Two Hands Corp - Quarter Report: 2013 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to __________

Commission File Number: 333-167667

INNOVATIVE PRODUCT OPPORTUNITIES INC.

(Exact name of registrant as specified in its charter)

(347) 789-7131

(Registrant's telephone number, including area code)

27141 Aliso Creek Road, Suite 235, Aliso Viejo, California

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark 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 submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: As of November 14, 2013, the issuer had 500,000,000 shares of its common stock issued and outstanding, par value $0.0001 per share.

INNOVATIVE PRODUCT OPPORTUNITIES INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2013

(A Development Stage Enterprise)

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The accompanying footnotes are an integral part of these financial statements.

The accompanying footnotes are an integral part of these financial statements.

The accompanying footnotes are an integral part of these financial statements.

Innovative Product Opportunities Inc.

(A Development Stage Enterprise)

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Innovative Product Opportunities Inc. (the "Company" or "Innovative") was incorporated on April 3, 2009 in the State of Delaware and established a fiscal year end of December 31. The Company is a development stage enterprise organized to provide product development. The Company is currently in the development stage as defined in Financial Accounting Standards Board ("FASB") Accounting Standard Codification ("ASC") 915.

On March 1, 2012 the company entered into a license agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (-Cigar & Spirits-) and moved offices to our new California address with Cigar and Spirits. The agreement grants Innovative the right to market the products of Cigar & Spirits including but not limited to the sales, promotion, and advertising vehicles of the Magazine. There are no specific rent terms included in the license agreement but verbally they have agreed to allow Innovative to use their office on an on-going basis free of additional charge. On July 8, 2013, Innovative received written notice that Cigar & Spirits will cancel the license agreement on August 1, 2013.

Restatement:

The balance sheet, statement of operations and the statement of cash flows for the three and nine months ended September 30, 2012 have been restated to exclude the operations and cash flows of Cigar & Spirits. On April 11, 2013, the Company reconsidered its original conclusion and determined that the Company is not the primary beneficiary of Cigar & Spirits since it does not have (1) the responsibility to absorb the losses of Cigar & Spirits (2) the ability to direct the activities of Cigar & Spirits. As such, the original Form 10-Q filed by the Company for the quarterly periods ended March 31, 2012, September 30, 2012 and September 30, 2012 should not be relied on.

A summary of the effect of the restatement is as follows:

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited financial statements of Innovative Product Opportunities Inc. have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission requirements for interim financial statements. Therefore, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The financial statements should be read in conjunction with the annual financial statements for the year ended December 31, 2012 of Innovative Product Opportunities Inc. in our Form 10-K filed on April 15, 2013.

The interim financial statements present the balance sheets, statements of operations and cash flows of Innovative Product Opportunities Inc. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States.

The interim financial information is unaudited. In the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2013 and the results of operations and cash flows presented herein have been included in the financial statements. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results of operations for the full year.

GOING CONCERN

The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have significant operations or a source of revenue sufficient to cover its operation costs and allow it to continue as a going concern. The Company has an accumulated deficit during development stage at September 30, 2013 and December 31, 2012 of $6,105,533 and $5,928,585, respectively. The Company will be dependent upon the raising of additional capital through placement of its common stock in order to implement its business plan. There can be no assurance that the Company will be successful in this situation. Accordingly, these factors raise substantial doubt as to the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classifications of liabilities that might result from this uncertainty. The Company is funding its initial operations by way of loans from its Chief Executive Officer. The Company's officers and directors have committed to advancing certain operating costs of the Company.

USE OF ESTIMATES AND ASSUMPTIONS

Preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of the statement of cash flows, the Company considers highly liquid financial instruments purchased with a maturity of three months or less to be cash equivalents.

NET LOSS PER SHARE

Basic net income (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of common shares outstanding for the period increased to include the number of additional common shares that would have been outstanding if potentially dilutive securities had been issued. There were no potentially dilutive securities outstanding during the periods presented.

