1.  Organization of Business and Basis of Presentation

On March 30, 2010, Youchange, Inc. and BlueStar Financial Group, Inc. (“BSFG”), a Nevada corporation and publicly traded shell company at such time, completed a merger transaction (referred to as the “reverse merger” throughout this filing), which is described in further detail below, and resulted in Youchange, Inc. shareholders obtaining control of BSFG. The surviving publicly traded entity following the reverse merger transaction changed its name to “YouChange Holdings Corp” during May 2010.  The terms “youchange”, “we”, “us”, “our” or the “Company” refer to YouChange Holdings Corp and its consolidated subsidiary, Youchange, Inc., following the date of the merger transaction, and to Youchange, Inc. prior to the date of the reverse merger transaction. All significant intercompany balances and transactions are eliminated in consolidation. Our fiscal year end is June 30.

For accounting purposes, Youchange, Inc. is the acquirer in the reverse merger transaction, and consequently the assets and liabilities and the historical operations reflected in these consolidated financial statements are those of Youchange, Inc. and are recorded at the historical cost basis of Youchange, Inc.  All shares and per share data prior to the acquisition have been restated to reflect the stock issuance as a recapitalization of Youchange.

We were organized as a software and services venture in the Green Technology (“GreenTech”) sector to develop a leading social movement to focus on the elimination of electronic waste (“eWaste”) in the United States, which includes any used, obsolete end-of-life consumer electronics and computer devices.  The GreenTech sector is a recognized business sector also known as Environmental Technology or “Envirotech”.  Companies in this sector apply environmental science in an effort to help conserve the environment and choose business approaches that are environmentally and economically sustainable. 

The Company’s software includes a destination website, www.youchange.com, where users can join and refer friends to learn about the problem of electronic waste through content, blogs and forums.  Site members are encouraged to take action through the turn-over and sale of their end-of-life, used or obsolete electronics, which reduces the risk of adding to the waste stream.  Members access the youchange calculator and offer database through www.youchange.com and by answering a series of questions, may receive a real-time cash and/or reward points offer. Initially, reward points collected by members may be used to exchange for other items  in the “Shop Green” area of the youchange.com website, which is an online marketplace where points can be exchanged for product. In addition to the youchange.com website, users can join and learn about local events and electronic collection drives through youchange Facebook, Twitter and Linked-In social media pages.  The local electronic collection events play an important part of the youchange strategy and are done in partnership with local sports teams, businesses, individuals, schools and charity groups. 

Youchange is developing an electronic Tracking System (“eTS”) to provide asset receiving, refurbishment and disposal recycling tracking though the complete handling cycle of all electronics collected.  In addition, the website and the eTS are expected to allow business to business activity. Businesses can dispose of excess electronics in bulk. The eTS is expected to extend past the website and electronic pricing and rewards calculator previously launched through youchange.com and is intended to be used by local retailers, electronic refurbishment centers and recyclers that may partner with youchange.  Youchange intends on generating revenue through the refurbishment, resale (“reCommerce”) and recycling of the electronics collected, facilitating the sustainability objectives by extending the lifecycle of these items and keeping such items from the electronic waste stream.  Once developed and launched, the youchange eTS is expected to become part of a system that will allow youchange to establish a reCommerce business without an investment in bricks and mortar by partnering with, and charging a management fee to, local retailers, electronic refurbishment centers and recyclers.

The Company has realized minimal revenues from its planned business purpose to the date of this filing and currently has limited operations.  Accordingly, the Company is considered to be in the development stage. The Company has been in the development stage since its formation.  The Company has devoted its efforts to business planning and development and has allocated a substantial portion of its time and investment in bringing its product to the market and raising capital. We anticipate that with the expansion of our schools program and the merger with Earth911, we will move beyond the development stage in early fiscal 2013.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“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 revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include carrying amounts of long-lived assets, deferred financing costs, the carrying value of software development costs and the realization of deferred taxes.

Reverse Merger with BSFG

On March 15, 2010, BSFG and its wholly owned subsidiary BlueStar Acquisition Corporation (“Merger Sub”) entered into an Agreement and Plan of Merger  (the “Merger Agreement”) with Youchange, Inc. The Merger Agreement and the acquisition agreed to therein was closed on March 30, 2010.  At the closing of the reverse merger, Youchange, Inc. merged into Merger Sub, with Youchange, Inc. as the surviving entity. At the time the Merger Agreement was executed, Jeffrey Rassás and Richard Papworth, currently our Chief Executive Officer and Chief Financial Officer, respectively, and directors of the Company, were directors and officers of both BSFG and Youchange, Inc. BSFG acquired all 7,183,197 of the issued and outstanding common shares of Youchange Inc. from Youchange Inc. shareholders in exchange for 21,549,591 shares of BSFG Common Stock.  Youchange, Inc. shareholders received three shares of BSFG Common Stock for each share of Youchange, Inc.  These figures included 2,049,591 shares of BSFG Common Stock issued to the former note holders of Youchange, Inc. whereby the $500,000 principal amount of secured convertible promissory notes plus accrued interest of $13,681 was converted into 683,197 shares of Youchange, Inc. common stock immediately prior to the reverse merger. As a result of the reverse merger there were a total of 35,405,588 shares of our common stock issued and outstanding immediately following the transaction, of which the former Youchange, Inc. shareholders held 61%. Additionally, following the completion of the reverse merger, we issued 1,456,000 shares of our common stock to the sellers of BSFG.

