned during the last two fiscal years by our executive officers as well as any unpaid compensation since employment date with the company.  Please note that the company did not have sufficient capital to make regular compensation payments to these officers as all applicable unpaid amounts have been accrued and reflected as expense:

													Change in
											Non-		Pension Value
											equity		Value &
											Incentive		Nonqualified
			Salary /				(e)		(f)		Plan		Deferred		(h)
	Principal		Consulting				Stock		Option		Comp.		Comp.		All Other
Name	Position	Year	$		Bonus $		Awards $		Awards $		$		Earnings $		Comp. $		Total $
Roy Warren(g)	CEO	2010 (a)	$	192,000	$	-	$	1,620,000	$	-	$	-	$	-	$	13,999	$	1,825,999
Roy Warren (g)	CEO	2009 (b)	$	192,000	$	-	$	-	$	80,610	$	-	$	-	$	14,556	$	287,166
Tommy Kee (g)	CFO	2010 (c)	$	57,115	$	-	$	-	$	-	$	-	$	-	$	2,888	$	60,003
Tommy Kee (g)	CFO	2009 (d)	$	150,000	$	-	$	-	$	12,408	$	-	$	-	$	11,514	$	173,922

(a)  For the year ended March 31, 2010, Roy Warren, CEO, earned an annual base salary of $180,000 and annual director’s fees of $12,000.  Out of the total earned amount for this fiscal year, he has not been paid $77,867.

(b)  For the year ended March 31, 2009, Roy Warren, CEO, earned an annual base salary of $180,000 and annual director’s fees of $12,000.  Out of the total earned amount for this fiscal year, he has not been paid $68,123.

(c)  For the year ended March 31, 2010, Tommy Kee, CFO, earned an annual base salary of $150,000; however, he gave his letter of resignation on July 10, 2009 and performed part-time services throughout the year as an outside consultant.  He rejoined the Company as Chief Financial Officer on April 12, 2010.  Out of the total earned amount for this fiscal year, he has not been paid $51,520.

(d)  For the year ended March 31, 2009, Tommy Kee, CFO, earned an annual base salary of $150,000.  Out of the total earned amount for this fiscal year, he has not been paid $142,777.

(e)  During July 2009, Roy Warren, CEO, received 9,000,000 shares of Series A Preferred Stock for services rendered.  The Company recorded a non-cash expense for $1,620,000 based on the market price (aggregate grant date fair value computed in accordance with FASB ASC Topic 718) of $.03 times the common  stock equivalents of the preferred shares (54,000,000 common stock equivalents – 1 preferred share for 6 common shares- x $.03).

35

(f)  This amount represents the aggregate grant date fair value that was computed in accordance with FASB Topic 718 for the grant of non-qualified stock options to the above executives.   These grants came from the March 2009 Stock Option, Compensation and Incentive Plan.  These stock options have an exercise price of $1.00 and vest immediately with an expiration life of five (5) years.  The stock options were valued at $.18014 per stock option at March 30, 2009 (Roy Warren – 447,483 stock options valued at $.18014 per stock option = $80,610; Tommy Kee – 68,876 stock options valued at $.18014 per stock option = $12,408).

(g)  Neither executive has an employment or a consulting agreement.  The Company intends to pay these amounts either by conversions of certain past due amounts for the Company’s common stock and/or cash once the Company’s fundings and financial position will allow such payments.  Since the Company was not able to consistently make salary payments to these two named executives, the Company had to treat these payments as consulting fees.

(h)  These amounts represent medical insurance payments that were paid by the Company for the named executives.

Outstanding Equity Awards at March 31, 2010

Option Awards

Stock Awards

Equity

Incentive Plan

Equity

Awards: Market

Equity

Incentive Plan

or Payout

Incentive Plan

Market

Awards: Number

Value of

Plan Awards:

Number of

Value of

of Unearned

Unearned Shares,

Number of

Number of

Number of

Shares or

Shares of

Shares,Units

Units or

Securities

Securities

Securities

Units of

Units of

or Other

Other Rights

Underlying

Underlying

Underlying

StockThat

StockThat

Rights That

That  Have

Unexercised

Unexercised

Unexercised

Option

Option

Have Not

Have Not

Have Not

Not

Options #

Options #

Unearned

Exercise

Expiration

Vested

Vested

Vested

Vested

Name

Exercisable

Unexercisable

Options #

Price $

Date

#

#

$

Roy Warren, CEO

447,483

447,483

-

$

1.00

3/31/2014

-

$

-

-

$

-

Tommy Kee, CFO

68,876

68,876

-

$

1.00

3/31/2014

-

$

-

-

$

-

Total

516,359

516,359

-

Director Compensation Table

		(a)
		Fees						Non-equity		Nonqualified
		Earned or						Incentive		Deferred
		Paid In		Stock		Option		Plan Comp.		Comp.		All Other
Name	Year	Cash $		Awards $		Awards $		$		Earnings $		Comp. $		Total $
H.John Buckman (b)	2010	$	12,000	$	-	$	-	$	-	$	-	$	-	$	12,000
Mike Edwards	2010	$	12,000	$	-	$	-	$	-	$	-	$	-	$	12,000

Roy G. Warren, CEO, is the Chairman of the Board of Directors, therefore his director compensation is reported in the Summary Compensation Table.

(a)  Each above director is compensated $1,000 per month for their roles as directors; however, no cash payments have been made for the year ended March 31, 2010.  Roy G. Warren is the only non-independent director.  The Company intends to pay these past due amounts either by issuing shares of the Company’s common stock and/or cash once the Company’s financial position will allow such payments.  Total past due director fees are $18,000 for H. John Buckman and $14,792 for Mike Edwards.

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(b)  In addition to H. John Buckman being a Director, he also is an investor and debt holder of the Company whereas the Company issued him a note payable at face value of $55,000.  He also has a total of 10,500 Class A warrants at an exercise price of $10.00 with a life of three to five years.  Provided he exercises 5,000 certain Class A warrants, he will get the same number of replacement Class B warrants for a total of 5,000.  He also received 11,000 shares of restricted stock that related to his note payable, 1,200 shares were issued to him in 2009 for his Director services, and he received 150,000 shares of restricted stock in November, 2009 for his efforts in a financing during that month (total of 162,200 restricted shares).

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth the beneficial ownership of our company’s common stock as of March 31, 2010 as to:

·      each person known to beneficially own more than 5% of our issued and outstanding common stock

·      each of our directors

·      each executive officer

·      all directors and officers as a group

The following conditions apply to all of the following tables:

        ·      except as otherwise noted, the named beneficial owners have direct ownership of the stock and have sole voting and investment power with respect to the shares shown

·      the class listed as "common" includes the shares of common stock underlying the Company’s issued warrants

Beneficial Owners

Title of Class	Name and Address of Beneficial Owner (1)	Amount and Nature of Beneficial Ownership	Percent of Class (2)
Common	Roy Warren (4) 10415 Riverside Drive #101 Palm Beach Gardens, Florida 33410	54,638,962	71.95%
Common	Alpha Capital Anstalt (3) Pradafant 7 9490 Furstentums Vaduz, Lichtenstein	9,662,450	12.72
Common	Whalehaven Capital Fund Ltd. (3) 14 Par-La-Ville Road 3rd Floor Hamilton, Bermuda HM08	5,209,647	6.86

(1)                   Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of March 31, 2010 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(2)                   Percentage calculated from base of 75,950,197 shares of common stock based on total common stock equivalents.

(3)                   This owner is contractually limited to a beneficial ownership of our equity not to exceed 9.99%.  Equity listed consists of convertible notes and/or warrants.

(4)                   Equity listed consists of common stock, preferred stock, stock options, convertible notes and warrants to purchase common stock

37

Management Owners

Title of Class	Name and Address of Management Owner	Amount and Nature of Ownership (1)	Percent of Class (2)
Common	Roy Warren 10415 Riverside Dr. Palm Beach Gardens, FL	54,638,962 (3)	71.95%
Common	Tommy Kee 10415 Riverside Dr. Palm Beach Gardens, Fl.	69,626 (4)	Less than 1%
Common	H. John Buckman 174 Patterson Avenue Shrewsbury, N.J.	177,700 (5)	Less than 1%
Common	Mike Edwards 1615 S.E. Decker Avenue Stuart, Fl.	1,200 (6)	Less than 1%
Common	Executive officers and directors as a group	54,887,488	72.27%

(1)                Beneficial Ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of   March 31, 2010 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(2)                Percentage calculated from base of 75,950,197 shares of common stock based on total common stock equivalents.

 (3)                Includes 3,996 shares of our common stock owned by household family members. Remaining amount relates to 187,483 shares of common stock, 447,483 non-qualified stock options and 54,000,000 shares of common stock from the potential conversion of 9,000,000 Series A Preferred Stock (conversion of 6 common shares to 1 preferred share)

(4)                Represents 68,876 non-qualified stock options and 750 shares of common stock

(5)                Includes 162,200 shares of common stock and 15,500 warrants

(6)                Represents 1,200 shares of common stock

There currently are no arrangements that may result in a change of ownership or control.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Roy Warren’s daughter, Niki Fuller, is employed by the Company where she is in charge of all marketing functions of the company. Her previous experience was with another similar brand development company, Bravo Brands Inc., whereas she had worked in the marketing department.  Other than receiving compensation for her employment services and some stock options, she has no other direct or indirect material interest in the company. She earned $27,500 for the fiscal year ended March 31, 2010. She also has 26,500 stock options.   

We assumed $47,963 in advances payable to the officers of Mason Hill Holdings, Inc. pursuant to Agreement and Plan of Merger in September 2008 in which we paid $1,500 in January, 2009 and issued 25,000 shares of common at $1.00 per share or $25,000, resulting in an outstanding balance of $21,463 that is due.   These advances are non-interest bearing and payable upon demand.

The Company previously issued aggregate notes of $100,000 ($50,000 in October 2007 and $50,000 in February 2008) to Roy Warren, the Company’s CEO, an accredited investor with whom the Company entered into subscription agreements for 10% convertible notes. Roy Warren assigned the $100,000 notes to another party. During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred, convertible into 54,000,000 shares of common stock at the option of the holder, were granted to Roy Warren for services rendered.  We recorded a non-cash expense for $1,620,000 which is based on the then market price of $0.03 per common share times the convertible stock equivalents  (9,000,000 preferred shares x 6 = 54,000,000 common stock equivalents).  These shares vote with the common stock at a rate of 6 votes per share (54,000,000 total votes).

H. John Buckman is a board director of the company and is a debt holder of the company of a note payable at the face value of $55,000.  He also has a total of 10,500 Class A warrants at an exercise price of $1.00 with a life of three to five years, and he will be entitled to an additional 5,000 warrants with at an exercise price of $15.00 if he exercises the same number of specific Class A warrants.  He also received 11,000 shares of restricted stock that related to this note payable, 1,200 shares of restricted stock for being a Director and 150,000 shares of restricted stock for his services related to a November 2009 financing (total of 162,200 shares of restricted stock).

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ITEM 14 - PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The aggregate fees billed for the year ended March 31, 2010 for professional services rendered by the principal accountant for the review of financial statements included in our Form 10-Q’s were $45,000. We have accrued expected audit fees for the year ended March 31, 2010 in the amount of $35,500.  Total audit fees for the previous year ended March 31, 2009 were $73,150.

Audit Related Fees

None.

Tax Fees

As the Company is a new development stage company, no tax returns have been prepared. However, we have accrued tax preparation fees of approximately $22,500.

All Other Fees

None

Audit Committee Pre-Approval Policies

Not applicable.

39

PART IV

ITEM 15 – EXHIBITS

		Incorporated by	Filed
Exhibit No.	Document Description	Reference	Herewith
(2)(1)	Agreement and Plan of Merger dated September 14, 2007	(1)
(3)(1)(i)	Restated Certificate of Incorporation	(1)
(3)(1)(ii)	Certificate of Amendment to Certificate of Incorporation	(8)
(3)(2)	Amended and Restated Bylaws	(1)
(4)(1)	Certificate of Designation of the Series A Convertible Preferred	(1)
(4)(2)	Form of Common Stock Certificate	(1)
(4)(3)	Form of Class A and B Common Stock Purchase Warrant with Schedule	(1)
	of other documents omitted – Exhibit B in Exhibit (10)(1) – (a)
(4)(4)	Form of 10% Convertible Note with Schedule of other documents omitted –
	Exhibit A in Exhibit (10)(1) – (a)	(1)
(4)(5)	Form of Secured Convertible Note with Schedule of other documents omitted	(1)
(4)(6)	Certificate of Amendment to the certificate of Designation of the Series A
	Convertible Preferred Stock	(5)
(4)(7)	Form of Note dated January 8, 2008 – Exhibit A in Exhibit (10)(8) – (b)		X
(10)(1)	Subscription Agreement for Securities dated October 23, 2007		X
(10)(2)	2007 Stock Compensation and Incentive Plan	(1)
(10)(3)	Escrow Agreement dated October 23, 2007 – Exhibit C in Exhibit (10)(1) – (a)	(1)
(10)(4)	Security Agreement dated October 23, 2007 – Exhibit D in Exhibit (10)(1) – (a)	(1)
(10)(5)	Subsidiary Guaranty dated October 23, 2007 – Exhibit E in Exhibit (10)(1) – (a)	(1)
(10)(6)	Collateral Agent Agreement dated October 23, 2007 – Exhibit F in Exhibit (10)(1) – (a)	(1)
(10)(7)	Office Lease Agreement dated December 15, 2007	(2)
(10)(8)	Subscription Agreement for Securities dated January 8, 2008		X
(10)(9)	Funds Escrow Agreement dated January 8, 2008 – Exhibit B in Exhibit (10)(8) –(b)	(1)
(10)(10)	Waiver and Consent dated January 8, 2008	(1)
(10)(11)	Notice of Waiver of Certain Conditions effective February 15, 2008	(1)
(10)(12)	Notice of Waiver effective February 15, 2008	(1)
(10)(13)	Notice of Waiver of Conditions effective April 8, 2008	(1)
(10)(14)	Strategic Relationship & Supply Agreement-NutraGenesis LLC April 16, 2008		X
(10)(15)	Modification and Waiver Agreement, dated June 30, 2008		X
(10)(16)	Asset Purchase Agreement and Secured Convertible  Promissory Note, August, 2008		X
(10)(17)	Sublicense Agreement, Termination Agreement, Promissory Note
	With Nutraceutical Discoveries, Inc. – August, 2008 and February 2010		X
(10)(18)	Form of Modification, Waiver and Consent Agreement, September 2008	(3)
(10)(19)	Subscription Agreement Securities September 2008		X
(10)(20)	Funds Escrow Agreement September 2008 – Exhibit C in Exhibit (10)(19) – (c)		X
(10)(21)	Form of Note, September 2008 – Exhibit A in Exhibit (10)(19) – (c)	(3)
(10)(22)	Form of Class A and Class B Warrant, September 2008 –  Exhibit B in
	Exhibit (10)(19) – (c)	(3)
(10)(23)	Independent Contractor Agreement – F&M Merchant Group, November 2008		X
(10)(24)	Manufacturing Agreement dated December 16, 2008 with O-AT-KA
	Milk Products Cooperative, Inc.	(4)
(10)(25)	Form of Note and Warrant and Modification, Waiver and Consent
	Agreement, December 2008		X
(10)(26)	Subscription Agreement, Form of Note and Warrant, Funds Escrow
	Agreement, Form of Legal Opinion, and Second Modification, Waiver
	and Consent Agreement, January 2009    (d)		X
(10)(27)	Amendment, Waiver and Consent Agreement, Form of Allonge No.1 to January
	20 09 Notes, Form of Warrant, February 2009		X
(10)(28)	Subscription Agreement, Funds Escrow Agreement, Form of Note and
	Warrant and Legal Opinion, March 2009		X
(10)(29)	Third Modification, Waiver and Consent Agreement, Form of Allonge No. 1 to
	March 2 0 09 Notes, Form of Warrant, July 2009		X
(10)(30)	Form of Note, November 2009		X
(10)(31)	Modification and Amendment Letters, Form of Warrant, January 2010		X
(10)((32)	2010 Stock Compensation and Incentive Plan	(7)
(14)	Code of Ethics	(6)
(21)	Subsidiaries of Registrant	(1)
(31)(i)	Certification of Chief Executive Officer pursuant to Rule
	13a-14 (a)/ 15d-14 (a), as adopted pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002		X
(31)(ii)	Certification of Chief Financial Officer pursuant to Rule
	13a-14 (a)/ 15d-14 (a), as adopted pursuant to Section 302 of the
	Sarbanes-Oxley Act of 2002		X
(32)(1)	Certification of Chief Executive Officer and Chief Financial Officer
	pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
	Section 906 of the Sarbanes-Oxley Act of 2002		X