REVENUE RECOGNITION

The Company recognizes revenues and the related costs when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Amounts invoiced or collected in advance of product delivery or providing services are recorded as deferred revenue or customer deposits. The company accrues for sales returns, bad debts, and other allowances based on its historical experience. Net sales under certain long-term contracts for product design, which may provide for periodic payments, are recognized under the percentage-of-completion method. Estimated cost-at-completion for these contracts are reviewed on a routine periodic basis, and adjustments are made periodically to the estimated cost-at-completion, based on actual costs incurred, progress made, and estimates of the costs required to complete the contractual requirements. When the estimated cost-at-completion exceeds the contract value, the contract is written down to its net realizable value, and the loss resulting from cost overruns is immediately recognized.

To properly match net sales with costs, certain contracts may have revenue recognized in excess of billings (unbilled revenues), and other contracts may have billings in excess of net sales recognized (customer deposits). Under long-term contracts, the prerequisites for billing the customer for periodic payments generally involve the Company's achievement of contractually specific, objective milestones (e.g., scheduling, design concepts, source and engage prototyping, review, adjust and re-design, re-prototype and submit for field testing, source and engage production modules, post production implementation).

Revenue for services contracts will be recognized under a proportional performance model if the following criteria are met (i) the arrangement provides for periodic billings as services are provided (ii) the customer receives value as the services as rendered, not just upon the completion of the services and (iii) the customer need not re-perform services that it has already received if it terminates the service contract early and hires another service provider to complete the service deliverable. If these criteria are not met, the Company will recognize revenue on the service contracts using the completed contract method.

STOCK-BASED COMPENSATION

The Company measures stock-based compensation at the grant date based on the fair value of the award and recognizes stock-based compensation expense over the requisite service period.

The Company also grants awards to non-employees and determines the fair value of such stock-based compensation awards granted as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. If the fair value of the equity instruments issued is used, it is measured using the stock price and other measurement assumptions as of the earlier of (1) the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty's performance is completed.

RECENT ACCOUNTING PRONOUNCEMENTS

There have been no recent accounting pronouncements or changes in accounting pronouncements that impacted the quarter ended September 30, 2013 or which are expected to impact future periods, that were not already adopted and disclosed in prior periods.

NOTE 3 - CUSTOMER DEPOSITS

During the nine month period ended September 30, 2013, the company invoiced and received cash in the amount of $58,000 for a new product design project on behalf of two customers. In accordance with the revenue recognition policy of the Company, all revenue has been deferred since the Company recognizes revenue under this service contract using the completed contract method.

The customer deposits were received by two customers who are shareholders and note holders of the Company. One customer, Al Kau, advanced $29,000 in cash holds notes payable of $33,250 and a convertible note of $2,730 (net of debt discount of $6,370) in the Company at September 30, 2013 and is a 6.0% shareholder at September 30, 2013. The second customer, Aaron Shrira, also advanced $29,000 in cash holds notes payable of $42,917 in the Company at September 30, 2013 and is a 0% shareholder at September 30, 2013.

NOTE 4 – CONVERTIBLE NOTES

On June 18, 2013, the Company amended an unsecured, non-interest bearing promissory note payable on demand with a carrying value $1,750 issued to the Cellular Connection Ltd. The modification of the Note has been accounted for as debt extinguishment and the issuance of a new debt instrument. Under the terms of the Side Letter Agreement, the Note has a fixed conversion price of $0.0001 per share of the Company’s common stock. In additional, as a result of the modification the face value of the Note was increased from $1,750 to $3,500 resulting in a finance charge of $1,750. The note bears interest at 20% per annum and allows for the lender to secure a portion of the Company assets up to 200% of the face value of the note and mature one year from the day of their respective issuance. The amendment of the terms of Promissory Note resulted in a beneficial conversion feature of $3,500 since the closing price of common stock on June 18, 2013 exceeded the fixed conversion price. The beneficial conversion feature of $3,500 is included in additional paid-in capital. On June 18, 2013 the holder of the note converted $3,500 of principal plus accrued interest into 35,000,000 shares of the Company's common stock.

