Quest Resource Holding Corp - Quarter Report: 2010 September (Form 10-Q)

youchange10q093010.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)
þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2010
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 333-152959

YouChange Holdings Corp

(Exact name of registrant as defined in its charter)

Delaware	51-0665952
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

7154 East Stetson Drive, Suite 330	85251
Scottsdale, Arizona	(Zip Code)
(Address of principal executive offices)

866-712-9273

(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports). Yes o No o

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 o	Accelerated filer o	Non-accelerated filer o	Smaller reporting company þ
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

The number of Common Shares of the Registrant outstanding as of November 1, 2010 was 35,938,493.

DOCUMENTS INCORPORATED BY REFERENCE - None

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2010

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.
Condensed Consolidated Balance Sheets as of September 30, 2010 (unaudited) and June 30, 2010		2
Unaudited Condensed Consolidated Statements of Operations for the Three
Months Ended September 30, 2010 and 2009 and for the Period From
August 22, 2008 (Inception) to September 30, 2010		3
Unaudited Condensed Consolidated Statement of Changes in Shareholders' Equity (Deficit)
for the Period from August 22, 2008 (Inception) to September 30, 2010		4
Unaudited Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 2010 and 2009 and for the Period From
August 22, 2008 (Inception) to September 30, 2010		5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	18
Item 4.	Controls and Procedures	18

PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	18
Item 1A.	Risk Factors	18
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Removed and Reserved	19
Item 5.	Other Information	19
Item 6.	Exhibits	19

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

CONDENSED CONSOLIDATED BALANCE SHEETS

	September 30,			June 30,
	2010			2010
ASSETS	(Unaudited)
Current assets:
Cash and cash equivalents	$	32,898		$	44,309
Prepaid expenses and other current assets		16,972			7,394

Total current assets		49,870			51,703

Acquisition deposits		85,000			70,000
Property and equipment - net		4,965			5,265
Capitalized software costs		65,400			40,000
Other assets		6,500			6,500

Total assets	$	211,735		$	173,468

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and other accrued expenses	$	55,495		$	100,594
Note payable - related party		37,500			37,500
Convertible notes payable		72,000			-
Notes payable		25,000

Total current liabilities		189,995			138,094

Shareholders' equity (deficit):
Common stock, $.001 par value; 60,000,000 shares authorized; 35,938,493
and 35,405,588 shares issued and outstanding as of
September 30, 2010 and June 30, 2010, respectively		35,939			35,406
Additional paid-in capital		1,215,808			1,067,128
Deficit accumulated during the development stage		(1,230,007	)		(1,067,160	)

Total shareholders' equity (deficit)		21,740			35,374

Total liabilities and shareholders' equity	$	211,735		$	173,468

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

							Period from
							August 22,
							2008
							(Inception) to
	Three Months Ended September 30,						September 30,
	2010			2009			2010

Revenue	$	-		$	-		$	-

Operating expenses:
Professional fees		75,102			22,275			406,010
Licensing fees		64,130			-			64,130
General and administrative		13,983			160			64,219
Marketing		11,750			-			23,489
Expense of reverse merger		1,345			-			621,385

Loss from operations		166,310			22,435			1,179,233

Other income (expense):
Interest income		4,578			-			14,022
Interest expense		(1,115	)		-			(64,796	)

Total other income (expense)		3,463			-			(50,774	)

Net loss	$	(162,847	)	$	(22,435	)	$	(1,230,007	)

Basic and diluted net loss per common share	$	(0.00	)	$	(0.01	)	$	(0.08	)

Weighted average common shares outstanding -
basic and diluted		35,811,059			3,000,000			14,649,567

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)

							Deficit
							Accumulated
					Additional		During the			Total
	Common Stock				Paid-in		Development			Shareholders'
	Shares		Amount		Capital		Stage			Equity (Deficit)

Balance, August 22, 2008 (inception)		-	$	-	$	-	$	-		$	-
Issuance of common stock
upon formation		1,000,000		1,000		-		-			1,000
Net loss		-		-		-		(67,103	)		(67,103	)

Balance, June 30, 2009		1,000,000		1,000		-		(67,103	)		(66,103	)
Common stock issued for cash		4,000,000		4,000		-		-			4,000
Common stock issued for
intangible asset		1,500,000		1,500		1,000		-			2,500
Common stock issued for
conversion of notes payable		683,197		683		512,998		-			513,681
Effect of reverse merger		26,766,391		26,767		59,546		-			86,313
Common stock issued in
connection with reverse merger		1,456,000		1,456		493,584		-			495,040
Net loss		-		-		-		(1,000,057	)		(1,000,057	)