Reverse Merger with Earth911

On May 21, 2012, YouChange, Earth911, Inc., a Delaware corporation (“Earth911”), and YouChange Merger Subsidiary Corp. (“YCMS”), a Delaware corporation and wholly owned subsidiary of YouChange formed for the sole purpose of completing the Merger with Earth911, entered into an Agreement and Plan of Merger (the “Earth911 Merger Agreement”).  As contemplated by the Merger Agreement, upon closing (i) YCMS will merge with and into Earth911 and the corporate existence of Earth911 will continue as the surviving entity and a wholly owned subsidiary of YouChange (the “Merger”); (ii) all issued and outstanding shares of capital stock of Earth911 will be exchanged for newly issued shares of YouChange’s Common Stock such that the former stockholders of Earth911 will own 85% of the issued and outstanding shares of YouChange’s Common Stock; (iii) the terms of each outstanding option and warrant to purchase shares of Earth911 Common Stock, will be converted into options and warrants, as the case may be, to acquire shares of YouChange’s Common Stock using the same ratio as the exchange of shares of Earth911 capital stock for shares of YouChange’s Common Stock; (iv) YouChange’s Amended and Restated Articles of Incorporation will be filed and become effective; (v) YouChange’s Bylaws will be amended and restated; and (vi) new directors will be appointed to the YouChange Board of Directors and a new chief executive officer, a new President, and a new Secretary of YouChange will be appointed.

The Earth911 Merger Agreement requires YouChange to amend and restate its Articles of Incorporation (i) to change its name from YouChange Holdings Corp to Infinity Resources Holding Corp. (the “Name Change”); (ii) to increase the number of authorized shares of Common Stock from 60,000,000 to 100,000,000 and to authorize a total of 10,000,000 shares of Preferred Stock to be designated in series or classes and the number of each series or class, including the voting powers, designations, limitations, restrictions, and relative rights of each series or class of stock, as the YouChange Board of Directors shall determine in its sole discretion (the “Share Increase”); (iii) to provide for a recapitalization of YouChange in which each five shares of the issued and outstanding shares of YouChange’s Common Stock will be converted into one share of fully paid and nonassessable Common Stock of YouChange (a 1-for-5 reverse stock split) (the “Reverse Split”); and (iv) to divide the Board of Directors into three classes, as nearly equal in number as possible, designated Class I, Class II, and Class III with Class I directors initially serving until the 2013 meeting of stockholders, Class II directors initially serving until the 2014 meeting of stockholders, and Class III directors initially serving until the 2015 meeting of stockholders (the “Director Classes”) (collectively, the amendments to YouChange’s Articles of Incorporation for the Name Change, the Share Increase, the Reverse Split, and the Director Classes are known as the “Amendments”).

Going Concern

The Company's financial statements are prepared using accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the Company will need, among other things, additional capital resources.  Management's plans to obtain such resources for the Company include (i) obtaining capital from management and significant stockholders sufficient to meet its minimal operating expenses; and (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually attaining profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

2. Significant Accounting Policies

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation for deposits up to certain limits.  The Company had no uninsured cash as of June 30, 2012 or June 30, 2011, but may from time to time have cash balances that exceed insured limits.

Inventory

Inventories consist of consumer electronics and computer devices and are stated at the lower of cost (average cost method which approximates first-in. first-out.) or market. We establish reserves for inventory to reflect situations in which the cost of the inventory is not expected to be recovered. In evaluating whether inventory is stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory and current and expected market conditions. We record provisions for inventory obsolescence as part of cost of products sold. Inventories are presented net of allowances relating to the above provisions; however, as of June 30, 2012, no provisions were deemed to be warranted or required by management.

Deferred Financing Costs

Debt financing costs are amortized over the contractual term of the underlying note payable using the effective interest method.  If debt is retired prior to the end of its contractual term, the unamortized deferred financing costs are expensed in the period of retirement to interest expense. During fiscal 2012 and, the Company incurred $56,334 and $50,000, respectively, of deferred financing costs relative to the issuance of $143,000 and $500,000 of convertible notes payable.  During fiscal 2012 and 2011, $43,857 and $50,000, respectively, of deferred financing costs were amortized to interest expense.

Revenue Recognition

Revenue from sales of products is recognized when earned; that is, when the risks and rewards of ownership have transferred to the customer upon delivery to the designated carrier. Cash discounts, sales incentives and returns are estimated and recognized at the time of sale based on historical experience and current customer commitments. Revenue is reported net of discounts and returns and excludes sales taxes.

Income taxes

Deferred tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely that such assets will not be realized. We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.

As of June 30, 2012 and 2011, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.  Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense.  Since there are no unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. We are subject to tax audits for our U.S. federal and certain state tax returns for the tax years ending June 30, 2009 through 2011. Tax audits by their very nature are often complex and can require several years to complete. 