40

(1)   previously filed with the Commission on April 11, 2008 as an exhibit to Form S-1/A (SEC Accession Number 0001144204-08-021783)

(2)   previously filed with the Commission on February 14, 2008 as Exhibit 10.3 to Form 10-Q (SEC Accession Number 0001144204-08-008934)

(3)   previously filed with the Commission on November 19, 2008 as an exhibit to Form 10-Q (SEC Accession Number 0001144204-08-0063995)

(4)   previously filed with the Commission on March 5, 2009 as Exhibit 10.18 to Form 10-Q (SEC Accession Number 0001213900-09-0005)

(5)   previously filed with the Commission on November 23, 2009 as Exhibit 4.6 to Form 10-Q (SEC Accession No. 0001213900-09-003372)

(6)   previously filed with the Commission on August 14, 2009 as Exhibit 14.1 to Form 10-K (SEC Accession No. 0001213900-09-002104)

(7)   previously filed with the Commission on May 25, 2010 as Exhibit 10.1 to Form S-8 (SEC Accession No. 0001213900-10-002206)

(8)   previously filed with the Commission on July 14, 2010 as Exhibit 3(1)(ii) to Form 10-K (SEC Accession No. 0001213900-10-2857)

(a)  This exhibit is referenced in the October 23, 2007 Subscription Agreement

(b)  This exhibit is referenced in the January 8, 2008 Subscription Agreement

(c)  This exhibit is referenced in the September 29, 2008 Subscription Agreement

(d)  Schedule 9(s) for Lockup Agreement Providers, referenced in the exhibit index to the Subscription Agreement, was not included in this Subscription Agreement because this schedule was not assembled or produced although Exhibit E, Form of Lockup Agreement, was included in the Subscription Agreement

41

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, Attitude Drinks Incorporated has caused this report to be signed on its behalf by the undersigned, there under duly authorized.

	ATTITUDE DRINKS INCORPORATED
Date   January 19, 2012	By:	/s/ Roy G. Warren
		Roy G. Warren
		President and Chief Executive Officer

In accordance with the Securities Exchange Act of 1934, Attitude Drinks Incorporated has caused this report to be signed on its behalf by the undersigned in the capacities and on the dates stated.

Signature	Title	Date
/s/ Roy G. Warren	President and Chief Executive Officer	January 19, 2012
Roy G. Warren
/s/ Tommy E. Kee	Chief Financial Officer and Principal Accounting Officer	January 19, 2012
Tommy E. Kee

/s/ H. John Buckman	Director	January 19 , 201 2
H. John Buckman
/s/ Mike Edwards	Director	January 19 , 201 2
Mike Edwards

42

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets	F-3
Consolidated Statement of Operations	F-4
Consolidated Statement of Stockholders’ Deficit	F-5
Consolidated Statement of Cash Flows	F-6
Notes to Consolidated Financial Statements	F-7 to F-37

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

Attitude Drinks Incorporated

Palm Beach Gardens, Florida

We have audited the accompanying consolidated balance sheets of Attitude Drinks Incorporated and subsidiary (a development stage company) as of March 31, 2010 and 2009, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year ended March 31, 2010 and March 31, 2009, and for the period from June 18, 2007 (Inception) to March 31, 2010.  These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit 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 controls 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 controls 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 audit provides 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 Attitude Drinks Incorporated and subsidiary as of March 31, 2010 and 2009 and the results of their operations and cash flows for the years ended March 31, 2010 and March 31, 2009, and for the period from June 18, 2007 (Inception) to March 31, 2010 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 shown in the financial statements and discussed in Note 2 of the accompanying financial statements, the Company has incurred significant recurring losses from operations since inception and is dependent on outside sources of financing for continuation of its operations.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.

/s/  Meeks International, LLC

Tampa, Florida

July 14, 2010

F-2

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

A Development Stage Company

CONSOLIDATED BALANCE SHEET

	March 31, 2010		March 31, 2009
Assets
Current assets:
Cash and cash equivalents	$	38,611	$	119,637
Accounts receivable, net of allowance for doubtful accounts of  $957 for March 31, 2009		10,973		5,540
Inventories, net of reserve for obsolescence of
$43,102 for March 31, 2009		12,713		95,259
Deferred financing costs, net		-		203,842
Prepaid expenses		88,911		111,343
Total current assets		151,208		535,621
Fixed assets		34,636		44,657
Other assets:
Trademarks – net		26,800		529,789
Deposits and other		24,389		24,389
		51,189		554,178
Total assets	$	237,033	$	1,134,456

Liabilities and Stockholders’ Deficit
Current liabilities:
Accounts payable	$	1,287,824		$	1,145,348
Accrued liabilities		3,509,860			2,667,557
Convertible notes payable		17,975,009			3,041,727
Short-term bridge loans payable		388,000			388,000
Non convertible note payable		34,000			-
Loans payable to related parties		21,463			46,463
Derivative liabilities		4,858,123			123,279
Total current liabilities		28,074,279			7,412,374
Convertible notes payable – net of current portion		-			-
Commitments and contingencies
Stockholders’ Deficit:
Series A convertible preferred stock, par value $0.001 per share,     20,000,000 shares authorized, 9,000,000 and 0 shares issued and outstanding     at March 31, 2010 and March 31, 2009 respectively		9,000			-
Common stock, par value $0.001 per share, 1,000,000,000 shares     authorized, 4,306,437  and 720,006 shares issued and     outstanding at March 31, 2010 and March 31, 2009 respectively		4,306			720
Additional paid-in capital		5,959,687			2,095,138
Stock subscription receivable		(59,400	)		-
Deficit accumulated during the development stage		(33,750,839	)		(8,373,776	)
Total stockholders’ deficit		(27,837,246	)		(6,277,918	)
Total liabilities and stockholders’ deficit	$	237,033		$	1,134,456

See accompanying notes to consolidated financial statements

F-3

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

A Development Stage Company

CONSOLIDATED STATEMENT OF OPERATIONS

	Year Ended March 31, 2010			Year Ended March 31, 2009			Development Stage Period From Inception (June 18, 2007) to March 31, 2010
REVENUES:
Net revenues	$	6,627		$	23,653		$	31,224
Product and shipping costs		(98,914	)		(76,309	)		(175,657	)
GROSS PROFIT		(92,287	)		(52,656	)		(144,433	)
OPERATING EXPENSES:
Salaries, taxes and employee benefits		780,010			1,563,184			3,419,383
Marketing and promotion		258,623			1,430,082			2,043,061
Consulting fees		22,131			159,867			464,409
Professional and legal fees		207,323			237,135			645,754
Travel and entertainment		6,191			105,329			213,482
Product development costs		22,550			2,450			117,500
Stock compensation expense		1,758,600			-			1,758,600
Other operating expenses		326,852			393,601			878,403
		3,382,280			3,891,648			9,540,592
LOSS FROM OPERATIONS		(3,474,567	)		(3,944,304	)		(9,685,025	)
OTHER INCOME (EXPENSES):
Derivative income (expense)		(3,912,571	)		2,943,890			(3,678,031	)
Loss on extinguishment of debt		(2,291,039	)		(1,125,804	)		(3,416,843	)
Loss of sale of assets		(8,338	)		-			(8,338	)
Interest and other financing costs		(15,183,048	)		(1,157,838	)		(16,455,102	)
Impairment loss		(507,500)			-			(507,500)
		(21,902,496	)		660,248			(24,065,814	)
INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES		(25,377,063	)		(3,284,056	)		(33,750,839	)
Provision for income taxes		-			-			-
NET INCOME (LOSS)	$	(25,377,063	)	$	(3,284,056	)	$	(33,750,839	)
Basic income/(loss) per common share	$	(14.43	)	$	(6.18	)
Diluted income/(loss) per common share	$	(14.43	)	$	(6.18	)
Weighted average common shares outstanding – basic		1,758,703			531,698
Weighted average common shares outstanding – diluted		1,758,703			531,698

See accompanying notes to consolidated financial statements

F-4

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

A Development Stage Company

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICIT

	Preferred Stock						Common Stock				Additional		Stock Subscription			Accumulated
	Shares			Amount			Shares		Amount		Capital		Receivable			Deficit			Total
Balance, March 31, 2008		75,000		$	75			403,030	$	403	$	867,238	$	-		$	(5,089,720	)	$	(4,222,004	)
Issuance of common stock for debt modifications		-			-			289,850		290		204,509		-			-			204,799
Issuance of common stock for services		-			-			2,626		3		234,957		-			-			234,960
Issuance of non financing stock options and warrants		-			-			-		-		636,058		-			-			636,058
Exchange of preferred stock to common stock		(75,000	)		(75	)		22,500		22		53		-			-			-
Extinguishment of debt		-			-			-		-		94,141		-			-			94,141
Finders' fees for financing		-			-			2,000		2		58,182		-			-			58,184
Net loss		-			-			-		-		-		-			(3,284,056	)		(3,284,056	)
Balance, March 31, 2009		-		$	-			720,006	$	720	$	2,095,138	$	-		$	(8,373,776	)	$	(6,277,918	)
Issuance of common stock for debt modifications		-			-			12,000		12		7,164		-			-			7,176
Conversions of debt to common stock		-			-			2,310,004		2,309		1,624,340		-			-			1,626,649
Issuance of common stock for services		-			-			1,114,427		1,115		433,645		-			-			434,760
Issuance of non financing stock options and warrants		-			-			-		-		98,550		-			-			98,550
Finders' fees for financing		-			-			150,000		150		89,850		-			-			90,000
Stock subscription receivable		-			-			-		-		-		(59,400	)		-			(59,400	)
Issuance of Series A preferred stock		9,000,000			9,000			-		-		1,611,000		-			-			1,620,000
Net loss		-			-			-		-		-		-		$	(25,377,063	)		(25,377,063	)
Balance, March 31, 2010		9,000,000		$	9,000			4,306,437	$	4,306	$	5,959,687	$	(59,400	)	$	(33,750,839	)	$	(27,837,246	)

See accompanying notes to consolidated financial statements

F-5

ATTITUDE DRINKS INCORPORATED AND SUBSIDIARY

A Development Stage Company

CONSOLIDATED STATEMENT OF CASHFLOWS

	Year Ended March 31, 2010			Year Ended March 31, 2009			Development Stage Period From Inception (June 18, 2007) to March 31, 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net  loss	$	(25,377,063	)	$	(3,284,056	)	$	(33,750,839	)
Adjustment to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		11,440			17,035			31,072
Amortization of deferred financing costs		253,053			477,357			886,060
Compensatory stock and warrants		2,250,485			929,202			3,696,449
Derivative expense/(income)		3,912,571			(2,943,890	)		3,678,031
Impairment loss		507,500			-			507,500
Stock subscription receivable		(59,400	)		-			(59,400	)
Fair value adjustment of convertible note		14,753,520			(414,426	)		14,199,789
Loss on debt extinguishment		2,291,039			1,125,804			3,416,843
Amortization of debt discount		-			471,234			547,359
Loss on sale of marketable securities		8,338			-			8,338
Loss on disposal of fixed assets		-			3,914			3,914
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(53,569	)		(99,105	)		(189,300	)
Accounts receivable		(5,433	)		(5,540	)		(10,973	)
Inventories		82,546			16,586			(12,713	)
Accounts payable and accrued liabilities		1,001,425			2,712,846			4,558,802
Net cash used in operating activities		(423,548	)		(993,039	)		(2,489,068	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		-			(9,973)			(29,300)
Proceeds from sale of marketable securities		67,663			-			67,663
Trademarks		(5,930	)		(29,500	)		(67,122	)
Net cash used in investing activities		61,733			(39,473	)		(28,759	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible notes payable		330,000			100,000			1,630,000
Proceeds from short-term bridge loans payable		-			1,225,000			1,555,000
Costs associated with financing		(49,211	)		(176,588	)		(371,062	)
Repayment of notes		-			-			(260,000	)
Capital Contribution – common stock		-			-			2,500
Net cash provided by financing activities		280,789			1,148,412			2,556,438
NET INCREASE IN CASH AND CASH EQUIVALENTS		(81,026	)		115,900			38,611
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		119,637			3,737			-
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	38,611		$	119,637		$	38,611

SUPPLEMENTAL CASH FLOW INFORMATION:

Cash paid during the period for interest	$	-	$	-	$	45,000
Cash paid for taxes	$	-	$	-	$	-
Non-cash investing and financing activities:
Purchase of intangible assets with note payable	$	-	$	507,500	$	507,500
Payment of financing fees with issuance of new notes payable	$	100,000		-		100,000
Payment of financing fees with common stock and warrants	$	90,000	$	58,184	$	148,184
Debt modifications through issuance of common stock	$	7,176	$	298,940	$	306,116
Deferred finance costs for common stock	$	-	$	-	$	514,998

See accompanying notes to consolidated financial statements

F-6

Note 1 –                Organization and Nature of Business:

Attitude Drinks Incorporated, a Delaware corporation, and subsidiary (“the Company”) is a development stage company that is engaged in the development and sale of functional beverages, primarily in the United States.