Balance, June 30, 2010		35,405,588		35,406		1,067,128		(1,067,160	)		35,374
Common stock issued for services		532,905		533		148,680		-			149,213
Net loss		-		-		-		(162,847	)		(162,847	)

Balance, September 30, 2010		35,938,493	$	35,939	$	1,215,808	$	(1,230,007	)	$	21,740

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

							Period from
							August 22,
							2008
							(Inception) to
	Three Months Ended September 30,						September 30,
	2010			2009			2010
Cash flows from operating activities:
Net loss	$	(162,847	)	$	(22,435	)	$	(1,230,007	)

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation expense		300						300
Common stock issued for services		149,213			-			149,213
Amortization of deferred financing costs		-			-			50,000
Issuance of common stock for interest		-			-			13,681
Cash based expense for reverse merger		-			-			125,000
Issuance of common stock for reverse merger		-			-			495,040
Changes in operating assets and liabilities:
Prepaid expenses and other assets		(9,578	)		-			(20,972	)
Accounts payable and other accrued expenses		(45,099	)		-			54,505

Net cash used in operating activities		(68,011	)		(22,435	)		(363,240	)

Cash flows from investing activities:
Purchase of property and equipment		-			-			(5,265	)
Software development costs		(25,400	)		-			(65,400	)
Acquisition deposits		(15,000	)		-			(85,000	)
Cash paid for reverse merger		-			-			(87,500	)

Net cash used in investing activities		(40,400	)		-			(243,165	)

Cash flows from financing activities:
Proceeds from notes payable		25,000			-			25,000
Proceeds from convertible notes payable		72,000			-			572,000
Borrowings from related parties		-			-			88,992
Repayment of related party payables		-			-			(1,689	)
Proceeds from sale of common stock		-			2,153			5,000
Fees paid for financing costs		-			-			(50,000	)

Net cash provided by financing activities		97,000			2,153			639,303

Increase (decrease) in cash and cash equivalents		(11,411	)		(20,282	)		32,898
Cash and cash equivalents, beginning of period		44,309			21,889			-

Cash and cash equivalents, end of period	$	32,898		$	1,607		$	32,898

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.	Organization of Business and Basis of Presentation

Youchange, Inc. was incorporated in the state of Arizona on August 22, 2008. It was organized as a “GreenTech” venture to purchase used consumer electronics, then refurbish and resell them. It is also an electronic waste (“eWaste”) company dedicated to responsibly recycling end of use consumer electronics. 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 in our Form 10-K filing for the year ended June 30, 2010, 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. 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 condensed 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.

The Company has realized no 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. Additionally, the Company has allocated a substantial portion of its time and investment in bringing its product to the market and raising capital.

These Unaudited Condensed Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). All significant intercompany transactions and accounts have been eliminated. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these Unaudited Condensed Consolidated Financial Statements are consistent with those followed in our annual consolidated financial statements for the year ended June 30, 2010, as filed on Form 10-K. In the opinion of management, these Unaudited Condensed Consolidated Financial Statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended June 30, 2010. Certain reclassifications have been made to the prior period financial statement amounts to conform to the current presentation.

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 and deferred taxes.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

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 are 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 hold 61%. Additionally, following the completion of the reverse merger, we issued 1,456,000 shares of our common stock to the sellers of BSFG.

Going Concern

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America 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; (ii) obtaining funding from outside sources through the sale of its debt and/or equity securities; and (iii) as a last resort, seeking out and completing a merger with an existing operating company. 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.

Recently Issued Accounting Pronouncements

In June 2009, the FASB issued guidance for determining the primary beneficiary of a variable interest entity (“VIE”). In December 2009, the FASB issued ASU 2009-17, “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities” (“ASU 2009-17”). ASU 2009-17 provides amendments to ASC 810 to reflect the revised guidance. The amendments in ASU 2009-17 replace the quantitative-based risks and rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a VIE with an approach focused on identifying which reporting entity has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (i) the obligation to absorb losses of the entity or (ii) the right to receive benefits from the entity. The amendments in ASU 2009-17 also require additional disclosures about a reporting entity’s involvement with VIEs. ASU 2009-17 is effective for annual reporting periods beginning after November 15, 2009. The adoption of this guidance did not have a material impact on our financial position and results of operations.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

In June 2009, the FASB issued guidance that seeks to improve the relevance and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. Specifically, this guidance eliminates the concept of a qualifying special-purpose entity, creates more stringent conditions for reporting a transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets. This guidance is effective for annual reporting periods beginning after November 15, 2009. The adoption of this guidance did not have a material impact on our financial position and results of operations.