Fair Value of Financial Instruments

The Company's financial instruments include cash advances, accounts payable and other accrued expenses and notes payable.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments and for long term notes payable, based on borrowing rates currently available to the Company for loans with similar terms and maturities, approximates fair value at June 30, 2012, based on these level 3 inputs.  The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

·         Level one – Quoted market prices in active markets for identical assets or liabilities;

·         Level two – Inputs other than level one inputs that are either directly or indirectly observable; and

·         Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We will evaluate our hierarchy disclosures each quarter.

The Company does not have any assets or liabilities measured at fair value on a recurring basis as of June 30, 2012 or 2011. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a nonrecurring basis during the period from August 22, 2008 (inception) to June 30, 2012.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.  Costs of normal repairs and maintenance are charged to expense as incurred. Depreciation commences at the time the assets are placed in service.  Gains or losses on disposals of assets are recognized as incurred.  As of June 30, 2012 and 2011, our property and equipment consists of furniture and fixtures at our corporate offices.  These assets have an estimated useful life of seven years and were placed in service on June 30, 2010. As of June 30, 2012 and 2011, accumulated depreciation was $2,400 and $1,200, respectively.

Impairment of Long Lived Assets

Impairment losses are to be recognized when the carrying amount of a long lived asset is not recoverable or exceeds its fair value.  The Company evaluates its long lived assets for impairment whenever events or changes in circumstances indicate that a carrying value may not be recoverable.  The Company uses estimates of future cash flows over the remaining useful life of a long lived asset or asset group to determine the recoverability of the asset.  These estimates only include the net cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the asset or asset group. We have recognized an impairment loss on the capitalized software costs as of June 30, 2012 of $128,650 for the Company’s long lived assets from August 22, 2008 (inception) to June 30, 2012.

Earnings Per Share Information

Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.  Diluted earnings (loss) per share is calculated based on the weighted average shares of Common Stock outstanding during the period plus the dilutive effect of outstanding Common Stock purchase warrants and stock options using the treasury stock method and the dilutive effects of convertible securities using the if-converted method. Basic and diluted loss per share were the same for all periods reported due to the net losses attributable to common shareholders for all periods presented. As of June 30, 2012 and 2011, we had convertible notes payable outstanding that, with accrued interest, were convertible into approximately 576,000 and 436,000 common shares respectively.  As of June 30, 2012, the conversion ratio for these notes was lower than our closing stock price.  These convertible notes payable are described in more detail in Note 8.

Software Development Costs

The costs of developing internal–use software are to be evaluated during three stages of the development project.  The stages are: (i) the preliminary project stage; (ii) the application development stage; and (iii) the post-implementation stage. Only costs associated with the application development stage are capitalized.  Development costs associated with the other two stages are expensed as incurred.  Capitalizable costs include fees paid to third parties to develop the software during the application development stage, payroll costs for employees directly associated with the development project and only include specific time spent working directly on the development project and interest costs incurred while developing the project, if any. The Company has capitalized costs incurred in the application development stage totaling nil and »$88,650 for the years ended June 30, 2012 and 2011, respectively.  These costs relate to our proprietary business platform.  We have contracted with a software development team to create this business platform and web-based interface.  During the years ended June 30, 2012 and 2011, we incurred approximately $68,000 and $87,000 of software development costs, respectively, from NOMA Enterprises, LLC, an entity controlled by Naser Ahmad, Chief Technology Officer of Youchange, Inc. These costs have been fully expensed in fiscal 2012.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was de minimis for the period from August 22, 2008 (inception) to June 30, 2012.

Beneficial Conversion Features

The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

Recently Issued Accounting Pronouncements

During September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 is intended to simplify the testing of goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test, which is currently required for all companies that report goodwill. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, although early adoption is permitted. The adoption of this guidance has not had a material impact on our financial position and results of operations.

During June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”).  ASU 2011-05 provides for the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income (“OCI”) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which format is chosen, the amendments establish a requirement for entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in ASU 2011-05 are effective, on a retrospective basis, for public entities for interim and annual periods beginning after December 15, 2011, and for nonpublic entities for fiscal years ending after December 15, 2012 and interim and annual periods thereafter. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position and results of operations.

During May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASC 2011-04”).  The amendments in ASC 2011-04 were issued in order to align the fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards.  Consequently, the amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  However, many of the amendments in ASC 2011-04 will not result in a change in the application of the requirements in ASC 820, Fair Value Measurement. The amendments in ASU 2011-04 are effective, on a prospective basis, for public entities for interim and annual periods beginning after December 15, 2011, and for nonpublic entities for annual periods beginning after December 15, 2011. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position and results of operations.

3. Note Receivable from Feature Marketing

Effective December 31, 2010, we entered into a Share Exchange Agreement (the "Exchange Agreement") with Feature Marketing, Inc. (“Feature Marketing”) an Arizona corporation.  The Exchange Agreement provided for the acquisition of all issued and outstanding shares of Feature Marketing in exchange for 3,030,303 shares of our common stock and $200,000 of cash. Feature Marketing owns and operates a computer and consumer electronics refurbishment center based in Scottsdale, Arizona, which we intended to integrate with our planned operations.

Subsequent to the completion of the acquisition, on February 25, 2011, the Company and Feature Marketing entered into a Rescission Agreement that provided for the rescission of the acquisition as of December 31, 2010, so that from an economic standpoint, the acquisition never occurred and all applicable shares were never exchanged. Accordingly, the financial position and results of Feature Marketing have not been, and are never expected to be, consolidated with those of the Company. The Company believes the rescission of this transaction was in its best interests based on the discovery of a mutual mistake and impossibility to perform under the agreement, which was not contemplated by either party.