Attitude Drinks Incorporated (“Attitude”, “We” or the “Company”) was formed in Delaware on September 11, 1988 under the name International Sportfest, Inc.  In January 1994, the Company acquired 100% of the issued and outstanding common stock of Pride Management Services PLC ("PMS").  PMS was a holding company of six subsidiaries in the United Kingdom engaged in the leasing of motor vehicles throughout the United Kingdom.  Simultaneously with the acquisition of PMS, we changed our name to Pride, Inc.  On October 1, 1999, the Company acquired all of the issued and outstanding stock of Mason Hill & Co. and changed its name to Mason Hill Holdings, Inc. During the quarter ended June 30, 2001, the operating subsidiary, Mason Hill & Co., was liquidated by the Securities Investors Protection Corporation.  As a result, the Company became a shell corporation whose principal business was to locate and consummate a merger with an ongoing business.

On September 19, 2007, the Company acquired Attitude Drink Company, Inc., a Delaware corporation (“ADCI”), under an Agreement and Plan of Merger (“Merger Agreement”) among Mason Hill Holdings, Inc. (“MHHI”), and ADCI.  Pursuant to the Merger Agreement, each share of ADCI common stock was converted into 40 shares of Company common stock resulting in the issuance of 4,000,000 shares of Company common stock.  The acquisition was accounted for as a reverse merger (recapitalization) with ADCI deemed to be the accounting acquirer, and the Company deemed to be the legal acquirer.  Accordingly, the financial information presented in the financial statements is that of ADCI as adjusted to give effect to any difference in the par value of the issuer's and the accounting acquirer's stock with an offset to capital in excess of par value. The basis of the assets, liabilities and retained earnings of ADCI, the accounting acquirer, have been carried over in the recapitalization.  On September 30, 2007, the Company changed its name to Attitude Drinks Incorporated.  Its wholly owned subsidiary, ADCI, was incorporated in Delaware on June 18, 2007.

The Company is a development stage enterprise as defined by the FASB Accounting Standards Codification.   All losses accumulated since the inception of the Company will be considered as part of the Company's development stage activities.  All activities of the Company to date relate to its organization, history, merger of its subsidiary, fundings and product development.  The Company's fiscal year end is March 31.  Its plan of operation during the next twelve months is to focus on the non-alcoholic single serving beverage business, developing and marketing products in three fast growing segments: sports recovery, functional dairy and milk/juice blends.

The state of Delaware approved on April 4, 2010 the increase in our authorized shares of common stock from one hundred million (100,000,000) to one billion (1,000,000,000). As such, we are reflecting that increase in our financial statements for the year ended March 31, 2010.

We implemented a 1-for-20 reverse stock split on July 7, 2010. Since this change has occurred before the release of our March 31, 2010 audited financial statements, we have restated all applicable financial information for both the years ended March 31, 2010 and 2009.

Note 2 -                 Going Concern and Management’s Plans:

As reflected in the accompanying consolidated financial statements, the Company has incurred accumulated operating losses of $33,750,839 and negative cash flows from operations of $2,489,068 since inception of the operating subsidiary, June 18, 2007 to March 31, 2010 and has a significant working capital deficiency in the amount of $27,923,071 at March 31, 2010. The Company has been dependent upon third party financing and will continue to depend on additional financing for at least the next twelve months.  These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

The Company plans to increase its sales, primarily by significantly increasing its sales force and, partnering with new distributors as well as offering new products in the next twelve months.  The Company’s margins are expected to improve as a result of increased sales, expected economies of scales due to anticipated lower product costs based on increased volumes per production run and lower transportation costs from the expected shipment of full truck loads.  However, the Company expects to be dependent on third party financing at least through the next twelve months.  There is no assurance that further funding will be available at acceptable terms, if at all, or that the Company will be able to achieve profitability.  Ultimately, the Company’s ability to continue as a going concern is dependent upon the achievement of profitable operations.

The accompanying financial statements do not reflect any adjustments that may result from the outcome of this uncertainty.

Note 3 -                 Significant Accounting Policies:

(a)      Principles of Consolidation:

The Company’s consolidated financial statements include the accounts of Attitude Drinks Incorporated and its wholly-owned subsidiary, Attitude Drink Company, Inc. All material intercompany balances and transactions

F-7

Note 3 -                 Significant Accounting Policies (continued)

(a)      Principles of Consolidation (continued)

have been eliminated.

 (b)    Use of Estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The most significant estimate included in the Company’s financial statements is the following:

-         Estimating the fair value of the Company’s financial instruments that are required to be carried at fair value.

The Company uses all available information and appropriate techniques to develop its estimates, including the use of outside consultants. However, actual results could differ from the Company’s estimates.

(c)      Business Segment and Geographic Information:

The Company currently operates in one dominant industry segment that it has defined as the sports recovery-drink industry.  However, its next two products will enter into the functional milk category. Presently, there is no international business, although the Company may pursue the sale of its products in international markets during the next fiscal year.

(d)     Cash and Cash Equivalents:

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents.

(e)      Inventories:

Inventories, which consist of finished goods and raw materials, are stated at the lower of cost on the first in, first-out method or market.  Further, the Company’s inventories are perishable.  The Company estimates for each fiscal quarter any unsalable inventory reserves based upon a specific identification basis.   As of March 31, 2010 and 2009, the reserve for inventory obsolescence was $0 and $43,102 respectively. The components of inventories as of March 31, 2010 and March 31, 2009 are below:

	March 31, 2010		March 31, 2009
Finished goods	$	7,754	$	105,595
Reserve for obsolescence		-		(43,102	)
Raw materials		4,959		32,766
	$	12,713	$	95,259

(f)       Fixed Assets:

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over a period of ten years for furniture, three years for computer equipment and three years for purchased software. Maintenance, repairs and minor renewals are charged directly to expenses as incurred. Additions and betterments to property and equipment are capitalized.  When assets are disposed of, the related cost and accumulated depreciation thereon are removed from the accounts, and any resulting gain or loss is included in the statement of operations.

(g)      Intangible Assets:

The Company’s intangible assets, which are recorded at cost, consist primarily of trademarks.  These assets are being amortized on a straight-line basis over fifteen years.  The following table summarizes the components of the Company’s intangible assets as of March 31, 2010 and March 31, 2009:

F-8

Note 3 -                 Significant Accounting Policies (continued)

(g)     Intangible Assets (continued)

	March 31, 2010			March 31, 2009
Trademark  costs	$	29,353		$	530,924
Less accumulated amortization		(2,553	)		(1,135	)
Total Intangible Assets	$	26,800		$	529,789

Amortization expense amounted to $1,418 and $1,021 for the year ended March 31, 2010 and March 31, 2009, respectively. During the year ended March 31, 2009, we exchanged a convertible note payable (see note 6-f) for several trademarks.  These trademarks had a book value of $507,500; however we prepared an impairment analysis for the year ended March 31, 2010 as we estimated that the carrying amount of this asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use of these items. As such, we determined that the full value of $507,500 should be written off.    We also have additional trademarks related to our current product lines with a gross value of $29,353.  These trademarks are currently being amortized over 15 years.

(h)     Impairment of Long-Lived Assets:

Our long-lived assets consist principally of intangible assets (trademarks) and to a much lesser extent, furniture and equipment.  We evaluate the carrying value and recoverability of our long-lived assets when circumstances warrant such evaluation by applying the provisions of the FASB Accounting Standards Codification which requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets.  Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.  See the note above (g) for further explanation.

(i)      Financial Instruments:

Financial instruments, as defined in the FASB Accounting Standards Codification  consist of cash, evidence of ownership in an entity, and contracts that both (i) impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity, or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii) conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity. Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, notes payable, derivative financial instruments, convertible debt and redeemable preferred stock that we have concluded is more akin to debt than equity.

We carry cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical costs; their respective estimated fair values approximate carrying values due to their current nature.

Derivative financial instruments, as defined in the FASB Accounting Standards Codification, , 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.

We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, we have entered into certain other financial instruments and contracts, such as debt financing arrangements, redeemable preferred stock arrangements, and freestanding warrants with features 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 the FASB Accounting Standards Codification.

F-9

Note 3 -                 Significant Accounting Policies (continued)

(i)      Financial Instruments (continued)

these instruments are required to be carried as derivative liabilities, at fair value, in our financial statements. However, we are allowed to elect fair value measurement of the hybrid financial instruments, on a case-by-case basis, rather than bifurcate the derivative. We believe that fair value measurement of the hybrid convertible promissory notes arising from our October 23, 2007, January 8, 2008, January 27, 2009 and March 30, 2009 financing arrangements provide a more meaningful presentation of that financial instrument.

(j)       Revenue Recognition:

The Company recognizes revenue in accordance with the FASB Accounting Standards Codification. Revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured.  Revenues are recognized pursuant to formal revenue arrangements with the Company’s customers, at contracted prices, when the Company’s product is delivered to their premises, and collectability is reasonably assured. The Company extends merchantability warranties to its customers on its products but otherwise does not afford its customers with rights of return. Warranty costs have been insignificant to date.

The Company’s revenue arrangements often provide for industry-standard slotting fees where the Company makes cash payments to the respective customer to obtain rights to place the Company’s products on their retail shelves for a stipulated period of time. We did record slotting fees for $5,210 and $30,050 for the year ended March 31, 2010 and 2009, respectively, which are recorded as reductions to the reported revenue.  The Company also engages in other promotional discount programs in order to enhance its sales activities. The Company believes its participation in these arrangements is essential to ensuring continued volume and revenue growth in the competitive marketplace. These payments, discounts and allowances are recorded as reductions to the Company’s reported revenue and are immaterial for the year ended March 31, 2010 and 2009.

(k)      Income Taxes:

We utilize the liability method of accounting for income taxes.  Under the liability method, deferred tax assets and liabilities are determined based on the differences between the financial reporting basis and the tax basis of the assets and liabilities and are measured using enacted tax rates and laws that will be in effect, when the differences are expected to reverse.  An allowance against deferred tax assets is recognized, when it is more likely than not, that such tax benefits will not be realized.  We have recorded a 100% valuation allowance against net deferred tax assets due to uncertainty of their realization.

There was no impact on our consolidated financial position, results of operations or cash flows for the year ended March 31, 2010 and 2009 and for the periods then ended, and we did not have any unrecognized tax benefits at March 31, 2010 and March 31, 2009.  Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense.  For the year ended March 31, 2010 and 2009, we had no accrued interest or penalties related to income taxes. We currently have no federal or state tax examinations in progress.

Shipping and Handling Costs:

Shipping and handling costs incurred to deliver products to our customers are included as a component of cost of sales.  These costs amounted to $1,381 and $7,997 for the year ended March 31, 2010 and 2009, respectively.

(l)      Loss Per Common Share:

Our basic loss per common share is computed by dividing loss applicable to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted loss per common share is computed similar to basic loss per common share except that diluted loss per common share includes dilutive common stock equivalents, using the treasury stock method, and assumes that the convertible debt instruments were converted into common stock upon issuance, if dilutive. For the year ended March 31, 2010 and 2009, respectively, potential common shares arising from the our stock warrants, stock options and convertible debt based on restatement from the July 7, 2010 reverse stock split amounting to 71,643,760 shares for 2010 and 4,610,232 shares for 2009 were not included in the computation of diluted loss per share because their effect was anti-dilutive.

F-10

Note 3 -                 Significant Accounting Policies (continued)

(m)    Recent Accounting Pronouncements Affecting the Company:

Recent accounting pronouncements - We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. We believe that the following impending standards may have an impact on our future filings. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

In January 2010, FASB issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This ASU requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC Subtopic 820-10. The FASB’s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. Specifically, the ASU 2010-06 amends Codification Subtopic 820-10 to now require: a reporting entity should disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers; and in the reconciliation for fair value measurements using significant unobservable inputs, a reporting entity should present separately information about purchases, sales, issuances, and settlements.  In addition, ASU 2010-06 clarifies the existing requirements that reporting entities use judgment in determining the appropriate classes of assets and liabilities for purposes of reporting fair value measurement for each class of assets and liabilities and provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements.  The ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is permitted.  The Company has not elected early application of this ASU but does not believe its adoption will have a significant impact on its financial statements.

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“Codification”). The Codification is the single source for all authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009.  The implementation of the Codification did not impact our financial statements or disclosures other than references to authoritative accounting literature are now made in accordance with the Codification.

In June 2008, the FASB issued authoritative guidance as required by the “Derivative and Hedging” ASC Topic 815-10-15-74 in Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock. The objective is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock, and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative, for purposes of determining whether that instrument or embedded feature qualifies for the first part of the scope exception. This Issue also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock, regardless of whether the instrument has all the characteristics of a derivative. We currently have warrants that embody terms and conditions that require the reset of their strike prices upon our sale of shares or equity-indexed financial instruments at amounts less than the conversion prices. These features will no longer be treated as “equity” once it becomes effective. Rather, such instruments will require classification as liabilities and measurement at fair value. Early adoption is precluded. This standard did not have a material impact on the financial statements due to the Company’s warrants previously requiring liability classification.  See Note 8 Derivative Liabilities of the consolidated financial statements for additional disclosure data.

In March 2008, the FASB issued guidance under ASC 815 “Derivatives and Hedging”. The guidance is intended to improve financial standards for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance and cash flows. Entities are required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how derivative instruments and related hedged items are accounted for and

F-11

Note 3 -                 Significant Accounting Policies (continued)

 (m)     Recent Accounting Pronouncements Affecting the Company (continued)

its related interpretations; and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows. It is effective for financial statements issued for fiscal years beginning after November 15, 2008, with early adoption encouraged. The Company has provided the required disclosures in the accompanying Notes to Consolidated Financial Statements. See Note 8 Derivative Liabilities of the consolidated financial statements for additional disclosure data.

In December 2007, the FASB issued revised guidance under ASC 805 “Business Combinations”, which establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any non-controlling interest in an acquiree, including the recognition and measurement of goodwill acquired in a business combination. ASC 805 is effective as of the beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited. The adoption of ASC 805 did not have a material impact on the Company’s financial position, results of operations or cash flows because the Company has not been involved in any business combinations.

In December 2007, the FASB issued guidance under ASC 810 “Consolidation” This guidance establishes new accounting and reporting standards for the Non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance will change the classification and reporting for minority interest and non-controlling interests of variable interest entities. The guidance requires the minority interest and non-controlling interest of variable interest entities to be carried as a component of stockholders’ equity. Accordingly we will reflect non-controlling interest in our consolidated variable interest entities as a component of stockholders’ equity. This guidance is effective for fiscal years and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier adoption is prohibited. The Company adopted this guidance beginning March 31, 2009. Since we do not currently have minority interest or Variable Interest Entities consolidated in our financial statements, adoption of this guidance has no impact on the Company’s financial statements.