2. Significant Accounting Policies

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 as there were net losses attributable to common shareholders for all periods reported.

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 deferred financing costs are 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. Had the Company’s convertible debt and related accrued interest been converted on September 30, 2010, a total of 292,460 common shares would have been issued.

3. Letter of Intent for the Acquisition of Feature Marketing, Inc.

The Company has entered into a binding letter of intent with Feature Marketing, Inc. (“Feature Marketing”), a leading buyer/seller of wholesale computer equipment. As of September 30, 2010, we had advanced $85,000 in the form of acquisition deposits towards the purchase of Feature Marketing. Of these deposits, $50,000 are secured by the assets of Feature Marketing, are supported by a promissory note from Feature Marketing and are refundable to us should this transaction fail to close. These deposits bear interest at a rate of 24.0% per annum. We have recognized interest income totaling $11,972 relative to these deposits for the period from August 22, 2008 (inception) to September 30, 2010, of which $4,578 was recognized during the three months ended September 30, 2010. The total purchase price for Feature Marketing contemplated under the terms of the letter of intent is $1,200,000, which is payable in $200,000 of cash and $1,000,000 of our common stock.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

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 BSFG. The shares were valued at $.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 are 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 hold 61%. For accounting purposes, Youchange, Inc. is the acquirer in the reverse merger transaction.

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

During July 2010, we entered into a one-year consulting agreement with Naser Ahmad to provide services as Chief Technology Officer, and issued 333,333 shares of our common stock to Mr. Ahmad 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 for Mr. Ahmad, which was paid by way of the issuance of one half of these shares. We recognized $33,333 of expense during July 2010 for the remaining one half of the 333,333 total shares issued to Mr. Ahmad, which was recognized as professional fees and was based on the stock price of $0.28 per share as of the date the shares were issued.

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 and will be required to pay $60,000 over the first year of the agreement and $63,000 over the second year of the agreement. Additionally, we will be required to issue additional common shares after the one year anniversary of this agreement valued at $30,000. We expensed $54,130 as general and administrative expense for the issuance of the 193,322 shares of common stock during July 2010, which is based on a stock price of $0.28 per share at the time the shares were issued.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

·	During July, 2010, we issued 6,250 common shares in exchange for public relations services. We expensed $1,750 as general and administrative expense for the issuance of these shares, which is based on a stock price of $0.28 per share at the time the shares were issued.

5. 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; however, we have not made the second payment as of the date of this filing.

6. Convertible Notes Payable

During July 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash. The note matures 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 August 2010, we issued a $25,000 convertible note with an unrelated, accredited third party in exchange for cash. The note matures 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 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 Holder 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.

7. Note Payable

During September 2010, we raised $25,000 from the issuance of a non-convertible note to an unrelated, accredited third party. The note matures 61 days from the date of issue and bears interest at a rate of 12.0% per annum. Additionally, the Company has the right to extend the maturity of the note an additional 30 days if it so chooses.

8. Professional Fees

Included in professional fees on the accompanying statements of operations is $69,300, $11,000 and $274,300 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively, relative to three of the Company’s officers. As of September 30, 2010, $24,000 is due to the officers for these professional fees, and is included in accounts payable and other accrued expenses on the accompanying Consolidated Balance Sheet.

YOUCHANGE HOLDINGS CORP

(A DEVELOPMENT STAGE ENTERPRISE)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) – (Continued)

9. Commitments and Contingencies

Operating Leases

The Company leases approximately 2,000 square feet of office space in Scottsdale, Arizona. The lease agreement, which was entered into in July 2010, is for a period of one year at a rate of approximately $3,000 per month.

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.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Recent Developments

Youchange, Inc. was incorporated in the state of Arizona on August 22, 2008. It was organized as a “GreenTech” venture to purchase used consumer electronics, then refurbish and resell them. It is also an electronic waste (“eWaste”) company dedicated to responsibly recycling end of use consumer electronics. 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 in our Form 10-K filing for the year ended June 30, 2010, 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. Our fiscal year end is June 30.