The Company executed a non-exclusive fulfillment agreement with Feature Marketing on March 29, 2011.  Under the terms of the fulfillment agreement, Feature Marketing was to provide receiving, refurbishment, shipping and storage services and  repay the amounts previously advanced towards the acquisition discussed above.  As of June 30, 2012 advances outstanding totaled approximately $95,000, which are secured by the assets of Feature Marketing and are supported by a promissory note from Feature Marketing.  These advances bear interest at a rate of 24.0% per annum.  We have recognized interest income totaling approximately $41,000 relative to these advances for the period from August 22, 2008 (inception) to June 30, 2012.  During June 2011, Feature Marketing returned 75,000 common shares it had previously owned, in exchange for a reduction of amounts due us of approximately $26,000, which was the fair value of the shares at the time they were returned.  These shares have been accounted for as treasury stock as of June 30, 2011. As of June 30, 2012, management believes all outstanding advances to Feature Marketing, and interest on such advances, will not likely ever be fully realized and accordingly, has provided an allowance for the full balance of the note receivable and the corresponding interest receivable, as of June 30, 2012 in the amount of $116,592.

4. Common Stock

Our authorized common stock consists of 60,000,000 shares of common stock with a par value of $.001. The following summarizes our common stock activity for the period from August 22, 2008 (inception) to the completion of the reverse merger on March 30, 2010:

·         Upon formation on August 22, 2008, Youchange, Inc. issued 1,000,000 of its common shares to its founder and Chief Executive Officer, Jeffrey Rassás, in exchange for $1,000.

·         During fiscal 2010, Youchange, Inc. issued an additional 4,000,000 of its common shares to unrelated entities in exchange for $4,000 (except for 40,000 of these shares, which were issued to an officer / director).

·         During fiscal 2010, Youchange, Inc. issued 1,500,000 shares of its common stock to Mr. Rassás in exchange for certain intangible assets related to the youchange.com domain. This transaction was valued at $2,500.  Although it may require renewal from time-to-time, this intangible asset has an indefinite life and accordingly is not being amortized. 

·         During fiscal 2010, Youchange, Inc. issued 683,197 shares of its common stock upon conversion of $500,000 in convertible notes plus $13,681 of unpaid accrued interest.

As described in more detail above, on March 30, 2010, BSFG acquired all 7,183,197 of the issued and outstanding common shares of Youchange, Inc. from Youchange, Inc. shareholders in exchange for 21,549,591 shares of BSFG Common Stock.  Youchange, Inc. shareholders received three shares of BSFG Common Stock for each share of Youchange, Inc. 

In conjunction with the reverse merger, the Company issued 1,456,000 shares of its common stock as partial compensation for the purchase of the BSFG.  The shares were valued at $0.34 per share, which was the closing stock price on March 30, 2010.  The total fair value of these common shares of $495,040 was expensed as an acquisition cost.

As a result of the reverse merger there were a total of 35,405,588 shares of our common stock issued and outstanding immediately following the transaction, of which the former Youchange, Inc. shareholders held 61%. For accounting purposes, Youchange, Inc. is the acquirer in the reverse merger transaction.

During fiscal 2011, we issued common shares for the following transactions:

·         During July 2010, we entered into a one-year consulting agreement with Naser Ahmad through NOMA Enterprises, LLC to provide services as Chief Technology Officer of Youchange, Inc., and issued 333,333 shares of our common stock as compensation for such services. The term of this agreement is from January 1, 2010 to December 31, 2010. As of June 30, 2010, we had accrued $60,000 of compensation expense, which was paid by way of the issuance of one half of these shares.  We recognized the remaining $33,333 of expense during July 2010 for the 333,333 total shares issued, which was recorded as professional fees. The consulting agreement has not been renewed as of the date of this filing; however, Mr. Ahmad has continued to provide services to the Company on a month-to-month basis for $10,000 per month, and we issued an additional 142,528 common shares during June 2011 as compensation for the six months ended June 30, 2011.

·         During July 2010, we entered into a licensing agreement with a strategic partner for access to a database for pricing of used consumer electronic goods.  We issued 193,322 shares of common stock upon the execution of this agreement.We terminated this agreement in fiscal 2011  We expensed $54,130 as general and administrative expense for the issuance of the 193,322 shares of common stock during July 2010.

·         During December 2010, we entered into a one year consulting agreement with Mary Juetten, through Protect your Intellectual Property (PIP), LLC to provide services as Chief Operating Officer of Youchange, Inc. The term of this agreement is from October 1, 2010 to September 30, 2011.  During fiscal 2011, we issued a total of 625,625 shares of our common stock as compensation for services and recognized $160,250 of expense for the issuance of these shares, which was recorded as professional fees.  Additionally, we recognized expense of approximately $18,000 for cash-based consideration paid to Ms. Juetten’s for her services as Chief Operating Officer of Youchange, Inc, which is also recorded as professional fees.

·         During March 2011, we raised $250,000 through the sale of 1,000,000 common shares in a private placement transaction with an accredited investor at a sales price of $0.25 per common share.