In July 2006, the FASB issued guidance under ASC 740 “Income Taxes”. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial. It prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on a tax return. The adoption of this guidance did not have any impact on our financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did not, or are not believed by management to, have a material impact on our present or future financial statements.

Note 4 –                Fixed Assets:

The Company’s fixed assets are comprised of the following as of March 31, 2010 and 2009:

	2010			2009
Equipment	$	38,465		$	38,465
Furniture and fixtures		12,837			12,837
Leasehold improvements		3,954			3,954
Purchased software		1,022			1,022
		56,278			56,278
Less: accumulated depreciation		(21,642	)		(11,621	)
Total Fixed Assets	$	34,636		$	44,657

Depreciation expense aggregated $10,021 and $10,139 for the year ended March 31, 2010 and 2009, respectively.

F-12

Note 5 –                Accrued Liabilities:

Accrued liabilities consist of the following as of March 31, 2010 and 2009:

	2010		2009
Accrued payroll and related taxes	$	2,209,114	$	1,650,976
Accrued marketing program costs		580,000		580,000
Accrued professional fees		62,130		81,300
Accrued interest		435,773		201,776
Other expenses		222,843		153,505
Total Accrued Liabilities	$	3,509,860	$	2,667,557

Note 6 –                Convertible Notes Payable:

Convertible debt carrying values consist of the following:

	March 31,		March 31,
	2010		2009
$ 312,000 Convertible Note Financing, due June 30, 2010  (a)	$	1,257,963	$	312,000
$ 600,000 Convertible Note Financing, due June 30, 2010  (b)		2,444,412		657,757
$ 500,000 Convertible Note Financing, due June 30, 2010  (b)		3,225,265		548,131
$ 100,000 Convertible Note Financing, due June 30, 2010  (b)		328,015		109,626
$ 243,333 Convertible Note Financing, due June 30, 2010  (c)		292,000		243,333
$   60,833 Convertible Note Financing, due June 30, 2010  (d)		60,833		60,833
$   20,000 Convertible Note Financing, due June 30, 2010  (c)		20,000		20,000
$ 120,000 Convertible Note Financing, due June 30, 2010  (e)		803,999		151,300
$     5,000 Convertible Note Financing, due June 30, 2010  (e)		33,316		6,322
$     5,000 Convertible Note Financing, due June 30, 2010  (e)		33,499		6,322
$   60,000 Convertible Note Financing, due June 30, 2010  (e)		401,481		75,157
$   70,834 Convertible Note Financing, due June 30, 2010  (e)		474,586		89,310
$ 507,500 Convertible Note Financing, due June 30, 2010  (f)		3,111,581		507,500
$ 200,000 Convertible Note Financing, due June 30, 2010  (e)		1,331,904		254,136
$ 161,112 Convertible Note Financing, due June 30, 2010  (e)		1,064,011		-
$   27,778 Convertible Note Financing, due June 30, 2010  (e)		182,738		-
$ 111,112 Convertible Note Financing, due May 13, 2010  (g)		707,736		-
$   50,000 Convertible Note Financing, due June 30, 2010  (e)		323,968		-
$   55,000 Convertible Note Financing, due June 30, 2010  (e)		356,364		-
$ 137,500 Convertible Note Financing, due June 30, 2010  (e)		890,912		-
$ 100,000 Convertible Note Financing, due June 30, 2010  (h)		630,426		-
Total convertible notes payable:	$	17,975,009	$	3,041,727

As of March 31, 2010, we did not have sufficient authorized shares to settle all our equity indexed instruments which resulted in an event of default on the notes listed above. The remedies for events of default include acceleration of principal and interest and a portion of the notes also include redemption provisions which allow the holders the options to redeem the notes for 120% of the principal balance plus interest. The investors waived the default interest provisions until June 30, 2010 so beginning July 1, 2010, default interest of 15% will begin accruing on these notes until we are able to obtain sufficient authorized shares. Notes with the redemption provision were recorded at 120% of face value.

(a)     $312,000 convertible notes payable

On January 8, 2008, we executed secured convertible notes in the aggregate of $520,000 with three lenders, all unrelated entities. We received a net amount of $430,000 with the $90,000 discount being treated as interest.  The loans became payable on May 7, 2008, or we had the option of compelling the holder to convert all, or a portion of the outstanding principal and accrued interest into Company common stock based on defined criteria.  On February 13, 2008, we repaid $260,000 of these loans.   During the quarter ended March 31, 2010, $71,992 of principal balance of the notes was converted into common shares at the default conversion price of $.16 calculated pursuant to the notes default provisions.  

F-13

Note 6 –                Convertible Notes Payable (continued)

(a)     $312,000 convertible notes payable (continued)

We have entered into the following Modification and Waiver Agreements related to this financing:

Date	Terms	Consideration
June 2008	Extend maturity to July 15, 2008	9,750 shares of common stock
September 2008	Extend maturity to sooner of January 1, 2009 or closing of another funding	Increase principal by $52,000
January 2009	Extend maturity date to July 1, 2009 and add a conversion option of $0.05	140,000 shares of restricted stock
January 2010	Extend maturity date to June 30, 2010	Convertible notes (See Note 6(h)

The addition of a conversion option and the issuance of restricted stock in January 2009 resulted in an extinguishment loss of $56,000 under the FASB Accounting Standards Codification.

The January 2010 modification resulted in an extinguishment loss of $72,441.

Because the Company did not have sufficient authorized and unissued shares to settle all of its share-indexed instruments, the embedded conversion feature requires liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

(b)     $1,200,000 convertible notes payable

On October 23, 2007, we entered into a Subscription agreement with a group of accredited investors.  Under this agreement, we agreed to sell up to $1,200,000 of our securities consisting of 10% convertible notes, shares of common stock and Class A and Class B common stock purchase warrants.  The original subscription agreement required that we have an effective registration statement in order for the second closing date to occur. On February 15, 2008, we obtained a Waiver of Certain Conditions that allowed us to waive the requirement for the Registration Statement to become effective prior to the occurrence of the Second closing.

The indexed shares and closing dates for the three tranches of the $1,200,000 financing are as follows:

Financing	Closing date	Shares indexed to note		Series A warrants		Series B warrants
$ 600,000 Face Value Convertible Note Financing	October 23, 2007		2,312,500		958,805		140,910
$ 500,000 Face Value Convertible Note Financing	February 15, 2008		3,062,500		757,304		75,758
$ 100,000 Face Value Convertible Note Financing	June 26, 2008		309,375		151,502		15,152
Total			5,684,375		1,867,611		231,820

The convertible promissory notes were initially convertible into common shares based on a fixed conversion price of $6.60, and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices. The conversion features were not afforded the exemption as conventional convertible, and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

The warrants issued in this financing arrangement did not meet the conditions for equity classification and are also required to be carried as a derivative liability, at fair value. We estimate the fair value of the warrants on the inception dates, and subsequently, using the Black-Scholes valuation technique, adjusted for dilution, because that technique embodies all of the assumptions (including, volatility, expected terms, dilution and risk free rates) that are necessary to fair value freestanding warrants.  See also Note 8 – Derivative Liabilities.

F-14

Note 6 –                Convertible Notes Payable (continued)

(b)     $1,200,000 convertible notes payable (continued)

The warrants and the convertible notes contain full-ratchet protection so the exercise price of the warrants and the conversion price of the notes were reduced to $3.30 when the Company issued additional convertible instruments with this conversion rate on December 18, 2008.  On January 27, 2009, we entered into a modification of the agreement which reduced the maturity date from October 23, 2009 to July 1, 2009 and changed from a periodic debt payment schedule to full payment of principal and interest on July 1, 2009.  In exchange for this modification, we issued 62,500 shares of restricted stock, and we agreed to reduce the conversion price of the notes and related warrants to $1.00.  This modification resulted in a loss on extinguishment of $379,183. During the quarter ended June 30, 2009, $85,000 of principal balance on the notes and $8,723 of interest was converted into common shares of stock at a price of $1.00.  During the quarter ended December 31, 2009, $105,000 of principal balance of the notes and $4,500 of interest were converted into common shares at the default conversion price of $.16 calculated pursuant to the notes default provisions.  The conversion price was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note 6(h).  Additionally, we agreed to (i) issue additional warrants to purchase 1,635,792 shares of common stock and (ii) reduce the price of certain warrants to $0.20.  This modification resulted in an extinguishment loss of $395,249.  During the quarter ended March 31, 2010, $100,500 of principal balance of the notes was converted into common shares at the default conversion price of $.16 calculated pursuant to the notes default provisions.  On January 28, 2010, certain warrants were re-priced to $0.16, and the expiration dates were extended to July 15, 2015.  On February 11, 2010, the warrants which were re-priced to $0.20 on January 10, 2010 were re-priced to $0.16, and the expiration dates were extended to July 15, 2015.

Information and significant assumptions embodied in our valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of March 31, 2010 and March 31, 2009 for this financing are illustrated in the following tables:

$600,000 Convertible Promissory Note Financing (Initial Closing):	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	.30
Conversion/exercise price	$	0.16		$	0.30		$	0.16		$	0.30-.46
Volatility (based upon Peer Group)		--			--			101.35	%		86.57	%
Term (years)		--			.25			5.29			3.56
Risk-free rate		--			--			2.55	%		1.15	%
Credit-risk adjusted yield		7.91	%		16.32	%		--			--
Dividends		--			--			--			--

$500,000 Convertible Promissory Note Financing (Second Closing):	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion/exercise price	$	0.16		$	0.30		$	0.16		$	0.30-.46
Volatility (based upon Peer Group)		--			--			101.35	%		86.70	%
Term (years)		--			.25			5.29			3.89
Risk-free rate		--			--			2.55	%		1.67	%
Credit-risk adjusted yield		7.91	%		16.32	%		--			--
Dividends		--			--			--			--

F-15

Note 6 –                Convertible Notes Payable (continued)

(b)      $1,200,000 convertible notes payable (continued)

$100,000 Convertible Promissory Note Financing (Third Closing):	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion/exercise price	$	0.16		$	1.00		$	0.16		$	1.00
Volatility (based upon Peer Group)		--			--			101.35	%		84.90	%
Term (years)		--			.25			5.29			4.24
Risk-free rate		--			--			2.55	%		1.55	%
Credit-risk adjusted yield		7.91	%		16.32	%		--			--
Dividends		--			--			--			--

(c)      $243,333 convertible notes payable

On September 29, 2008, for cash proceeds for $192,500, net of issuance costs of $7,500, we issued $243,333 face value convertible notes, due March 29, 2009, plus warrants to purchase (i) 28,384 shares of our common stock at an exercise price of $10.00 and (ii) additional warrants to purchase 28,384 shares of our common stock at an exercise price of $15.00, representing an aggregate 56,768 shares.  The notes are convertible, only at the Company’s option, into Common Stock at $3.30 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than that price. The notice of conversion must be given to the Holder on the first day following the twenty consecutive trading days during which the stock price is greater than $100.00 per share each trading day and the daily trading volume is greater than 100,000 shares.  The Holder of the note does not have an option to convert the instrument. The note is secured by a security interest in all the tangible and intangible assets of the Company. According to the original terms of the note, fifty percent of the interest was due on December 28, 2008 and fifty percent due and payable on March 29, 2009; however, the Company modified the agreement on January 27, 2009 to require full payment of principal and interest on July 1, 2009 in exchange for a reduction of the conversion price of the note and exercise price of the warrants to $1.00.  On January 27, 2009, the warrants were redeemed in exchange for a convertible note in the amount of $70,834. The exchange resulted in an extinguishment loss of $82,484.  See Note 6(e).  On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note (h)).  This modification resulted in an extinguishment loss of $113,768.

In originally evaluating the financing transaction, we concluded that the conversion feature was not clearly and closely related to the debt instrument since the risks are those of an equity security; however, we determined that the conversion feature met the paragraph 11(a) exemption and did not require liability classification under the FASB Accounting Standards Codification.  Since the embedded conversion feature did not require liability classification, we were required to consider if the contract embodied a beneficial conversion feature (“BCF”).  The conversion option is contingent on a future stock price so under the guidance of The FASB Accounting Standards Codification, the beneficial conversion feature was calculated at inception but will not be recognized until the contingency is resolved.  The aggregate BCF at its intrinsic value amounted to $192,739. This amount gives effect to (i) the trading market price on the contract date and (ii) the effective conversion price after allocation of proceeds to the warrants. Notwithstanding, BCF was limited to the value ascribed to the note (using the relative fair value approach).

We also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period.

The warrants and the convertible note contain full-ratchet protection so the exercise price of the warrants and the conversion price of the notes were reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008.  The conversion price was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.

In connection with the note, we issued a note payable in the amount of $20,000 under the same terms as the $243,333 note as consideration for finders’ fees.  The finders’ fee note did not include warrants.

F-16

Note 6 –                Convertible Notes Payable (continued)

(d)     $60,833 convertible notes payable

On December 18, 2008, we entered into a financing arrangement that provided for the issuance of $60,833 face value convertible note for a purchase price of $50,000, due March 29, 2009, plus warrants to purchase (i) 7,084 shares of our common stock at an exercise price of $10.00 and (ii) additional warrants to purchase 7,084 shares of our common stock at an exercise price of $15.00, representing an aggregate 14,168 shares.  The note was initially convertible into common shares, only at the Company’s option, a conversion price of $3.30 and is subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than that price. The notice of conversion must be given to the Holder on the first day following the twenty consecutive trading days during which the stock price is greater than $100.00 per share each trading day and the daily trading volume is greater than 100,000 shares.  The Holder of the note does not have an option to convert the instrument. The note is secured by a security interest in all the tangible and intangible assets of the Company.  According to the original terms of the note, fifty percent of the note was due on December 28, 2008 and fifty percent due and payable on March 29, 2009 and if the note was not paid by its maturity date; a default rate of 15% applied. The note was considered in default as of December 28, 2008 due to non-payment of the required principle payment, therefore, it is recorded at face value and default interest of 15% is being accrued. We modified the note agreement on January 27, 2009 to require full payment of principal and interest on July 1, 2009 in exchange for a reduction of the conversion price of the note and exercise price of the warrants to $1.00.  On January 27, 2009, the warrants were redeemed in exchange for a convertible note in the amount of $70,834. The exchange resulted in an extinguishment loss of $82,484. See Note 6(e).   The conversion price was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we issued convertible promissory notes in the amount of $100,000 (See Note 6(h)).  This modification resulted in an extinguishment loss of $26,282.