Youchange has realized no revenues from its planned business purpose and, accordingly, is considered to be in its development stage. As of the date of this filing, the Company has devoted its efforts to business planning, strategic partnership and software development. Additionally, the Company has allocated a substantial portion of its time and investment in bringing its product to the market and raising capital.

We plan to make youchange a leading provider of innovative clean-tech solutions to the escalating eWaste dilemma. The Company plans to incorporate a “bricks and clicks” model with eCommerce platforms for the collection and re-circulation of used electronic devices and refurbishing and recycling centers strategically staged for the restoration and proper disposal of electronic devices, respectively. The Company’s platform has been, and continues to be, designed for the purpose and intent of implementing partnerships with retail locations desirous of increasing store foot traffic around the pro social campaign of reducing and collecting eWaste.

Backgroud of BSFG

BSFG was incorporated in the state of Nevada on July 12, 2002. BSFG had the principal business objective of working toward establishing “small ticket” equipment leases within a small niche of the equipment leasing market. BSFG intended to provide cost effective “small ticket item” leasing to small and middle market companies primarily within the hospitality, spa and resort communities. This business plan was never implemented and no significant business activities related thereto ever occurred. Since becoming incorporated, other than the reverse merger described below, BSFG did not make any significant purchases or sales of assets, nor did it engage in any mergers, acquisitions or consolidations.

After careful consideration it became clear there could be great benefit to the economic downturn resulting in the liquidation of non-performing leases and used equipment. It was further concluded that much of this excess equipment and used electronics from both small to middle market companies and individual consumers was classified as “eWaste” and presented a negative environmental impact. This problem was growing and very few viable solutions have made it to market leaving a substantial void in this highly visible and much anticipated “GreenTech” sector. It was decided that to fully exploit and leverage this new market opportunity BSFG would need to expand the board and management team and begin an immediate search for a company with experience, relationships and leadership, focused in this newly defined sector of “GreenTech.” As discussed more fully below, BSFG was successful in locating and merging with Youchange, Inc., a company that had the desired attributes. The youchange management team will lead and execute this new direction that will focus on the eWaste challenge by launching the youchange.com platform that is expected to include paying and providing reward points to businesses and consumers for their used electronics, refurbishing and recycling through established and certified strategic partners and generating revenue from the sales and reCommerce of these products as well as licensing fees for proprietary data.

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. common stock. 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. There are no agreements among the former Youchange, Inc. shareholders regarding their holdings of our Common Stock. As a result of the reverse merger there are 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 hold 61%.

Letter of Intent for the Acquisition of Feature Marketing, Inc.

Critical Accounting Estimates and Policies

General

Our discussion and analysis of our financial condition and results of operations are based on our Condensed Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of the Condensed Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include carrying amounts of long-lived assets and deferred taxes. We base our estimates on historical experience, our observance of trends in particular areas and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.

We believe that of our significant accounting policies (refer to the Notes to Condensed Consolidated Financial Statements contained elsewhere in this annual report), the following may involve a higher degree of judgment and complexity:

Long-Lived Assets

We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long-lived assets should be evaluated for possible impairment.

Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

Upon recognition of an event, as previously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; or (ii) the present value of expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.

Deferred Financing Costs

Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier than its contractual maturity, any remaining deferred financing costs are charged to earnings. Fees paid to lenders for amendments that are not accounted for as extinguishments are deferred and expensed over the remaining life of the facility; ancillary professional fees relating to an amendment are expensed as incurred.

Accounting for Income Taxes

We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the Condensed Consolidated Financial Statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment, intangible assets, goodwill and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within the Condensed Consolidated Balance Sheet. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the Condensed Consolidated Statements of Operations. As of September 30, 2010, the Company has established a full valuation allowance for all deferred tax assets.

As of September 30, 2010, 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.

Operating Results

The following table summarizes our operating results for the periods presented below:

					Period from
					August 22,
					2008
					(Inception) to
	Three Months Ended September 30,				September 30,
	2010		2009		2010

Revenue	$	-	$	-	$	-

Operating expenses:
Professional fees		75,102		22,275		406,010
Licensing Fees		64,130		-		64,130
General and administrative		13,983		160		64,219
Marketing		11,750		-		23,489
Expense of reverse merger		1,345		-		621,385

Loss from operations	$	166,310	$	22,435	$	1,179,233

We are a development stage enterprise and accordingly have not recognized any revenue to the date of this filing.

Professional fees were $75,100, $22,300 and $406,000 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Professional fees include fees incurred for our Chief Executive Officer, Chief Financial Officer and Chief Technology Officer of $69,300, $11,000 and $274,300 for these periods, respectively. Also included in professional fees are legal and auditing fees.