·         During June 2011, we issued 28,506 common shares to Richard Papworth, our Chief Financial Officer for services rendered.  We expensed $12,000 as professional fees for the issuance of these shares.

·         During fiscal 2011, we issued 615,886 common shares upon conversion of principal and interest previously outstanding on convertible notes payable.  These transactions are discussed in more detail in Note 8.

·         During fiscal 2011, we also issued 81,439 common shares in exchange for other professional services.  We expensed $29,022 as general and administrative expense for the issuance of these shares.

During fiscal 2012, we issued common shares for the following transactions:

·         During fiscal 2012, we issued 248,522 common shares to an entity controlled by Naser Ahmad, the Chief Technology Officer of Youchange, Inc.  We expensed $90,000 as professional fees for the issuance of these shares. 

·         During fiscal 2012, we issued 249,705 common shares to Richard Papworth, our Chief Financial Officer for services rendered.  We expensed $98,000 as professional fees for the issuance of these shares.

·         During July 2011, we issued 436,337 common shares upon conversion of principal and interest previously outstanding on convertible notes payable, of which 103,296 was with a related party.  These transactions are discussed in more detail in Note 8.

·         During fiscal 2012, we issued 895 common shares to note holders for the payment of interest on those notes.  We expensed $358 as interest expense for the issuance of these shares.  These transactions are discussed in more detail in Note 7.

·         During fiscal 2012, we issued 287,837 common shares to an entity controlled by Derrick Mains, our Executive Vice President of Business Development and Operations, for services rendered.  We expensed $114,000 as professional fees for the issuance of these shares.

·         During fiscal 2012, we issued 110,408 common shares to Dan Fogel, our Vice President of Strategic Initiatives, for services rendered.  We expensed $44,000 as professional fees for the issuance of these shares.

·         During fiscal 2012, we raised $325,000 through the sale of 1,300,000 common shares in a private placement transaction with seven accredited investors at a sales price of $0.25 per common share.

·         During fiscal 2012, we also issued 1,961,006 common shares in exchange for other professional services.  We expensed approximately $697,423 as professional fees and approximately $3,000 as marketing expense for the issuance of these shares.

5. Related Party Advances

During the nine months ended March 31, 2012 we received $40,500 in short-term advances from Jeffrey Rassás, our Chief Executive Officer and Chairman of our Board of Directors, of which, all $40,500 was repaid by June 30, 2012. 

6. Short Term Note Payable to BSFG

On January 1, 2010, Youchange, Inc. entered into a $75,000 note payable agreement with the previous shareholders of BSFG, which, together with a $50,000 cash payment and the issuance of 1,456,000 common shares following the reverse merger, was used to complete the reverse merger with BSFG. The payable was due in two equal installments, which were due on April 1, 2010 and June 30, 2010.  In the event we failed to pay the first installment in full, under the terms of the agreement, the entire balance would accrue interest at 9.0% per annum retroactive from January 1, 2010. We may pay this interest penalty in cash or stock at a price of $0.05 per share, at our option.  The first payment of $37,500 was paid when due on April 1, 2010.  In September 2012, the note was sold to a third party who agreed to convert the note to common shares of the Company’s stock at a conversion rate of $0.20 per share.

7. Notes Payable and Advances

The following summarizes notes payable activity following the reverse merger described in Note 1:

·         During November 2011, we issued a $25,000 note payable with an unrelated, accredited third party in exchange for cash.  The note matures 60 days from the date of issuance and bears interest at a rate of 10.0% per annum with an increase to 12.0% per annum following the maturity date.  We paid $5,000 against this note in March 2012, and we repaid the remaining $20,000 in April 2012.

·         During November 2011, we received $10,000 from an unrelated party under a short-term advance.  This advance was repaid during December 2011 with a stated interest amount of $100.  

·         During March 2012, we received $6,000 from an unrelated party under a short-term advance.  The advance has no stated maturity nor stated interest rate.  We paid interest at the rate of 10% through the issuance of 375 shares of our common stock.

·         During March 2012, we received $10,000 from an unrelated party under a 30 day advance.  This advance was repaid as of March 31, 2012.

·         During March 2012, we also received $25,000 from an unrelated party under a 30 day advance with a stated interest rate of 10%.  This advance was repaid in April 2012.  The interest was paid through the issuance of 520 shares of our common stock. 

8. Convertible Notes Payable

The following summarizes convertible notes payable activity following the reverse merger described in Note 1:

·         During July 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matured on January 19, 2011 and bears interest at a rate of 12.0% per annum.  The note and any accrued interest may be converted at any time, at the discretion of the investor, to shares of our common stock at a rate of $0.25 per share.  Based on our share price at the time the note agreement was entered into, there was no beneficial conversion feature associated with this convertible note.  During July 2011, this convertible note, plus $3,178 of accrued interest, was converted to 112,713 common shares.

·         During August 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matured on February 6, 2011 and bears interest at 12.0% per annum.  The note and any accrued interest may be converted at any time, at the discretion of the investor, to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, there was no beneficial conversion feature associated with this convertible note. During July 2011, this convertible note, plus $2,999 of accrued interest, was converted to 111,996 common shares.