On July 2, 2013, the Company agreed to amend the term of an unsecured, non-interest bearing promissory note payable on demand with a carrying value $12,500 issued to the Al Kau, Al Kau is a consultant, investor and customer of the Company. Under the terms of the Side Letter Agreement, the issue price of the Note is $12,500 with a face value of $18,000 and the terms of the Note include a fixed conversion price of $0.0001 per share of Company’s common stock and a maturity date of May 10, 2014. The amendment of the terms of the Note resulted in a beneficial conversion feature of $12,500 since the closing price of common stock on July 2, 2013 exceeded the fixed conversion price. The beneficial conversion feature of $12,500 is included in additional paid-in capital. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the note. On July 11, 15 and 16, 2013 the holder of the note converted $8,900 of principal plus accrued interest into 89,000,000 shares of the Company's common stock. Accreted interest expense of $11,630 as result of the amortization of the debt discount is included in interest expense in the statement of operations for the three and nine months ended September 30, 2013.

NOTE 5 – NOTES PAYABLE

On January 8, 2013, the Company issued a promissory note in the amount of $6,000 from Al Kau. This note is unsecured, bears no interest and is payable on demand by the note holder.

On February 2, 2013, the Company issued a promissory note in the amount of $6,000 to Al Kau. This note is unsecured, bears no interest and is payable on demand by the note holder.

On February 22, 2013, the Company issued a promissory note in the amount of $6,000 to The Cellular Connection Limited. This note is unsecured, bears no interest and is payable on demand by the note holder.

On June 6, 2013, the Company issued a promissory note in the amount of $4,728 to the Cellular Connection Limited. This note is unsecured, bears no interest and is payable on demand by the note holder.

NOTE 6 – DUE TO RELATED PARTY

As of September 30, 2013 and December 31, 2012 advances of $76,895 and $73,602 respectively, were due to the Company's Chief Executive Officer. The balances are non-interest bearing, unsecured and have no specified terms of repayment.

NOTE 7 - STOCKHOLDERS’ EQUITY

On August 6, 2013, the Company filed with State of Delaware a Certificate of Designation to amend the Certificate of Incorporation. The amendment increases the total number of shares of which the Company share has the authority to issue to 3,001,000,000 shares consisting of 3,000,000,000 shares of common stock, par value $0.0001 per share and 1,000,000 shares of preferred stock, par value $0.001 per share. All share information has been revised to reflect the increase in the total number of shares.

The Company is authorized to issue an aggregate of 3,000,000,000 common shares with a par value of $0.0001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share. No preferred shares have been issued.

On April 30, 2013, the Company received for no consideration 12,000,000 shares of its common stock for cancellation, the effect of the cancellation of shares was immaterial thus no retroactive treatment was applied.

On May 8, 2013, the Company issued 40,000,000 shares of common stock to Stuart Turk and Lincoln Salazar valued at $76,000 as stock-based compensation for business development and consulting services.

On June 18, 2013, The Cellular Connection Limited converted $3,500 of principal and interest of a convertible note into 35,000,000 shares of the Company’s common stock at a fixed conversion price of $0.0001 per share.

On July 11, 15 and 16, 2013 Al Kau, consultant, investor and customer of the Company, the holder of a convertible note converted $8,900 of principal plus accrued interest into 89,000,000 shares of the Company's common stock.

NOTE 8 – SUBSEQUENT EVENTS

From November 4, 2013 to November 8, 2013, the Company authorized the issue of 485,000,000 of shares of common stock to consultants for services. The Chief Executive Officer is currently holding these shares certificate until the agreements with the consultants are executed. The Company does not consider these shares to be issued and outstanding because the certificates are held and controlled by the Company.

The Company expects to execute agreements with the following consultants:

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10-Q contains "forward-looking statements" that involve risks and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described in our Form 10-K filed on April 15, 2013, and other filings we make with the Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

The following discussion and analysis of financial condition and results of operations is based upon, and should be read in conjunction with our audited financial statements and related notes thereto included elsewhere in this report, and in our Form 10-K filed on April 15, 2013.

BUSINESS OVERVIEW

We were incorporated on April 3, 2009 as Innovative Product Opportunities Inc. under the laws of the State of Delaware. We are currently in the development stage as the Company has not generated significant revenue from its operations and is currently seeking new business opportunities. We expect to incur losses in the foreseeable future due to significant costs associated with our business startup, developing our business and costs associated with on-going operations. Our business is to be a service only product development firm to meet the needs of new and emerging product ideas available for sale today and in the future. Our Certified Engineering Technicians including our CEO and sub-contracts, who can be hired as required, can participate in the creation of products, from hand sketches and design through prototyping and construction. We offer project management to assist our client to produce finished parts ready to market in numerous industries including, but not limited to, consumer and household goods, office products, furniture, and toys. We believe that we will be able to deliver a complete solution to startup and development stage companies.