General and administrative expense was $14,000, $200 and $64,200 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. These expenses primarily consist of facility rent, travel, computer, network and internet costs.

Marketing expense was $11,800, $0 and $23,500 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Marketing related costs relate primarily to press releases and other public relations efforts.

As described above, during March 2010, we completed a reverse merger transaction. We incurred $125,000 of cash based expense for this transaction, of which, $37,500 remains to be paid as of September 30, 2010, and $495,040 for shares issued in connection with this transaction.

We recognized other income (expense) of $3,500, $0 and $(50,800) three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Since inception, other expense primarily relates to interest expense of $64,800, which relates to: (i) $50,000 for the amortization of deferred financing costs; (i) $13,681 for interest on convertible notes that were converted prior to the reverse merger on March 30, 2010 and $1,100 for interest on convertible and non-convertible notes that were issued during the first quarter of fiscal 2011. Other income relates to interest income.

We anticipate that the execution of Youchange’s business plan will result in a rapid expansion of our operations, which may place a significant strain on Youchange’s management, financial and other resources. Youchange’s ability to manage the challanges associated with the expansion of our business operations after the reverse merger will depend, among other things, on our ability to monitor operations, control costs, maintain effective quality control, secure necessary marketing arrangements, expand internal management, technical information and accounting systems and attract, assimilate and retain qualified management and other personnel. If we fail to effectively manage these issues, we may not be profitable in the near future, or ever.

The difficulties in managing these various business issues will be compounded by a number of unique attributes of our anticipated business operations and business strategy. Should these and other concepts not perform as expected, Youchange’s financial condition and the results of our operations could be materially and adversely affected.

Liquidity and Capital Resources

As of September 30, 2010, we had $32,900 of cash and cash equivalents and negative working capital of $(140,100). Over the next twelve months we estimate in order to maintain reporting company status as defined under the Securities Exchange Act of 1934, we will require cash for expenses, which include accounting, legal and other professional fees, as well as filing fees. We must raise cash to cover these expenses and implement our business plan. We estimate that we must raise a minimum of $0.4 million in order to continue our proposed business and maintain our status as a reporting company for the next 90 to 120 days.

The Company’s ability to commence operations is entirely dependent upon the proceeds to be raised. If we do not raise at least $1.5 million, we will be unable to establish a base of operations, without which we will be unable to execute our current business plan. The Company will need to raise additional capital by issuing capital stock in exchange for cash in order to continue as a going concern. During the first quarter of fiscal 2011, we have raised a total of $97,000, which is described in further detail below. We cannot assure any investor that, if needed, sufficient financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely that operations would continue and any investment made by an investor would be lost in its entirety.

Although we have taken steps to focus our business on the GreenTech and eWaste sectors, we currently have no ability to fund the development and implementation of our business plan. As is typical of companies going through the development stage, we currently have no revenue. This raises substantial doubt about the Company’s ability to continue as a going concern. We expect to rely on external sources of capital through the issuance of debt and/or equity securities in private placement offerings to provide funding of our business. We expect to initiate such actions to obtain additional capital to fund our business, however, no assurances can be made that we will be successful in obtaining additional funding on terms and conditions that are acceptable to us.

If Youchange acquires its needed funding through the issuance of our equity securities, our existing shareholders may experience dilution and the value of their equity securities may decline. The acquisition of funding through the issuance of debt could result in a substantial portion of our future cash flow from operations being dedicated to the payment of principal and interest on that indebtedness, and could render us more vulnerable to competitive pressures and economic downturns.

During the first quarter of fiscal 2011, we raised a total of $97,000 through the following transactions:

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 Holder, to shares of our common stock at a rate of $0.25 per share.

·	During September 2010, we raised $25,000 from the issuance of a non-convertible note to an unrelated, accredited third party. The note matures 30 days from the date of issue and bears interest at a rate of 12.0% per annum.

Until such time, if at all, as we receive adequate funding, we intend to defer payment of all other obligations that are capable of being deferred. Such deferment has resulted in the past, and may result in the future, in some vendors demanding cash payment for their goods and services in advance, and other vendors refusing to continue to do business with us, which may adversely affect our ability to obtain goods and services in the future, or to do so on favorable terms.