In originally evaluating the financing transaction, we concluded that the conversion feature was not clearly and closely related to the debt instrument; however, it did meet the paragraph 11(a) exemption and did not require liability classification. We considered if the contract embodied a beneficial conversion feature (“BCF”) however there was no beneficial conversion feature present, since the effective conversion price was greater than the market value of the stock.

We also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period.

(e)     $892,224 convertible notes payable

On January 27, 2009 , March 30, 2009, and July 15, 2009,  we entered into Subscription agreements with a group of accredited investors that provided for the sale of an aggregate $892,224 face value secured convertible notes and warrants to purchase an aggregate 1,183,473 shares of our common stock.  The notes and warrants are based on a fixed conversion price of $1.00 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices.  The conversion price was reduced to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  On January 10, 2010, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we issued convertible promissory notes in the amount of $50,000.  Additionally, we agreed to reduce the price of certain warrants to $0.20.  This modification resulted in an extinguishment loss of $309,740.  During the year ended March 31, 2010, $94,000 of principal balance of the notes was converted into common shares at the default conversion price range of $1.00 to $.16 calculated pursuant to the notes default provisions.  On January 28, 2010, certain warrants were re-priced to $0.16, and the expiration dates were extended to July 15, 2015.  On February 11, 2010, the warrants which were re-priced to $0.20 on January 10, 2010 were re-priced to $0.16, and the expiration dates were extended to July 15, 2015.

F-17

Note 6 –                Convertible Notes Payable (continued)

(e)      $892,224 convertible notes payable (continued)

The following table provides the details of each of the financings:

Face Value			Closing date	Maturity date	Shares indexed to note		Shares indexed to warrants
$	130,000	(1)	January 27, 2009	July 27, 2009		812,500		120,000
	70,835	(2)	January 27, 2009	July 27, 2009		442,713		--
	60,000		February 17, 2009	July 27, 2009		375,000		60,000
	200,000		March 30, 2009	December 30, 2009		1,250,000		416,667
	161,111		July 15, 2009	December 30, 2009		1,006,950		335,649
	27,778		October 1, 2009	December 30, 2009		173,613		--
	50,000		January 28, 2010	June 30, 2010		312,500		104,167
	55,000		February 19, 2010	June 30, 2010		343,750		104,167
	137,500		March 26, 2010	June 30, 2010		859,375		286,459
$	892,224					5,576,401		1,427,109

(1)   The $130,000 convertible notes payable includes two $5,000 face value convertible notes issued as payment for finder’s fees.

(2)  The $70,835 convertible notes payable was issued in exchange for the redemption of 56,767 warrants shares issued in connection with the September 29, 2008 convertible note financing and 14,167 warrant shares issued in connection with the December 18, 2008 convertible note financing.

We received the following proceeds from the financing transactions:

	Gross proceeds		Debt discount & finance costs		Net proceeds
$ 130,000 Face Value Convertible Note Financing	$	120,000	$	23,750	$	96,250
$  60,000 Face Value Convertible Note Financing		60,000		10,000		50,000
$ 200,000 Face Value Convertible Note Financing		200,000		41,900		158,100
$161,111 Face Value  Convertible Note Financing		161,111		16,111		145,000
$  27,778 Face Value Convertible Note Financing		27,778		--		27,778
$  50,000 Face Value  Convertible Note Financing		50,000		10,000		40,000
$  55,000 Face Value  Convertible Note Financing		55,000		--		55,000
$137,500 Face Value  Convertible Note Financing (a)		137,500		13,100		124,400
Total	$	811,389	$	114,861	$	696,528

(a) $59,400 payment was received in April, 2010

The holder has the option to redeem the convertible notes for cash in the event of defaults and certain other contingent events, including events related to the common stock into which the instrument was convertible, registration and listing (and maintenance thereof) of our common stock and filing of reports with the Securities and Exchange Commission (the “Default Put”). The conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification.  We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

F-18

Note 6 –                Convertible Notes Payable (continued)

(e)     $892,224 convertible notes payable (continued)

We also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period.

Information and significant assumptions embodied in our valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of March 31, 2010 and March 31, 2009 for this financing are illustrated in the following tables:

$130,000 and $70,834 Convertible Promissory Note Financing:	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion/exercise price	$	0.16		$	0.30		$	0.16		$	0.30
Volatility (based upon Peer Group)		--			--			101.35	%		81.30	%
Term (years)		--			0.32			5.29			4.83
Risk-free rate		--			--			2.55	%		1.67	%
Credit-risk adjusted yield		7.91	%		16.32	%		--			--
Dividends		--			--			--			--

$60,000 Convertible Promissory Note Financing:	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion/exercise price	$	0.16		$	0.30		$	0.16		$	0.30
Volatility (based upon Peer Group)		--			--			101.35	%		81.30	%
Term (years)		--			0.32			5.29			4.83
Risk-free rate		--			--			2.55	%		1.67	%
Credit-risk adjusted yield		7.91	%		16.32	%		--			--
Dividends		--			--			--			--

$200,000 Convertible Promissory Note Financing:	Hybrid Note						Warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion/exercise price	$	0.16		$	0.30		$	0.16		$	0.30
Volatility (based upon Peer Group)		--			80.29	%		101.35	%		80.29	%
Term (years)		--			.75			5.29			5.00
Risk-free rate		--			16.32	%		2.55	%		1.72	%
Credit-risk adjusted yield		7.91	%		--			--			--
Dividends		--			--			--			--

$161,111 Convertible Promissory Note Financing:	Hybrid Note					Warrants
	March 31, 2010			March 31, 2009		March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00			--	$	1.00			--
Conversion/exercise price	$	0.16			--	$	0.16			--
Volatility (based upon Peer Group)		--			--		101.35	%		--
Term (years)		--			--		5.29			--
Risk-free rate		--			--		2.55	%		--
Credit-risk adjusted yield		7.91	%		--		--			--
Dividends		--			--		--			--

F-19

Note 6 –                Convertible Notes Payable (continued)

(e)     $892,224 convertible notes payable (continued)

$27,778 Convertible Promissory Note Financing:	Hybrid Note					Warrants
	March 31, 2010			March 31, 2009		March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00			--	$	1.00			--
Conversion/exercise price	$	0.16			--	$	0.16			--
Volatility (based upon Peer Group)		--			--		101.35	%		--
Term (years)		--			--		5.29			--
Risk-free rate		--			--		2.55	%		--
Credit-risk adjusted yield		7.91	%		--		--			--
Dividends		--			--		--			--

$50,000, $55,000 and $137,500 Convertible Promissory Note Financing:	Hybrid Note					Warrants
	March 31, 2010			March 31, 2009		March 31, 2010			March 31, 2009
Estimate fair value of the underlying common share	$	1.00			--	$	1.00			--
Conversion/exercise price	$	0.16			--	$	0.16			--
Volatility (based upon Peer Group)		--			--		101.35	%		--
Term (years)		--			--		5.29			--
Risk-free rate		--			--		2.55	%		--
Credit-risk adjusted yield		7.91	%		--		--			--
Dividends		--			--		--			--

(f)      $507,500 convertible note payable:

On August 8, 2008, the Company executed a secured convertible promissory note in the aggregate amount of $507,500 with one lender, an unrelated entity.  The note was payable on August 7, 2009 with interest on the outstanding principal to accrue at 10%.  This note was entered into pursuant to the terms of a Secured Promissory Note and Security Agreement, Asset Purchase Agreement and Registration Rights Agreement to purchase certain trademarks, notably “Slammers” and “Blenders”, from a company that previously acquired such trademarks through a foreclosure sale of certain assets of Bravo! Brands, Inc.  The holder of this note payable had the right to convert all or any portion of the then aggregate outstanding principal amount together with interest at the fixed conversion price of $20.00.  In November 2009, the note was settled with the issuance of new notes of equal face value, which are convertible into shares of common stock at a conversion price equal to the lesser of $1.00 or 80% of the average of the three lowest closing bid prices for the Company’s common stock for the twenty trading days preceding the date of conversion. The notes are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices.  On January 10, 2009, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we issued convertible promissory notes in the amount of $50,000.  Additionally, we agreed to reduce the price of certain warrants to $0.20.  This modification resulted in an extinguishment loss of $206,356.  During the year ended March 31, 2010, $15,000 of principal balance of the notes was converted into common shares at the default conversion price of $.16 calculated pursuant to the notes default provisions.  

The conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instruments at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

(g)     $111,112 convertible note payable

In November 2009, the Company issued a convertible note with a face value of $111,112 and 150,000 shares of common stock in exchange for marketable securities with a fair market value on the date of the transaction of $76,000.  The note is convertible into common stock at a fixed conversion price of $1.00 per share subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices.  On January 10, 2009, we entered into a modification of the agreement with certain note holders, which extended the maturity date to June 30, 2010.  In exchange for this modification, we

F-20

Note 6 –                Convertible Notes Payable (continued)

(g)     $111,112 convertible notes payable (continued)

issued convertible promissory notes in the amount of $50,000.  Additionally, we agreed to reduce the price of certain warrants to $0.20.  This modification resulted in an extinguishment loss of $47,520.

Because the Company did not have sufficient authorized and unissued shares to settle all of its share-indexed instruments, the embedded conversion feature requires liability classification under the FASB Accounting Standards Codification. We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

(h)     $100,000 convertible notes payable

As consideration for the modification agreement we entered into with certain investors on January 10, 2010, we agreed to issue two convertible promissory notes in the aggregate amount of $100,000.  The notes are based on a fixed conversion price of $1.00 and are subject to full-ratchet anti-dilution protection if we sell shares or share-indexed financing instruments at less than those prices.

The holder has the option to redeem the convertible notes for cash in the event of defaults and certain other contingent events, including events related to the common stock into which the instrument was convertible, registration and listing (and maintenance thereof) of our common stock and filing of reports with the Securities and Exchange Commission (the “Default Put”). The conversion feature was not afforded the exemption as conventional convertible and the notes require liability classification under the FASB Accounting Standards Codification.  We chose to value the entire hybrid instrument at fair value. We estimate the fair value of the hybrid contract as a common stock equivalent, enhanced by the forward elements (coupon, puts, and calls), because that technique embodies all of the assumptions (including credit risk, interest risk, stock price volatility and conversion behavior estimates) that are necessary to fair value complex, hybrid contracts.

Information and significant assumptions embodied in our valuations (including ranges for certain assumptions during the subject periods that instruments were outstanding) as of March 31, 2010 for this financing is illustrated in the following table:

	Hybrid Note
Estimate fair value of the underlying common share	$	1.00
Conversion/exercise price	$	0.16
Volatility (based upon Peer Group)		--
Term (years)		--
Risk-free rate		--
Credit-risk adjusted yield		7.91
Dividends		--

Note 7 –                Short Term Bridge Loans

April 2, 2008 financing:

On April 2, 2008, the Company entered into a financing arrangement that provided for the issuance of $120,000 face value short term bridge loans, due June 30, 2008, plus warrants to purchase (i) 10,000 shares of our common stock and (ii) additional warrants to purchase 10,000 shares of our common stock, representing an aggregate 20,000 shares.

We determined that the warrants issued in this financing arrangement met the conditions for equity classification. The Company accounts for debt issued with stock purchase warrants in accordance with the FASB Accounting Standards Codification. The proceeds of the debt were allocated between the debt and the detachable warrants based on the relative fair values of the debt security and the warrants. We allocated a value of $98,864 to the warrants, which was amortized through the original maturity date using the effective interest method.

F-21

Note 7 –                Short Term Bridge Loans (continued)

April 2, 2008 financing (continued)

We entered into the following Modification and Waiver Agreements related to this financing:

Date	Terms	Consideration
June 2008	Extend maturity to July 30, 2008	1) Warrants indexed to 5,000 shares of common stock 2) Warrants indexed to 5,000 shares of common stock
September 2008	Extend maturity to December 15,2008	12,000 shares of restricted stock
January 2009	Extend maturity date to April 30, 2009	1) Warrants indexed to 12,000 shares of common stock 2) 12,000 shares of restricted stock

The modifications resulted in a loss on extinguishment of $296,975 in accordance with the Financial Accounting Standards Codification.  The notes were considered in default on December 15, 2008 due to non-payment.  Remedy for default was acceleration of principal so the notes were recorded at face value as of December 15, 2008.

As of March 31, 2010, this note was considered in default for non-payment.  The company is negotiating with the debt holder to extend the due date of this debt.

The warrants contain full-ratchet protection so the exercise price of the warrants was reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008. The exercise price of the warrants was reduced again to $1.00 when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009.  The exercise price of the warrants was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  The exercise price of the warrants was reduced again to $.16 when the Company issued additional convertible instruments with a lower conversion rate in January 2010.

April 9, 2008 and April 14, 2008 financing:

On April 9, 2008, the Company entered into a financing arrangement that provided for the issuance of $120,000 face value short term bridge loans, due July 10, 2008, plus warrants to purchase (i) 10,000 shares of our common stock and (ii) additional warrants to purchase 10,000 shares of our common stock, representing an aggregate 20,000 shares.  On April 14, 2008, the Company entered into a financing arrangement that provided for the issuance of $60,000 face value short term bridge loan notes payable, due July 15, 2008, plus warrants to purchase (i) 5,000 shares of our common stock and (ii) additional warrants to purchase 5,000  shares of our common stock, representing an aggregate 10,000 shares.  We determined that the warrants issued in these financing arrangements meet the conditions for equity classification so we allocated the proceeds of the debt between the debt and the detachable warrants based on the relative fair values of the debt security and the warrants in accordance with the FASB Accounting Standards Codification.

We entered into the following Modification and Waiver Agreements related to the April 9, 2008 financing:

Date	Terms	Consideration
June 2008	Extend maturity to August 10, 2008	Warrants indexed to 10,000 shares of common stock
September 2008	Extend maturity to December 15, 2008	12,000 shares of restricted stock
January 2009	Extend maturity date to April 30, 2009	1) Warrants indexed to 12,000 shares of common stock 2) 12,000 shares of restricted stock
February 2010	Extend maturity date to June 30, 2010	1) Warrants indexed to 12,000 shares of common stock 2) 12,000 shares of restricted stock

The modifications resulted in a loss on extinguishment of $12,408 in accordance with the Financial Accounting Standards Codification.

F-22

Note 7 –                Short Term Bridge Loans (continued)

April 9, 2008 and April 14, 2008 financing(continued)

We entered into the following Modification and Waiver Agreements related to the April 14, 2008 financing:

Date	Terms	Consideration
June 2008	Extend maturity to July 19, 2008	Warrants indexed to 2,500 shares of common stock
September 2008	Extend maturity to December 15, 2008	6,000 shares of restricted stock
January 2009	Extend maturity date to April 30, 2009	1) Warrants indexed to 6,000 shares of common stock 2) 6,000 shares of restricted stock

The modifications resulted in a loss on extinguishment of $171,622 in accordance with the Financial Accounting Standards Codification.

