(B) Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period, as well as assumptions used in our multiple element revenue arrangements. Significant estimates include the allowance for doubtful accounts, valuation of inventory, valuation of equity based compensation and valuation of deferred tax assets. Actual results could differ from those estimates.

The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At September 30, 2012 and 2011, respectively, the Company had no cash equivalents.

(D) Loss Per Share

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by FASB Accounting Standards Codification Topic 260, “Earnings Per Share”.

Diluted income per share includes the dilutive effects of stock options, warrants, and stock equivalents. To the extent stock options, stock equivalents and warrants are anti-dilutive; they are excluded from the calculation of diluted income per share. For the years ended September 30, 2012 and 2011 respectively, 575,000, and 1,000,000, shares issuable upon the exercise of warrants were not included in the computation of loss per share because their inclusion is anti-dilutive. For the years ended September 30, 2012 and 2011 respectively, 3,220,000, and 0, shares issuable upon the exercise of stock options were not included in the computation of loss per share because their inclusion is anti-dilutive.

(E) Equipment

The Company values property and equipment at cost and depreciates these assets using the straight-line method over their expected useful life. The Company uses a five year life for furniture and equipment.

(F) Intangible Assets

In accordance with ASC No. 350, Intangibles, Goodwill and Other, the Company requires that intangible assets with a finite life be amortized over their life and requires that goodwill and intangible assets be reviewed for impairment annually or more frequently if impairment indicators arise. Any other intangible assets deemed to have indefinite lives are not subject to amortization (See Note 2(B)).

(G) Inventory

Inventory is valued at the lower of cost or market value. Cost is determined using the first in first out (FIFO) method. Provision for potentially obsolete or slow moving inventory is made based on management analysis or inventory levels and future sales forecasts. During the years ended September 30, 2012 and 2011, the Company recognized an impairment of $0 and $58,935 in inventory, respectively.

	September 30, 2012		September 30, 2011
Inventory	$	-	$	58,935
Reserve	$	-	$	(58,935	)
Total	$	-	$	-

(H) Stock-Based Compensation

The Company measures the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognizes the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. Compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.

Equity instruments (“instruments”) issued to persons other than employees are recorded on the basis of the fair value of the instruments. In general, the measurement date for shares issued to non-employees is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant.

(I) Income Taxes

Deferred income taxes are provided using the liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of the changes in tax laws and rates as of the date of enactment.

The Company has no significant uncertain tax positions as of any date in the years ending September 30, 2012 or 2011, respectively. The Company’s policy is to recognize accrued interest related to unrecognized tax positions in interest expense, and to recognize tax penalties in operating expense. As of September 30, 2012 and September 30, 2011, the Company made no provision for interest or penalties related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction. There are currently no federal or state income tax examinations underway, including all open tax years (2007 – 2011) for these jurisdictions.

	September 30, 2012			September 30, 2011

Expected income tax benefit at the U.S. statutory rate of 34%	$	(798,172	)	$	(6,482,547	)
Permanent Differences:
Stock Option Expense		116,892			-
Meals & Entertainment		4,857			5,464
Other		(4,348	)		119,112
Effect of change in valuation allowance		680,771			6,357,971

Provision for income taxes	$	-		$	-

Deferred tax assets (liabilities) are comprised of the following:

	September 30, 2012			September 30, 2011

Deferred assets (liabilities):
Tax effect of net operating loss carryforward	$	1,719,203		$	712,633
Charitable contribution carryforward		34,051			-
Intellectual property/Intangible		5,400,900			5,800,966
Property and equipment		(1,247	)		-
Deferred revenue		17,000			-
Stock compensation expense related to NQSO		24,464
Valuation allowance		(7,194,371	)		(6,513,599	)

Deferred income taxes	$	-		$	-

As of September 30, 2012 and 2011 the Company has a net operating loss carryforward of $5,056,479 and $2,013,096, respectively, available to offset future taxable income through 2032. The valuation allowance at September 30, 2012 was $7,194,371. The valuation allowance at September 30, 2011 was $6,513,599. The net change in the valuation allowance for the years ended September 30, 2012 and 2011 was an increase of $680,771 and $6,357,971, respectively.

For the year ended September 30, 2011 a reclassification was made from the net operating loss carryforward to the intellectual property/intangible asset in the amount of $5,800,966. This was the result of properly capitalizing for tax the previously expensed acquired intellectual property. This reclassification did not have any effect on the total deferred tax asset or valuation allowance at September 30, 2011.

(J) Business Segments

The Company operates in one segment and therefore segment information is not presented.

(K) Revenue Recognition

Revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured.

The Company's revenue transactions include the following: additives, consulting services, royalties, and intellectual property licensing. The Company recognizes revenue when it is realized or realizable and earned. The timing and the amount of revenue recognized from the licensing of intellectual property depend upon a variety of factors, including the specific terms of each agreement and the nature of the deliverables and obligations. For the sale of multiple-element arrangements, including whereby additives, consulting or intellectual property is combined in a revenue generating transaction with other elements, the Company allocates to, and recognizes revenue from, the various elements based on their relative selling price. The Company allocates to, and recognizes revenue from, the various elements of multiple-element arrangements based on relative selling price of a deliverable, using: vendor-specific objective evidence, third-party evidence, and best estimated selling price in accordance with the selling price hierarchy.

(L) Fair Value of Financial Instruments

The carrying amounts reported in the balance sheet for prepaid expenses and accounts payable approximate fair value based on the short-term maturity of these instruments as of September 30, 2012 and 2011.

The following are the hierarchical levels of inputs to measure fair value:

	o	Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
	o	Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
	o	Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

(M) Concentration of Credit Risk

Although all of the Company's assets are in the United States of America, substantially all of year 2012 revenue was from one related party licensee in the People's Republic of China.

(N) Recent Accounting Pronouncements

ASU No. 2011-04; Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. In May, 2011, the FASB issued ASU No. 2011-04. The amendments in this ASU generally represent clarifications of Topic 820, but also include some instances where a particular principle or requirement for measuring fair value or disclosing information about fair value measurements has changed. This ASU results in common principles and requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and IFRSs. The amendments in this ASU are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. Early application by public entities is not permitted.

The Company adopted the methodologies prescribed by this ASU in its second quarter and it did not have a material effect on its financial position or results of operations.

ASU No. 2011-05; Amendments to Topic 220, Comprehensive Income. In June, 2011, the FASB issued ASU No. 2011-05. Under the amendments in this ASU, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders' equity. The amendments in this ASU do not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

The amendments in this ASU should be applied retrospectively. For public entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of the statement did not have a material effect on the Company’s financial statements.

On September 15, 2011, the FASB issued ASU 2011-08, Intangibles – Goodwill and Other, which simplifies how an entity is required to test goodwill for impairment. This ASU would allow an entity to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under the ASU, an entity would not be required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The ASU includes a number of factors to consider in conducting the qualitative assessment. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. This standard did not have a material impact on the Company’s reported results of operations or financial position.

(O) Reclassification

Certain prior year balances have been reclassified to conform to the current year's presentation. Such classification had no effect on the net loss.