Cash Flows

The following discussion relates to the major components of our cash flows:

Cash Flows from Operating Activities

Cash used in operating activities was $68,000, $22,400 and $363,200 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Cash used in operating activities primarily relates to payments for professional fees and general and administrative costs. We expect our operating activities will require additional cash in the future until we are able to exit the development stage, commence our planned operations and generate revenue.

Cash Flows from Investing Activities

Cash used in investing activities was $40,400, $0 and $243,200 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Cash used in investing activities for the three months ended September 30, 2010 primarily relates to cash used for the development of our proprietary business platform and advances towards the acquisition of Feature Marketing, which is described more fully above. Cash used in investing activities for the period from August 22, 2010 (inception) to September 30, 2010 also includes cash used for our reverse merger transaction in March 2010, which is discussed more fully above.

Cash Flows from Financing Activities

Cash provided by financing activities was $97,000, $2,200 and $639,300 for the three months ended September 30, 2010 and 2009 and the period from August 22, 2008 (inception) to September 30, 2010, respectively. Cash provided by financing activities for the three months ended September 30, 2010 relates to various convertible and non-convertible note agreements entered into, which are described further above. Cash provided by financing activities for the three months ended September 30, 2009 relates to the sale of stock via subscription. Cash provided by financing activities for the period from August 22, 2010 (inception) to September 30, 2010 also includes proceeds from the issuance of $500,000 of convertible notes, which were converted to common shares prior to the reverse merger on March 30, 2010.

New Accounting Pronouncements

Off-Balance Sheet Financing

We have no off-balance sheet debt or similar obligations. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third-party debt.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Based on their evaluation as of September 30, 2010, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) were not effective at a reasonable assurance level to ensure that the information required to be disclosed by us in this quarterly report on Form 10-Q was (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations and (ii) accumulated and communicated to our management, being Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Following the completion of the reverse merger in March 2010, which is discussed more fully elsewhere in this filing, we have made efforts to file all required reports with the SEC. As of the date of this filing, we are working towards improving our disclosure controls and procedures by instituting a more regimented and formal drafting and review process, by both our Chief Executive Officer and Chief Financial Officer, of all documents filed with the SEC, including Form 10-Q and Form 10-K filings, and have engaged additional resources to assist with filings made with the SEC. We believe these actions will result in improvements to our disclosure controls and procedures in future periods.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting in our most recent fiscal quarter.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

There have been no material changes in risk factors previously disclosed in our Form 10-K for the year ended June 30, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

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

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 and will be required to pay $60,000 over the first year of the agreement and $63,000 over the second year of the agreement. Additionally, we will be required to issue additional common shares after the one year anniversary of this agreement valued at $30,000. We expensed $54,100 as general and administrative expense for the issuance of the 193,322 shares of common stock during July 2010, which is based on an average stock price of $0.28 per share per the terms of the licensing agreement.

·	During July, 2010, we issued 6,250 common shares in exchange for public relations services. We expensed $1,750 as general and administrative expense for the issuance of these shares, which is based on a stock price of $0.28 per share at the time the shares were issued.

Item 3. Defaults Upon Senior Securities

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 are due on April 1, 2010 and June 30, 2010. The first payment of $37,500 was paid when due on April 1, 2010; however, we have not made the second payment as of the date of this filing. We have received a verbal waiver of the default from the note holders.

Item 4. Removed and Reserved

Item 5. Other Information

None.

Item 6. Exhibits

	No	Exhibit
	2.1	Agreement and Plan of Merger dated March 15, 2010 (Filed as an Exhibit to Form 8-K filed March 22, 2010 and incorporated herein by reference)
	3.1	Articles of Incorporation (Filed as an Exhibit to Form S-1 Registration Statement filed on August 12, 2008, Registration No. 333-152959 and incorporated herein by reference)
	3.2	Amendment to Articles of Incorporation (Filed as an Exhibit to Form 14C Definitive Information Statement filed on May 28, 2010 and incorporated herein by reference)
	3.3	By-laws (Filed as an Exhibit to Form S-1 Registration Statement filed on August 12, 2008, Registration No. 333-152959 and incorporated herein by reference)
	31.1	8650 Section 302 Certification of Chief Executive Officer
	31.2	8650 Section 302 Certification of Chief Financial Officer
	32.1	Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	YOUCHANGE HOLDINGS CORP
Date: November 15, 2010	By:	/s/ JEFFREY I. RASSÁS
		Jeffrey I. Rassás
		Chief Executive Officer and Director
	By:	/s/ Richard A. Papworth
		Richard A. Papworth
		Chief Financial Officer and Director