On December 15, 2008, we were in default on the notes for non-payment of the required principle payment.  The remedy for event of default was acceleration of principal and interest so they were recorded at face value.

As of March 31, 2010, this April 14, 2008 note was considered in default for non-payment. The company is negotiating with the debt holder to extend the due date of the note.

It was determined that the extension warrants required liability accounting and are being recorded at fair value with changes in fair value being recorded in derivative (income) expense. The warrants contain full-ratchet protection so the exercise price of the warrants was reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008.  The exercise price of the warrants was reduced again to $1.00 when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009.  The exercise price of the warrants was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  The exercise price of the warrants was reduced again to $.16 when the Company issued additional convertible instruments with a lower conversion rate in January 2010.

May 19, 2008 financing:

On May 19, 2008, the Company entered into a financing arrangement that provided for the issuance of $33,000 face value short term bridge loan notes payable, due June 19, 2008, plus warrants to purchase (i) 5,000 shares of our common stock and (ii) additional warrants to purchase 5,000 shares of our common stock, representing an aggregate 10,000 shares.

We determined that the warrants issued in these financing arrangements met the conditions for equity classification so we allocated the proceeds of the debt between the debt and the detachable warrants based on the relative fair values of the debt security and the warrants in accordance with the FASB Accounting Standards Codification. The fair value of the warrants using the Black-Scholes pricing model was $280,560, and we allocated a value of $29,569 to the warrants in accordance with the FASB Accounting Standards Codification.

We entered into the following Modification and Waiver Agreements related to the May 19, 2008 financing:

Date	Terms	Consideration
June 2008	Extend maturity to July 30, 2008	1)Warrants indexed to 2,500 shares of common stock 2) Additional warrants to purchase 2,500 shares of common stock
September 2008	Extend maturity to December 15, 2008	3,300 shares of restricted stock
January 2009	Extend maturity date to April 30, 2009	1) Warrants indexed to 3,300 shares of common stock 2) 3,300 shares of restricted stock

We recorded a loss on extinguishment of $140,550 in accordance with the FASB Accounting Standards Codification related to these modifications.

F-23

Note 7 –                Short Term Bridge Loans (continued)

May 19, 2008 financing (continued)

On December 15, 2008, we were in default on the notes for non-payment of the required principle payment.  The remedy for this event of default was acceleration of principal and interest so they were recorded at face value.

As of March 31, 2010, this note was considered in default for non-payment.  The company is negotiating with the debt holder to extend the due date of the note.

The warrants contain full-ratchet protection so the exercise price of the warrants was reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008.  The exercise price of the warrants was reduced again to $1.00 when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009.  The exercise price of the warrants was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  The exercise price of the warrants was reduced again to $.16 when the Company issued additional convertible instruments with a lower conversion rate on January 28, 2010.

Information and significant assumptions as of March 31, 2010 and March 31, 2009 for the extension warrants related to the April and May financings which are required to be recorded at fair value each reporting period:

	June 23, 2008 Extension warrants						January 27, 2009 Extension warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the underlying  common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion or strike price	$	0.16		$	1.00		$	0.16		$	1.00
Volatility (based upon Peer Group)		150.60	%		92.50	%		110.93	%		81.30	%
Equivalent term (years)		1.23			2.23			3.83			4.83
Risk-free rate		0.41	%		0.81	%		2.55	%		1.67	%
Dividends		--			--			--			--

August 5, 2008 financing:

On August 5, 2008, the Company entered into a financing arrangement that provided for the issuance of $55,000 face value short term bridge loans, due September 5, 2008, plus warrants to purchase (i) 5,000 shares of our common stock at an exercise price of $10.00 and (ii) additional warrants to purchase 5,000 shares of our common stock at an exercise price of $15.00, representing an aggregate 10,000 shares.  The due date of the loan was extended to December 15, 2008 with 5,500 restricted shares of common stock issued as consideration. On December 15, 2008, we were in default on the notes for non-payment of the required principle payment. Remedies for an event of default are acceleration of principle and interest.  There were no incremental penalties for the event of default; however, the notes were recorded at face value.

We also evaluated the warrants to determine if they required liability or equity accounting. The warrants issued in conjunction with the financing are redeemable for cash upon the occurrence of acquisition, merger or sale of substantially all assets of the Company in an all cash transaction; therefore, the FASB Accounting Standards Codification requires that they be recorded as derivative liabilities on our balance sheet and marked to fair value each reporting period. We allocated the proceeds of the debt to the warrants, and the remaining portion was allocated to the debt instrument. The fair value of the warrants using the Black-Scholes pricing model was $62,700 and since the fair value of the warrants exceeded the proceeds from the financing, we recorded a day-one derivative loss of $12,700.

On January 15, 2009, we extended the term on the note from December 15, 2008 to April 30, 2009, and we issued investor warrants to purchase 5,500 shares of our common stock and 5,500 shares of restricted common stock as consideration for the extension.   We recorded a loss on extinguishment of $2,112 in accordance with the FASB Accounting Standards Codification.

As of March 31, 2010, this note was considered in default for non-payment.  The company is negotiating with the debt holder to extend the due date of the note.

The warrants contain full-ratchet protection so the exercise price of the warrants was reduced to $3.30 when the Company issued additional convertible instruments with a lower conversion rate on December 18, 2008.  The exercise price of the warrants was

F-24

Note 7 –                Short Term Bridge Loans (continued)

August 5, 2008 financing  (continued)

reduced again to $1.00 when the Company issued additional convertible instruments with a lower conversion rate on January 27, 2009.  The exercise price of the warrants was reduced again to $.494 when the Company issued additional convertible instruments with a lower conversion rate in November 2009.  The exercise price of the warrants was reduced again to $.16 when the Company issued additional convertible instruments with a lower conversion rate on January 28, 2010.

Information and significant assumptions as of March 31, 2010 for warrants which are required to be recorded at fair value each reporting period:

	June 23, 2009 Extension warrants						January 27, 2009 Extension warrants
	March 31, 2010			March 31, 2009			March 31, 2010			March 31, 2009
Estimate fair value of the Underlying common share	$	1.00		$	0.30		$	1.00		$	0.30
Conversion or strike price	$	0.16		$	1.00		$	1.00		$	1.00
Volatility (based upon Peer group)		150.84	%		91.70	%		110.93	%		81.30	%
Equivalent term (years)		1.35			2.35			3.83			4.83
Risk-free rate		0.41	%		0.81	%		2.55	%		1.67	%
Dividends		--			--			--			--

Note 8 –                 Derivative Liabilities:

The following table summarizes the components of derivative liabilities as of March 31, 2010 and 2009:

Financing arrangements giving rise to	March 31,		March 31,
derivative financial instruments:	2010		2009
$ 600,000 Face Value Convertible Note Financing	$	1,832,123	$	31,565
$ 500,000 Face Value Convertible Note Financing		1,387,879		19,394
$ 100,000 Face Value Convertible Note Financing		277,644		4,121
$ 120,000 Face Value Short Term Bridge Loan Note Financing		24,820		1,088
$ 120,000 Face Value Short Term Bridge Loan Note Financing		53,600		1,088
$   60,000 Face Value Short Term Bridge Loan Note Financing		12,460		544
$   33,000 Face Value Short Term Bridge Loan Note Financing		10,115		452
$   55,000 Face Value Short Term Bridge Loan Note Financing		17,897		947
$ 120,000 Face Value Convertible Note Financing		104,400		12,720
$   60,000 Face Value Convertible Note Financing		52,200		6,360
$ 200,000 Face Value Convertible Note Financing		362,500		45,000
$ 161,111 Face Value Convertible Note Financing		292,014		-
$   50,000 Convertible Note Financing		90,625		-
$   55,000 Convertible Note Financing		90,625		-
$137,500 Convertible Note Financing		249,221		-
Total derivative liabilities	$	4,858,123	$	123,279

We estimate fair values of derivative financial instruments using various techniques (and combinations thereof) that are considered to be consistent with the objective measuring fair values. In selecting the appropriate technique, we consider, among other factors, the nature of the instrument, the market risks that it embodies and the expected means of settlement. For less complex derivative instruments, such as free-standing warrants, we generally use the Black-Scholes-Merton option valuation technique because it embodies all of the requisite assumptions (including trading volatility, estimated terms, dilution and risk free rates) necessary to fair value these instruments. For complex hybrid instruments, such as convertible promissory notes that include embedded conversion options, puts and redemption features embedded in, we generally use techniques that embody all of the

F-25

Note 8 –                Derivative Liabilities (continued)

requisite assumptions (including credit risk, interest-rate risk, dilution and exercise/conversion behaviors) that are necessary to fair value these more complex instruments. For forward contracts that contingently require net-cash settlement as the principal means of settlement, we project and discount future cash flows applying probability-weightage to multiple possible outcomes. 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, our income will reflect the volatility in these estimate and assumption changes.

Note 9 –                Transactions With Related Parties:

In connection with the reverse merger (see Note 1), we assumed $47,963 in advances payable to the officers of MHHI in which we paid $1,500 in January, 2009 and issued 25,000 shares of common at $1.00 per share or $25,000, resulting in an outstanding balance of $21,463 that is due.   These advances are non-interest bearing and payable upon demand.

In addition, the Company previously issued aggregate notes of $100,000 to Roy Warren, the Company’s CEO, an accredited investor with whom the Company entered into subscription agreements for 10% convertible notes (see Note 6b).  However Roy Warren assigned the $100,000 notes to another party. During the quarter ended September 30, 2009, 9,000,000 shares of Series A Preferred, convertible into 54,000,000 shares of common stock at the option of the holder, were granted to Roy Warren (See Note 10).

H. John Buckman is a board director of the company and is a debt holder of the company whereas the company issued him a note payable at the face value of $55,000.  He also has a total of 10,500 Class A warrants at an exercise price of $1.00 with a life of three to five years, and he will be entitled to an additional 5,000 warrants with at an exercise price of $15.00 if he exercises the same number of specific Class A warrants.  He also received 11,000 shares of restricted stock that related to this note payable, 1,200 shares of restricted stock for being a Director and 150,000 shares of restricted stock for his services related to a November, 2009 financing (total of 162,200 shares of restricted stock).

Note 10 –              Stockholders’ Deficit:

(a) Series A Preferred Stock:

The Company’s articles of incorporation authorize the issuance of 20,000,000 shares of preferred stock which the Company has designated as Series A Preferred (“Series A”), $.001 par value.  Each share of Series A is convertible into six shares of the Company’s common stock for a period of five years from the date of issue.  The conversion basis is not adjusted for any stock split or combination of the common stock.  The Company must at all times have sufficient common shares reserved to effect the conversion of all outstanding Series A Preferred. The holders of the Series A Preferred shall be entitled to receive common stock dividends when, as, if and in the amount declared by the directors of the Company to be in cash or in market value of the Company’s common stock.  The Company is restricted from paying dividends or making distributions on its common stock without the approval of a majority of the Series A holders. The Series A shall be senior to the Common Stock and any other series or class of the Company’s Preferred Stock. The Series A has liquidation rights in the event of any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, the holders of the Series A then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its shareholders, before any payment or declaration and setting apart for payment of any amount shall be made in respect of any outstanding capital stock  of the Company, an amount equal to $.001 per share,  The Company, at the option of its directors, may at any time or from time to time redeem the whole or any part of the outstanding Series A. Upon redemption, the Company shall pay for each share redeemed the amount of $2.00 per share, payble in cash, plus a premium to compensate the original purchaser(s) for the investment risk and cost of capital equal to the greater of (a) $2.00 per shares, or (b) an amount per share equal to fifty percent (50%) of the market capitalization of the Company on the date of notice of such redemption divided by 2,000,000. We have evaluated our Series A Preferred Stock and determined these shares required equity classification because the number of shares convertible into common stock is fixed and reserved. Redemption of these preferred shares cannot be effected because of the Company's stockholders' deficit.

F-26

Note 10 –              Stockholders’ Deficit (continued)

(a) Series A Preferred Stock (continued)

common share times the convertible stock equivalents (9,000,000 preferred shares x 6 = 54,000,000 common stock equivalents). These shares have specific voting power in that Roy Warren has voting rights for the 54,000,000 common stock equivalents.  The Board of Directors on September 4, 2009 approved an amendment whereas Section 2(A) of the Certificate of Designation is hereby declared in its entirety, and the following shall be substituted in lieu thereof-Rights, Powers and Preferences:    The Series A shall have the voting powers, preferences and relative, participating, optional and other special rights, qualifications, limitations and restrictions as follows:  Designation and Amount – Out of the Twenty Million (20,000,000) shares of the $0.001 par value authorized preferred stock, all Twenty Million (20,000,000) shares shall be designated as shares of “Series A.”

(b) Common Stock Warrants

As of March 31, 2010, the Company had the following outstanding warrants:

Issued Class A Warrants	Grant date	Expiration date	Warrants/ Options Granted			Exercise Price
October, 2007 Convertible Notes Financing	10/23/2007	7/15/2015		908,805	(a)	$	0.16
October, 2007 Due Diligence	10/23/2007	10/22/2012		50,000			0.16
January, 2008 Investment Banker Agreement	1/1/2008	12/31/2012		6,250			10.00
February, 2008 Convertible Note Financing	2/15/2008	7/15/2015		757,304			0.16
April, 2008 Supply Agreement (a)	4/16/2008	4/15/2013		5,000			15.00
April, 2008 Financing	4/2-9-14/08	4/1-8-13/2011		25,000	(c)		1.00-10.00
April, 2008 Finder’s Fees	4/14//2008	4/13/2008		3,125			10.00
May, 2008 Financing	5/19/2008	5/18/2011		5,000			10.00
May, 2008 Finder’s Fees	5/19/2008	5/18/2013		1,875			10.00
June, 2008 Debt Extension	6/23/2008	6/22/2011		7,500			10.00
June, 2008 Convertible Note  Financing	6/26/2008	6/25/2013		151,502	(a)		0.16
July, 2008 Debt Extensions	7/14/2008	7/13/2011		7,500	(d)		1.00-10.00
August, 2008 Financing	8/5/2008	8/4/2011		5,000			10.00
January, 2009  Convertible Note Financing	1/27/2009	1/26/2014		120,000			0.16
January, 2009 Debt Extensions	1/27/2009	1/26/2014		38,800			10.00
February, 2009 Convertible Note Financing	1/27/2009	1/26/2014		60,000			0.16
March, 2009 Convertible Note Financing	3/30/2009	3/29/2014		416,667			0.16
July, 2009 Convertible Note Financing	7/15/2009	7/15/2015		335,649			0.16
January, 2010 Convertible Note Financing	1/28/2010	7/15/2015		104,167			0.16
February, 2010 Convertible Note Financing	2/19/2010	7/15/2015		104,167			0.16
March, 2010 Convertible Note Financing	3/26/2010	7/15/2015		286,459			0.16
Total issued Class A warrants				3,399,770

F-27

Note 10 –              Stockholders’ Deficit (continued)

(b) Common Stock Warrants (continued)

Unissued  Class B warrants (b):
October, 2007 Convertible Notes   Financing	140,910	15.00
January, 2008 Investment Banker Agreement	6,250	15.00
February, 2008 Convertible Notes Financing	75,758	15.00
April, 2008 Financing	25,000	15.00
April, 2008 Finder’s Fees	3,125	15.00
May, 2008 Financing	5,000	15.00
May, 2008 Finder’s Fees	1,875	15.00
June, 2008 Debt Extension	7,500	15.00
June, 2008 Convertible Note      Financing	15,152	15.00
July, 2008 Debt Extensions	7,500	15.00
August, 2008 Financing	5,000	15.00
March, 2010 Debt Extension	12,000	15.00
Total unissued Class B warrants	305,070
Total Warrants	3,704,840

(a) The Company entered into modification letters with certain debt holders to extend debt due dates by issuing 1,635,792 additional warrants, extended the life of the warrants to 7/15/2015 and reduced the exercise price of the warrants from $1.00 to $0.16. (b) When certain Class A warrants are exercised, holders of these warrants will receive an equal number of Class B warrants with an exercise price of $15.00. (c) The exercise price for 10,000 warrants was reduced from $10.00 to $1.00 due to a modification letter to extend the due date of certain debts. (d)  The exercise price for 5,000 warrants was reduced from $10.00 to $1.00 due to a modification letter to extend the due date of certain debts.