·         During September 2010, we issued a $22,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and bears interest at a rate of 8.0% per annum. The note and any accrued interest may be converted at any time, at the discretion of the investor, to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, there was no beneficial conversion feature associated with this convertible note. During June 2011, this convertible note, plus $1,247 of accrued interest, was converted to 92,983 common shares.

·         During September 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matured 61 days from the date of issue and bears interest at a rate of 8.0% per annum. The Company had the right to extend the maturity of this note an additional 30 days. The note and any accrued interest may be converted at any time, at the discretion of the investor, to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $5,500 for this convertible note. During July 2011, this convertible note, plus $2,083 of accrued interest, was converted to 108,332 common shares.

·         During October 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.30 per share.  During June 2011, this convertible note, plus $1,250 of accrued interest, was converted to 87,500 common shares.

·         During November 2010, we issued a $13,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.30 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $1,083 for this convertible note. During June 2011, this convertible note, plus $580 of accrued interest, was converted to 45,268 common shares.

·         During December 2010, we issued an $8,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.30 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $1,334 for this convertible note. During June 2011, this convertible note, plus $320 of accrued interest, was converted to 27,735 common shares.

·         During December 2010, we issued a $90,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note is secured by all of the assets of the Company, matures two years from the date of issuance and may be accelerated if the Company raises $1.0 million in private financing before the maturity date.  The note bears interest at a rate of 12.0% per annum and is convertible at any time, at the discretion of the investor, to shares of our common stock at a rate of $0.25 per share. Unpaid accrued interest is convertible at any time, at the discretion of the investor, to shares of our common stock, with the conversion rate equal to the average closing price of our common stock for the ten days preceding such conversion.  Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $23,400 for this convertible note. During January 2011, this convertible note, plus $600 of accrued interest, was converted to 362,400 common shares.

·         During March 2011, we issued a $25,000 convertible note with the spouse of a previous officer of  YouChange, Inc in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $25,000 for this convertible note. During July 2011, this convertible note, plus $824 of accrued interest, was converted to 103,296 common shares.

·         During August 2011, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.30 per share. Based on our share price at the time the note agreement was entered into, there was no beneficial conversion feature associated with this convertible note.

·         During October 2011, we issued a $10,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures three months from the date of issuance and may be extended by an additional 30 days if the Company so chooses.  The note bears interest at a rate of 10.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $5,200 for this convertible note. This note was repaid as of the date of this filing.

·         During December 2011, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures six months from the date of issuance and may be extended by an additional 30 days if the Company so chooses.  The note bears interest at a rate of 10.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $25,000 for this convertible note.  The note has a default penalty interest rate of 12%.  Although this note is past its maturity, the holder has agreed to exercise the conversion feature.

·         During January 2012, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures six months from the date of issuance and may be extended by an additional 30 days if the Company so chooses.  The note bears interest at a rate of 10.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $9,500 for this convertible note. .  The note has a default penalty interest rate of 12%.  Although this note is past its maturity, the holder has agreed to exercise the conversion feature.

·         During February 2012, we issued a $24,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $4,800 for this convertible note.

·         During February 2012, we issued a $24,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $6,720 for this convertible note.

·         During March 2012, we issued a $5,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures two years from the date of issuance and may be extended by an additional 180 days if the Company so chooses.  The note bears interest at a rate of 8.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.25 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $2,400 for this convertible note.

·         During April 2012, we issued a $5,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matures 6 months from the date of issuance and may be extended by an additional 30 days if the Company so chooses.  The note bears interest at a rate of 10.0% per annum and is convertible at any time, with accrued interest, at the discretion of the investor to shares of our common stock at a rate of $0.35 per share. Based on our share price at the time the note agreement was entered into, we recognized a beneficial conversion feature of $2,712 for this convertible note.

As of June 30, 2012, the convertible notes payable and associated accrued interest described above are convertible into a total of approximately 576,000 common shares.  All convertible notes outstanding at June 30, 2012 were unsecured.

The following are the maturities of  long term debt for each of the next two years and in aggregate:

The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion. 

9. Provision for Income Taxes

At June 30, 2012, the Company had incurred a net operating loss during the development stage of approximately $3.7 million, which is available to offset future federal and state taxable income through December 31, 2032 and 2017, respectively. However, the utilization of the Company’s net operating loss carryforwards will likely be materially restricted in future periods due to the anticipated reverse acquisition with Earth911 Inc.  The Company has established a valuation allowance equal to the full amount of the deferred tax assets approximating $1.4 million due to the uncertainty of the utilization of the operating losses in future periods.

A reconciliation of the federal statutory rate to the effective income tax rate for the periods presented below is as follows:

  The reported amount of income tax benefit that would result from applying domestic federal and state statutory rates is not reflected in the financial statements due to the valuation allowance which offsets the tax benefit in its entirety.

Deferred income tax assets consist of the following as of June 30, 2012 and 2011:

10. Professional Fees

Included in professional fees on the accompanying Statements of Operations are charges relative to four of the Company’s officers (two of which are officers of Youchange, Inc.) of $396,500 and $327,583 for the years ended June 30, 2012 and 2011, respectively, and $887,083 for the period from August 22, 2008 (inception) to June 30, 2012.  As of June 30, 2012, no amounts were due our officers for these professional fees.