	Shares			Weighted Average Price
Activity for our common stock warrants is presented below:
Warrants granted and outstanding at March 31, 2009		445,833		$	12.60
Warrants granted		851,604			2.80
Warrants redeemed		(70,835	)	(8.00)(*)
Total warrants outstanding at March 31, 2009		1,226,602		$	2.00
New warrants granted		842,440			.40
Additional warrants due to modification letters to extend debt due dates		1,635,798			.20
Total warrants outstanding at March 31, 2010		3,704,840		$	1.60

No warrants were exercised for the fiscal years ended March 31, 2010 and 2009 

(*) We only redeemed the 35,417 Class A warrants by issuing a January, 2009 convertible note payable for $70,834.  Once we redeemed the Class A warrants, the applicable Class B warrants are cancelled (reported as redeemed).

(c) Common Stock:

At March 31, 2010, we had issued and outstanding 4,306,437 shares of common stock of which 192,229 shares are owned by our two officers.  Holders of shares of common stock are entitled to one vote for each share on all matters to be voted on by the shareholders.  Holders of common stock have no cumulative voting rights.  In the event of liquidation, dissolution or winding down of the Company, the holders of shares of common stock are entitled to share, pro rata, all assets remaining after payment in full of all liabilities.  Holders of common stock

F-28

Note 10 –              Stockholders’ Deficit (continued)

(c) Common Stock (continued)

have no preemptive rights to purchase our common stock.  There are no conversion rights or redemption or sinking fund provisions with respect to the common stock.  All of the outstanding shares of common stock are validly issued, fully paid and non-assessable.

Common Stock Issued For the year ended March 31, 2010:

On April 17, 2009, we issued 34,491 shares of common stock pursuant to a conversion of its October, 2007 convertible notes for $30,000 plus accrued interest of $4,491 at a conversion price of $1.00.

On April 22, 2009, we issued 30,040 shares of common stock pursuant to a conversion of its October, 2007 convertible notes for $30,000 plus accrued interest of $40 at a conversion price of $1.00.

On April 23, 2009, we issued 5,000 shares of common stock pursuant to a conversion of its October, 2007 convertible notes for $5,000 at a conversion price of $1.00.

On April 30, 2009, we issued 10,000 shares of common stock pursuant to a conversion of its October, 2007 convertible notes of $10,000 at a conversion price of $1.00.

On May 18, 2009, we issued 10,603 shares of common stock pursuant to a conversion of its October, 2007 convertible notes of $10,000 and accrued interest of $603 at a conversion price of $1.00.

On June 26, 2009, we issued 29,192 shares of common stock pursuant to a conversion of its October, 2007 convertible notes of $25,000 and accrued interest of $4,191 at a conversion price of $1.00.

On June 29, 2009, we issued 38,306 shares of common stock pursuant to liquidated damages for certain October, 2007 convertible notes of $12,664 at a value price of $0.33.

On June 29, 2009, we issued 26,799 shares of common stock pursuant to a conversion of its October, 2007 convertible notes of $25,000 and accrued interest of $1,799 at a conversion price of $1.00.

On September 12, 2009, we issued 644,677 shares of common stock as payment for past due invoices and associated financing costs for a value of $141,829 at a value price of $0.22.

On September 12, 2009, we issued 150,000 shares of common stock for past due services which were value at $90,000 at a value price of $0.60.

On September 12, 2009, we issued 25,000 shares of common stock to reduce a loan payable to an officer of the previous parent company for a value of $25,000 at a value price of $1.00.

On November 13, 2009, we issued 150,000 shares of common stock in connection with the issuance of a convertible note as valued amount was $90,000 as a value price of $.60.

On November 13, 2009, we issued 20,000 shares of common stock as payment for past due services for a value of $12,000 at a value price of $0.60.

On November 13, 2009, we issued 500,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $80,000 at a conversion price of $0.16.

On December 4, 2009, we issued 184,375 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $15,000 and February, 2008 notes of $10,000 and accrued interest of $4,500 at a conversion

F-29

Note 10 –              Stockholders’ Deficit (continued)

(c) Common Stock (continued)

price of $0.16.

On February 2, 2010, we issued 94,375 shares of common stock pursuant to a conversion of August, 2008 convertible notes of $15,000 and accrued interest of $100 at a conversion price of $0.16.

On February 9, 2010, we issued 250,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $40,000 at a conversion price of $0.16.

On February 20, 2010, we authorized the issuance of 125,000 shares to two professional athletes for future services to be rendered for $75,000 at a value price of $0.60.

On March 8, 2010, we issued 7,250 shares of common stock for past due services for $5,431 at a value price of $0.75.

On March 10, 2010, we issued 62,500 shares of common stock pursuant to a conversion of January, 2008 convertible notes of $10,000 at a conversion price of $0.16.

On March 12, 2010, we issued 62,500 shares of common stock pursuant to a second conversion of January, 2008 convertible notes of $10,000 at a conversion price of $0.16.

On March 11, 2010, we issued 131,250 shares of common stock pursuant to a conversion of $21,000 in accrued interest  of October, 2007 convertible notes at a value price of $0.16.

On March 11, 2010, we issued 128,125 shares of common stock pursuant to a conversion of June, 2008 convertible notes of $20.500 at a conversion price of $0.16.

On March 15, 2010, we issued 150,000 shares of common stock pursuant to a conversion of January, 2008 convertible notes of $24,000 at a conversion price of $0.16.

On March 16, 2010, we approved the authorization to issue 105,000 shares of common stock for a retainer for services to be rendered as well as past due services as well as 37,500 shares of common stock to members of the Company’s Scientific Advisory Board for future services to be rendered for $85,500 at a value price of $0.60.

On March 16, 2010, we issued 12,000 shares of common stock to a debt holder to extend the due date of the debt.

On March 16, 2010, we issued 125,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $10,000 and a conversion of February, 2008 convertible notes of $10,000 (total conversion amount of $20,000) at a conversion price of $0.16.

On March 18, 2010, we issued 137,500 shares of common stock pursuant to a conversion of $22,000 in accrued interest of February, 2008 convertible notes at a value price of $0.16.

On March 23, 2010, we issued 174,950 shares of common stock pursuant to a conversion of January, 2008 convertible notes of $27,992 at a conversion price of $0.16.

On March 23, 2010, we issued 125,000 shares of common stock pursuant to a conversion of June, 2008 convertible notes of $20,000 at a conversion price of $0.16.

F-30

Note 10 –              Stockholders’ Deficit (continued)

(c) Common Stock (continued)

Common Stock Issued For the year ended March 31, 2009:

On October 23, 2007, we issued 3,030 shares of our common stock for legal fees to investors’ counsel and 75,000 shares of our common stock to the investors as part of the October, 2007 $600,000 convertible notes financing.  The value of these shares aggregated $515,000 and has been recorded as deferred financing costs.

On March 31, 2008, we issued 50,000 shares of restricted common stock to certain employees as a bonus compensation for their efforts in establishing the Company and in the development of the Company’s first product, VisViva™.  These shares were valued at $6.60 each share or a total compensation expense of $330,000.  The common stock shares contain a restrictive legend and can only be sold under Rule 144 holding requirements. During December, 2008, we rescinded a transaction for the issuance of 45,000 shares of common stock to certain employees and a consultant, and these shares were returned back to the company.  Accordingly, these issuances of common stock shares were disregarded for book and income tax purposes.

On March 31, 2008, we issued 25,000 shares of our common stock to a racing entity which owns the Top Fuel NHRA Dragster that we sponsor at a value of $165,000.

On April 29, 2008, we issued 31,440 shares of our common stock at a price of $10.00 or the amount of $314,394 to certain employees (27,607 shares), board directors (2,400 shares) and consultants (1,434 shares) for past due services.  During December 2008, we rescinded a transaction for the issuance of 18,069 of these shares to certain employees.  These shares were returned back to the company, and these issuances of common stock shares were disregarded for book and income tax purposes.

 On May 16, 2008, Roy Warren, CEO and Chairman, filed a Form 4 that reflected his agreement with the previous largest shareholder of the Company to purchase 31,064 shares of common stock at roughly $9.60 per share and convert 75,000 shares of Series A convertible preferred stock which were converted into 22,500 shares of common stock roughly at $9.60 per share.  On June 30, 2008 all 75,000 shares of the issued Preferred Stock were converted into 22,500 shares of common stock (see Note 7(a) above).

On  June 30, 2008, we issued 9,750 shares of restricted common stock to the debt holders of the January, 2008 debts to extend the previous due date of May 8, 2008 to July 15, 2008.   These shares were valued at $20.40 for $198,900 which was the trading price of the stock on that date.  The common stock shares contain a restrictive legend and can only be sold under Rule 144 holding requirements.

On August 8, 2008, we issued 2,000 restricted shares of our common stock valued at $10.00 (same price used in earlier valuations for finders’ fees) or $20,000 for finder’s fees for completion of the October, 2007 Subscription Agreement financing.  In addition, we approved the issuance of 25,000 restricted shares of our common stock valued at $10.20 or $255,000 as partial payment for our NHRA Racing Sponsorship Agreement and 4,000 shares of our common stock valued at $10.00 for past due services to one of our consultants (election was made prior to our stock trading on a public exchange). We issued 3,750 shares of our common stock as payment for past due legal fees which were valued at $12.80 per share or $48,000.

On September 5, 2008, the company agreed to issue 5,500 restricted shares of our common stock valued at $10.00 to the debt holder of the August, 2008 short term bridge loan to extend the due date of the loan from September 5, 2008 to December 15, 2008.

On September 16, 2008, the company agreed to issue 33,300 restricted shares of our common stock to the debt holders of the April, 2008 short term bridge loan to extend the due dates of the loans from August 10 and 15, 2008 to December 16, 2008.

During January 2009, we issued 38,800 restricted shares of our common stock to the debt holders of the April, May and August 2008 short term notes payable to extend the due dates until April 30, 2009. Also during the same period, we issued 175,000 restricted shares of our common stock to debt holders of certain convertible notes payable.

During February 2009, we issued 27,500 restricted shares of our common stock for the consideration for consent and approval of certain debt holders for the issue of the February 2009 convertible note payable at a face value of

F-31

Note 10 –              Stockholders’ Deficit (continued)

    (c) Common Stock (continued)

    $60,000.

                                (d) Compensation and Incentive Plan:

On October 31, 2007, management approved the Company’s 2007 Stock Compensation and Incentive Plan and reserved 50,000 shares of the Company’s common stock for future issuance under the Plan to employees, directors and other persons associated with Attitude.  These shares were included in a Form S-8 that was filed with the Securities Exchange Commission on May 16, 2008 to register the underlying shares. We have issued 49,877 shares from this plan leaving an available 123 shares to be issued in the future.

On August 1, 2008, we issued 17,500 Non-Qualified Stock Options to Nutraceutical Discoveries at the exercise price of $13.00 per option for a licensing agreement to use certain intellectual property and “Innutria®” formulation.  These options are immediately vested and will expire in five (5) years on July 31, 2013. Due to the immediate vesting, we recognized the full cost of $163,240 in August, 2008 by using the Black-Scholes-Merton (BSM) option-pricing formula.  See table below for additional information that was used in this computation.

On March 23, 2009, our Board of Directors approved the creation of the March 2009 Stock Option, Compensation and Incentive Plan in which 1,000,000 shares of our $.001 par value common stock will be reserved for future issuance under this plan to employees, directors and other person associated with the company.  During March 30, 2009, we issued 884,569 non-qualified stock options at the exercise price of $1.00 to employees and certain consultants.  The stock options vest immediately will expire in five (5) years on March 31, 2014. No other employee stock options have been granted prior to this transaction. We recorded the full compensation cost of $159,348 for these employee stock options in March, 2009.  None of these stock options have been exercised.

On March 10, 2010, our Board of Directors approved the issuance of 50,000 stock options to our Scientific Advisory Board at an exercise price of $0.60 that will expire in five (5) years on March 11, 2015.  We recorded the full compensation cost of $41,100 for these options in March, 2010.  None of these stock options have been exercised.  In addition and on the same date, we issued 75,000 stock options as a retainer for future services from our outside legal counsel at an exercise price of $1.00 in which the options will expire in five (5) years on March 11, 2015.  We recorded the full compensation cost of $57,450 for these options in March, 2010.  None of these options have been exercised.

As required by the FASB Accounting Standards Codification, we would normally estimate forfeitures of employee stock option and recognize the compensation cost over the requisite service period for the entire award in accordance with the provisions.   As all stock options were fully vested, no estimate of forfeitures was required, and compensation cost is fully recognized at the time of grant and full vesting.  We estimated the fair value of these stock options on the date of grant using a Black-Scholes-Merton (BSM) option-pricing formula, applying the following assumptions:

Year Ended   3/31/09

	17,500 options			884,569 options
Expected Term (in years)		3.33			5
Risk-free rate		3.23	%		1.72	%
Volatility (based on peer group)		107	%		78.02	%
Dividends		-			-

Year Ended   3/31/10

	50,000 options			75,000 options
Expected Term (in years)		5			5
Risk-free rate		2.42	%		2.42	%
Volatility (based on peer group)		103	%		103	%
Dividends		-			-

F-32

Note 10 –              Stockholders’ Deficit (continued)

(d) Compensation and Incentive Plan (continued)

Expected Term:  The expected term represents the period over which the share-based awards are expected to be outstanding.

Risk-Free Interest Rate:  We based the risk-free interest rate used in its assumptions on the implied yield currently available on U.S. Treasury zero-coupon issues with a remaining term equivalent to the stock option award’s expected term.

Expected Volatility: Due to a limited trading history of our common stock, the volatility factor used in our assumptions is based on weighted average “peer group” historical stock prices of three different companies that are similar in nature to our company over the most recent period commensurate with the expected term of the stock option award.

Expected Dividend Yield:  We do not intend to pay dividends on our common stock for the foreseeable future.  Accordingly, we used a dividend yield of zero in our assumptions.

A summary of option activity under these stock option plans for the year ended March 31, 2009 is presented below:

					Weighted-Average
			Weighted-		Remaining
			Average		Contractual		Aggregate
			Exercise		Term		Intrinsic
Options	Shares		Price		(in years)		Value
Outstanding at 3/31/08		-		-			-
Granted		902,069	$	1.20
Exercised		-		-
Forfeited		-		-
Expired		-		-
Outstanding at 3/31/09		902,069	$	1.20		4.35	-
Granted		125,000		.80
Exercised		-
Forfeited		-
Expired		-
Outstanding at 3/31/10		1,027,069		1.20		4.11	-

Note that all of the stock options are outstanding, fully vested and exercisable for the year ended March 31, 2010.  As such, all compensation expense for the above options has been recognized, and there is no unrecognized compensation expense to be recorded in the future.

 Note 11 –             Income Taxes:

The Company has recorded no income tax benefit for its taxable losses during the period ending March 31, 2010 because there is no certainty that the Company will realize those benefits. The components of the Company's deferred tax assets and liabilities as of  March 31, 2010 and 2009 are as follows:

	2010			2009
Net Operating loss carryforwards	$	3,383,475		$	2,504,389
Debt discounts					160,220
Compensatory stock and warrants		597,924			279,858
Accrued expenses that are deductible in future periods		24,734			-
Depreciation method differences		719			-
		4,006,852			2,944,467
Valuation allowances		(4,006,852	)		(2,944,467	)
Net deferred tax assets	$	-		$	-

F-33

Note 11 –              Income Taxes (continued)

As of March 31, 2010 the Company has a net tax operating loss of $9,951,399 that will be available to offset future taxable income, if any. The use of net operating loss carryforwards to reduce future income tax liabilities is subject to limitations, and these amounts will begin to expire in 2028.

The following table illustrates the reconciliation of the tax benefit at the federal statutory rate to the Company's effective rate for the period ending March 31, 2010 and 2009:

	2010			2009
Benefit at federal statutory rate		-34.00	%		-34.00	%
Benefit at state rate, net of federal benefit		.96	%		2.78	%
Fair value adjustment of convertible debt		58.14	%		-2.68	%
Non-deductible derivative loss		15.42	%		52.06	%
Loss on extinguishment of debt		9.03	%		-
Non-deductible travel expenses		1.44	%		0.83	%
Benefit at the Company' effective rate		-50.99	%		-18.99	%
Less valuation allowance effective tax rate		0.00	%		0.00	%

 Note 12 –             Commitments and Contingencies:

Lease of office

In December 2007, the Company entered into a five year agreement for office space in Palm Beach Gardens, Florida with a commencement date of June 1, 2008.  The minimum starting monthly base rent was $7,415 and currently is $7,711 per month.  The lease provides for annual 4% increases throughout its term.

Future minimum rental payments for the new office lease, based on the current adjusted minimum monthly amount of $7,711 and excluding variable common area maintenance charges, as of March 31, 2010, are as follows:

Years ending March 31,	Amount
2011	$	95,620
2012		99,444
2013		103,422
2014		17,348
	$	315,834

Rental expense, which also includes maintenance and parking fees, for the period ended March 31, 2010 was $136,904.

Production and Supply Agreements

On December 16, 2008, we signed a manufacturing agreement with O-AT-KA Milk Products Cooperative, Inc. for the production of future new products that are in the development stage.  The manufacturer shall manufacture, package and ship such products.  All products shall be purchased F.O.B., the facility by the company.  Costs of such production and expected time lines are still in the planning stages and also are related to the final sign-offs of the final formulas for such products.

Litigation

Members of our board of directors, Mr. Warren and Mr. Edwards, and our Chief Financial Officer, Mr. Kee, served as executive officers of Bravo! Brands Inc. (“Bravo!’).  On September 21, 2007, Bravo! Brands Inc. reported that it filed a voluntary petition in the United States Bankruptcy Court for the Southern District of Florida pursuant to Chapter 7 of Title 11 of the United States Code, Cash No. 07-17840-PGH.  The filing occurred after Mr. Warren, Mr. Edwards and Mr. Kee ended their relationship with Bravo!.  The bankruptcy trustee had named

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 Note 12 –             Commitments and Contingencies (continued)

Litigation (continued)

Mr. Warren and Mr. Kee as defendants in an Adversary Complaint for damages based upon certain allegations.  The proceeding does not involve Attitude and was pending in the United States Bankruptcy Court for the Southern District of Florida as part of the Chapter 7 proceedings of Bravo!.  On December 17, 2009, the United States Bankruptcy Court, Southern District of Florida, West Palm Beach Division, ordered a “Stipulation of Settlement” approved.  The Settlement included a “general release of claims by the defendants” and a “release of claims by the trustee” against the defendants.  In the Compromise, “the parties agree and acknowledge that this Agreement is the result of a compromise and shall not be construed as an admission by any Party of any liability, coverage, wrongdoing, or responsibility on its, his or her par or on the part of directors, employees, or attorneys.  Indeed, the Parties expressly deny any such liability, coverage, wrongdoing or responsibility.”  On January 27, 2010, the United States Bankruptcy Court, Southern District of Florida, Fort Lauderdale Division, issued a “Voluntary Dismissal of Adversary Proceeding with Prejudice.”

On May 18, 2009, F&M Merchant Group, LLC commenced a lawsuit in the state of Texas to recover the balance owed by us under a Sales Agent Agreement entered by the parties on November 1, 2008.  This agreement requires us to pay $5,000 per month and a 5% commission on all net sales. On September 3, 2009, a final judgment by default was approved by the district court in Denton County, Texas for a total sum of $22,348.  This claim has been recorded on the Company’s records.   Due to the lack of adequate capital financing, we have not been able to make any payments.  We expect to resolve this matter as soon as practical.

On June 5, 2009, Tuttle Motor Sports, Inc. commenced a lawsuit in the state of Florida to recover the balance owed by us under a Letter of Agreement to sponsor a Top Fuel Dragster for the 2008 NHRA racing season in the amount of $803,750. Out of this total amount, only $300,000 is required to be paid in cash with the remainder to be paid in shares of common stock. This amount had already been recorded in our records. During May, 2010, Tuttle Motor Sports, Inc. dismissed the lawsuit without prejudice. Prior to that time, the parties went through mediation but were unable to settle. The likelihood of an unfavorable outcome cannot be evaluated as another lawsuit possibly could be filed against the Company.

On August 21, 2009, CH Fulfillment Services, LLC commenced a lawsuit in the state of Alabama to recover past due amounts owed by us under a contract to provide shipping and fulfillment services.  The claim is for $2,106 plus interest and legal costs.  This amount was already recorded on our records as well as projected interest costs of $682 and estimated court costs of $307 for a total of $3,095. This amount was recorded on our records.  A process of garnishment by the district court in Mobile County, Alabama was approved on September 25, 2009 for the total amount of $3,095.  On October 26, 2009, the same court authorized a garnishment process to pay $657 which was done as part payment of the total due amount.  No other payments have been paid.

On November 9, 2009, Nationwide Distribution Services, Inc. filed a lawsuit in the state of Florida to recover past due amounts owed by us under a contract to provide storage and warehouse fees. The Court approved a final judgment on January 11, 2010 in the sum of $3,650, court costs of $350 and interest fees of $959 for a total sum of $4,959.   We have already recorded a similar amount in our records.  As of April 2, 2010, we received a letter of notification from Nationwide Distribution Services, Inc. that at 12:00 noon on April 19, 2010, the products owned by us and stored at their facilities were sold at public auction.  This sale constituted satisfaction of the final judgment brought against us.

Note 13 –              Subsequent Events:

As noted in Note 7, the company is in default with most of the short-term bridge loan loans as we are negotiating with these debt holders to extend the due dates of these debts.

As already mentioned in the above paragraph in Note 12, we received notice from Nationwide Distribution Services, Inc. on April 2, 2010 that all company owned products stored at their facilities would be sold at public auction on April 19 2010 to constitute satisfaction of the final judgment brought against us on January 11, 2010.

A notice of written consent in lieu of a special meeting was sent on March 8, 2010 to the shareholders of Attitude Drinks Incorporated whereas the Board of Directors and shareholders with a majority of the Company’s voting power as of the record date (February 9, 2010) authorized the following

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Note 13 –              Subsequent Events (continued)

actions:

1.  Amendment to the Company’s Certificate of Incorporation to increase its authorized common shares from One Hundred Million (100,000,000) to One Billion (1,000,000,000) shares; and

2.  Amendment to the Company’s Certificate of Incorporation at the Board of Directors’ discretion at any time within the next twelve months to effect a reverse stock split of the Company’s common stock at a reverse split ratio of between 1 for 5 and 1 for 20, pursuant to which any whole number of outstanding shares between and including 5 and 20 would be combined into one share of common stock, which ratio will be selected by the Company’s Board of Directors.  There will be no change to the authorized shares of common stock of the Company as a result of any reverse stock split, and any fractional shares will be rounded up.

The Certificate of Amendment to the Certificate of Incorporated was approved by the state of Delaware to be filed and effective on April 5, 2010 as see Exhibit (3) (1) (ii).

On April 5, 2010, we issued 64,813 shares of common stock pursuant to a conversion of August, 2008 convertible notes of $10,000 and accrued interest payable of $370 at a conversion price of $0.16.

On April 6, 2010, we issued 125,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $20,000 at a conversion price of $0.16.

On April 9, 2010 David D. Brooks resigned as Chief Financial Officer on March 31, 2010.  Mr. Brooks had been appointed CFO on February 10. 2010.  The resignation was not the result of any disagreements with the management or its outside professions regarding accounting or financial reporting matters, rather it was a result of the rapid evolution of his firm.  As a result, Tommy E. Kee rejoined the company as CFO to be effective April 12, 2010.  He previously was the Company’s CFO.

On April 12, 2010, we issued 155,423 shares of common stock pursuant to a conversion of $24,868 in convertible notes payable.

On April 29, 2010, we issued 5,000 shares of common stock pursuant to a conversion of January, 2008 convertible notes of $800 at a conversion price of $0.16.

On May 4, 2010, we issued 100,000 shares of common stock pursuant to a conversion of January, 2008 convertible notes of $16,000 at a conversion price of $0.16.

On May 21, 2010  effective May 17, 2010, we dismissed our previous independent registered accounting firm, KBL, LLP.  There were no disagreements between KBL and us on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure.  Effective on the same date, we engaged Meeks International, LLC as our independent registered accounting firm to audit our financial statements for the year ended March 31, 2010.

On May 25, 2010, a registration that covers the offering of an aggregated 3,750,000 shares of the Company’s common stock was approved by the Company’s Board of Directors.  As such, the 2010 Stock Compensation and Incentive Plan was created for employees, directors, consultants and other persons associated with the Company in which awards of common stock and/or non-qualified stock options may be granted.

On May 13, 2010, the Company executed an allonge to the March, 2009 Secured Notes, increasing the aggregate face values of these notes from $359,833 to $414,833.  In addition, we issued 114,584 warrants with an exercise price of $0.16 as these warrants are exercisable up to July 15, 2015.

On May 14, 2010, we issued 100,000 shares of common stock pursuant to a conversion of October, 2007 convertible notes of $16,000 at a conversion price of $.16.

On June 2, 2010, the Board of Directors approved the issuance of 138,889 (valued at $25,000) and 150,000 (valued at $30,000) for a total of 288,889 shares for payment of past due services.  These shares were issued from the Company’s 2010 Stock Compensation Plan which was registered on a Form S-8 registration statement filed and declared effective on May 25, 2010.

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Note 13 –              Subsequent Events (continued)

On June 16, 2010, we entered into a promissory note with a consultant to pay $11,000 for professional services.

This note has an interest rate of 18% per annum and is due on or before June 30, 2010.  Such amount has not been paid as the company is currently addressing payment of that obligation.

On June 17, 2010, we entered into a promissory note in the amount of $25,000.  This note is subject to an interest rate of 18% and is due the sooner of July 1, 2010 or upon the next financing.  This note has not been paid as the company is addressing payment of this note.

As of June 30, 2010, we are in default in our convertible debts and short term bridge loans. The company is working with these debt holders to extend the due dates through March, 2011; however, there can be no assurance that we will be successful in extending these due dates.

On July 7, 2010, we announced a one-for-twenty reverse stock split. Effective as of open of trading on July 7, 2010, the Company amended its Certificate of Incorporation to effect a one-for-twenty reverse stock split of its issued and outstanding shares of common stock, par value $.001.  As reported on the Company’s Definitive Schedule 14C filed with the Securities and Exchange Commission on March 8, 2010, stockholders of the Company holding a majority of its voting power approved a proposal authorizing the Board of Directors, in their sole discretion, to effect a reverse split. Further, any outstanding options, warrants and rights as of the effective date that are subject to adjustment will be adjusted accordingly. These adjustments may include adjustments to the number of shares of common stock that may be obtained upon exercise or conversion of the securities and the applicable exercise or purchase price as well as other adjustments. Pursuant to the terms and conditions of the Company’s outstanding Series A Convertible Preferred Stock, the conversion rate and the voting rights of the Series A will not adjust as a result of the reverse stock split.  Further the authorized but unissued Series A will not adjust as a result of the reverse stock split.  In addition, there will be no change to the authorized shares of common stock of the Company as a result of the reverse stock split and any fractional shares will be rounded up, so that no shareholder shall have less than 1 share after the effectiveness of the reverse split. As such, the authorized shares for both the Series A Preferred and common stock were not changed as they remain 20,000,000 and 1,000,000,000 shares, respectively.

On July 14, 2010 the Company entered into a subscription agreement for a convertible debt financing in the principal gross amount of $900,000 with an interest rate of 10%.  The due date will be July 14, 2012. One Class A Warrant will be issued for every share which would be issued on the closing date assuming the complete conversion of the notes on the closing date at the conversion price.  The exercise price to acquire a Warrant Share upon exercise of a Class A Warrant shall be equal to the closing bid price of the Company’s Common Stock on the day preceding the closing date. These Class A Warrants shall be exercisable until five years after the issue date of the Warrants. Expected legal fees to be paid from the gross proceeds are approximately $35,000. 

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