11. Commitments and Contingencies

Operating Leases

The Company leases approximately 6813 square feet of office space in Tempe, Arizona.  The lease agreement expires during June 2015 and calls for rent of approximately $2,400 per month.  Future minimum lease payments required by our facility operating lease are as follows for the fiscal years ending June 30:

Rent expense was approximately $35,000 and $31,000 for the years ended June 30, 2012 and 2011, respectively, and approximately $80,000 for the period from August 22, 2008 (inception) to June 30, 2012. Rent expense is included in general and administrative expense on the accompanying Statements of Operations. 

Indemnifications

During the normal course of business, we make certain indemnities and commitments under which we may be required to make payments in relation to certain transactions. These may include: (i) intellectual property indemnities to customers in connection with the use, sales and/or license of products and services; (ii) indemnities to customers in connection with losses incurred while performing services on their premises; (iii) indemnities to vendors and service providers pertaining to claims based on negligence or willful misconduct; and (iv) indemnities involving the representations and warranties in certain contracts. In addition, under our by-laws we are committed to our directors and officers for providing for payments upon the occurrence of certain prescribed events. The majority of these indemnities and commitments do not provide for any limitation on the maximum potential for future payments that we could be obligated to make.

12. Supplemental Schedule of Cash Flow Information

Supplemental cash flow information is as follows:

13. Subsequent events

The following subsequent events occurred in addition to those previously described in these financial statements:

·         During August 2012, we raised $35,000 through the sale of 142,000 common shares in a private placement transaction with five accredited investors at a sales price of $0.25 per common share.

·         During August and September 2012, we issued convertible notes to three unrelated, accredited third parties in exchange for $32,500 in cash.  The notes matures 6 months from the date of issuance which maturity can be extended by an additional 30 days at the discretion of the Company.  The notes bear interest at a rate of 10.0% per annum and have a conversion rate of $0.25 per share.

·         Subsequent to June 30, 2012, the Company awarded options for 1,000,000 common shares to Derrick Mains.

·         During April 2012, we issued a $5,000 convertible note with an unrelated, accredited third party in exchange for cash.  The note matured in September 2012, 6 months from the date of issuance which maturity extended by an additional 30 days at the discretion of the Company.  The note bears interest at a rate of 10.0% per annum, has a penalty interest rate of 12% and went into matured and went into default on October 4, 2012.  The note holder has agreed to exercise the conversion feature.

Cash and Cash Equivalents

All highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation for deposits up to certain limits.  The Company had no uninsured cash as of June 30, 2012 or June 30, 2011, but may from time to time have cash balances that exceed insured limits.

Inventory

Inventories consist of consumer electronics and computer devices and are stated at the lower of cost (average cost method which approximates first-in. first-out.) or market. We establish reserves for inventory to reflect situations in which the cost of the inventory is not expected to be recovered. In evaluating whether inventory is stated at the lower of cost or market, we consider such factors as the amount of inventory on hand, estimated time required to sell such inventory and current and expected market conditions. We record provisions for inventory obsolescence as part of cost of products sold. Inventories are presented net of allowances relating to the above provisions; however, as of June 30, 2012, no provisions were deemed to be warranted or required by management.

Deferred Financing Costs

Debt financing costs are amortized over the contractual term of the underlying note payable using the effective interest method.  If debt is retired prior to the end of its contractual term, the unamortized deferred financing costs are expensed in the period of retirement to interest expense. During fiscal 2012 and, the Company incurred $56,334 and $50,000, respectively, of deferred financing costs relative to the issuance of $143,000 and $500,000 of convertible notes payable.  During fiscal 2012 and 2011, $43,857 and $50,000, respectively, of deferred financing costs were amortized to interest expense.

Revenue Recognition

Revenue from sales of products is recognized when earned; that is, when the risks and rewards of ownership have transferred to the customer upon delivery to the designated carrier. Cash discounts, sales incentives and returns are estimated and recognized at the time of sale based on historical experience and current customer commitments. Revenue is reported net of discounts and returns and excludes sales taxes.

Income taxes

Deferred tax assets and liabilities are recognized currently for the future tax consequences attributable to the temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely that such assets will not be realized. We consider all available evidence, both positive and negative, to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a net deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence. In arriving at these judgments, the weight given to the potential effect of negative and positive evidence is commensurate with the extent to which it can be objectively verified. We record a valuation allowance to reduce our deferred tax assets and review the amount of such allowance annually. When we determine certain deferred tax assets are more likely than not to be utilized, we will reduce our valuation allowance accordingly.

As of June 30, 2012 and 2011, we did not recognize any assets or liabilities relative to uncertain tax positions, nor do we anticipate any significant unrecognized tax benefits will be recorded during the next 12 months.  Any interest or penalties related to unrecognized tax benefits is recognized in income tax expense.  Since there are no unrecognized tax benefits as a result of tax positions taken, there are no accrued penalties or interest. We are subject to tax audits for our U.S. federal and certain state tax returns for the tax years ending June 30, 2009 through 2011. Tax audits by their very nature are often complex and can require several years to complete. 

Fair Value of Financial Instruments

The Company's financial instruments include cash advances, accounts payable and other accrued expenses and notes payable.  All instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments and for long term notes payable, based on borrowing rates currently available to the Company for loans with similar terms and maturities, approximates fair value at June 30, 2012, based on these level 3 inputs.  The fair value hierarchy under GAAP distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

·         Level one – Quoted market prices in active markets for identical assets or liabilities;

·         Level two – Inputs other than level one inputs that are either directly or indirectly observable; and

·         Level three – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. We will evaluate our hierarchy disclosures each quarter.

The Company does not have any assets or liabilities measured at fair value on a recurring basis as of June 30, 2012 or 2011. The Company did not have any fair value adjustments for assets and liabilities measured at fair value on a nonrecurring basis during the period from August 22, 2008 (inception) to June 30, 2012.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.  Costs of normal repairs and maintenance are charged to expense as incurred. Depreciation commences at the time the assets are placed in service.  Gains or losses on disposals of assets are recognized as incurred.  As of June 30, 2012 and 2011, our property and equipment consists of furniture and fixtures at our corporate offices.  These assets have an estimated useful life of seven years and were placed in service on June 30, 2010. As of June 30, 2012 and 2011, accumulated depreciation was $2,400 and $1,200, respectively.

Impairment of Long Lived Assets

Impairment losses are to be recognized when the carrying amount of a long lived asset is not recoverable or exceeds its fair value.  The Company evaluates its long lived assets for impairment whenever events or changes in circumstances indicate that a carrying value may not be recoverable.  The Company uses estimates of future cash flows over the remaining useful life of a long lived asset or asset group to determine the recoverability of the asset.  These estimates only include the net cash flows directly associated with, and that are expected to arise as a direct result of, the use and eventual disposition of the asset or asset group. We have recognized an impairment loss on the capitalized software costs as of June 30, 2012 of $128,650 for the Company’s long lived assets from August 22, 2008 (inception) to June 30, 2012.

Earnings Per Share Information

Basic earnings per share includes no dilution and is computed by dividing net income (loss) available to common shareholders by the weighted average common shares outstanding for the period.  Diluted earnings (loss) per share is calculated based on the weighted average shares of Common Stock outstanding during the period plus the dilutive effect of outstanding Common Stock purchase warrants and stock options using the treasury stock method and the dilutive effects of convertible securities using the if-converted method. Basic and diluted loss per share were the same for all periods reported due to the net losses attributable to common shareholders for all periods presented. As of June 30, 2012 and 2011, we had convertible notes payable outstanding that, with accrued interest, were convertible into approximately 576,000 and 436,000 common shares respectively.  As of June 30, 2012, the conversion ratio for these notes was lower than our closing stock price.  These convertible notes payable are described in more detail in Note 8.

Software Development Costs

The costs of developing internal–use software are to be evaluated during three stages of the development project.  The stages are: (i) the preliminary project stage; (ii) the application development stage; and (iii) the post-implementation stage. Only costs associated with the application development stage are capitalized.  Development costs associated with the other two stages are expensed as incurred.  Capitalizable costs include fees paid to third parties to develop the software during the application development stage, payroll costs for employees directly associated with the development project and only include specific time spent working directly on the development project and interest costs incurred while developing the project, if any. The Company has capitalized costs incurred in the application development stage totaling nil and »$88,650 for the years ended June 30, 2012 and 2011, respectively.  These costs relate to our proprietary business platform.  We have contracted with a software development team to create this business platform and web-based interface.  During the years ended June 30, 2012 and 2011, we incurred approximately $68,000 and $87,000 of software development costs, respectively, from NOMA Enterprises, LLC, an entity controlled by Naser Ahmad, Chief Technology Officer of Youchange, Inc. These costs have been fully expensed in fiscal 2012.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense was de minimis for the period from August 22, 2008 (inception) to June 30, 2012.

Beneficial Conversion Features

The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the common shares at the commitment date to be received upon conversion.

Recently Issued Accounting Pronouncements

During September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-08, “Testing Goodwill for Impairment” (“ASU 2011-08”). ASU 2011-08 is intended to simplify the testing of goodwill for impairment by permitting an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test, which is currently required for all companies that report goodwill. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, although early adoption is permitted. The adoption of this guidance has not had a material impact on our financial position and results of operations.

During June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”).  ASU 2011-05 provides for the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income (“OCI”) either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Regardless of which format is chosen, the amendments establish a requirement for entities to present on the face of the financial statements reclassification adjustments for items that are reclassified from OCI to net income in the statement(s) where the components of net income and the components of OCI are presented. The amendments in ASU 2011-05 are effective, on a retrospective basis, for public entities for interim and annual periods beginning after December 15, 2011, and for nonpublic entities for fiscal years ending after December 15, 2012 and interim and annual periods thereafter. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position and results of operations.

During May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (“ASC 2011-04”).  The amendments in ASC 2011-04 were issued in order to align the fair value measurement and disclosure requirements in GAAP and International Financial Reporting Standards.  Consequently, the amendments change the wording used to describe many of the requirements in GAAP for measuring fair value and for disclosing information about fair value measurements.  However, many of the amendments in ASC 2011-04 will not result in a change in the application of the requirements in ASC 820, Fair Value Measurement. The amendments in ASU 2011-04 are effective, on a prospective basis, for public entities for interim and annual periods beginning after December 15, 2011, and for nonpublic entities for annual periods beginning after December 15, 2011. The Company does not anticipate that the adoption of this guidance will have a material impact on its financial position and results of operations.