On March 1, 2012, we entered into a License Agreement with Szar International, Inc. (dba Cigar & Spirits Magazine) (“Cigar & Spirits”). Under the terms of the Agreement, we have the right to market the products of Cigar & Spirits including but not limited to the sales, promotion and advertising vehicles. We have agreed to pay a fee of 1.5% of all sales generated plus a management fee of 1.5% based on the total monies paid for employee salaries, benefits and commissions. The Company is responsible for all expenses that relate to sales generated under the License Agreement. Cigar & Spirits may at any time in its sole discretion, with sixty days prior notice, terminate the agreement and revoke the license granted for any reason whatsoever and upon such termination we will immediately stop using the Cigar & Spirits trade names. On July 8, 2013, Innovative received written notice that Cigar & Spirits will cancel the license agreement on August 1, 2013. As the Company believes Cigar & Spirits did not provide us with the right to market Cigar & Spirits products as required under the License Agreement, no expense or liability has been recorded for fees. To date, Cigar & Spirits has not requested any fees from the Company.

Since March 1, 2012, the Company has not earned revenues from rights acquired under this license agreement.

RESULTS OF OPERATIONS

COMPARISON OF RESULTS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2013 AND 2012 AND FROM INCEPTION (APRIL 3, 2009) THROUGH SEPTEMBER 30, 2013.

REVENUES

Our revenue for the three and nine months ended September 30, 2013 was $0 and $0, respectively, compared to $0 and $0 for the three and nine months ended September 30, 2012. Our revenue from inception (April 3, 2009) through September 30, 2013 was $21,000. We earned $21,000 of revenue from a contract for design consultation in 2010. This amount was originally booked as Accounts Receivable and since it was not collected within a reasonable period, an allowance was booked in the subsequent period. We are completely dependent upon the willingness of our management to fund our initial operations by way of loans from our Chief Executive Officer and shareholders.

COSTS OF GOODS SOLD

We did not incur cost of sales for the three and nine months ended September 30, 2013 and 2012 and for the cumulative period from Inception (April 3, 2009) through September 30, 2013.

OPERATING EXPENSES

Our general and administrative expense for the three and nine months ended September 30, 2013 was $41,840 and $83,683, respectively, compared to $7,341 and $96,025 for the three and nine months ended September 30, 2012. The expenses can be primarily attributed to our need to pay for professional fees, our transfer agent and investment relations. During the nine months ended September 30, 2013, we issued 40,000,000 shares of common stock of the Company valued at $76,000 for business development and consulting services.

OTHER INCOME (EXPENSE)

Interest expense for the three and nine months ended September 30, 2013 was $12,015 and $17,265, respectively, compared to $0 and $0 for the three and nine months ended September 30, 2012. Interest expense is a result of amortization of debt discounts on convertible notes.

NET INCOME/LOSS

Our net loss for the three and nine months ended September 30, 2013 was $53,855 and $176,948 respectively, compared to $55,088 and $293,025 for the three and nine months ended September 30, 2012. Our losses during the quarter ended September 30, 2013 and 2012 are due to costs associated with professional fees, our transfer agent, investor relations and stock-based compensation.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

As of September 30, 2013, we had total current assets of $4,751 and total current liabilities of $235,919, resulting in a working capital deficit of $231,168. At September 30, 2013, we had cash of $4,751. Our cash flows used in operating activities for the nine months ended September 30, 2013 was $22,845. Our current cash balance and cash flow from operating activities will not be sufficient to fund our operations. Our cash flow from financing activities for the nine months ended September 30, 2013 was $26,021. Our cash flows used in investing activities for the nine months ended September 30, 2013 was $693 for the purchase of equipment. The Company has an accumulated deficit during development stage at September 30, 2013 and December 31, 2012 of $6,105,533 and $5,928,585, respectively. The deficit reported at September 30, 2013 is largely a result of operating expenses for professional fees, our transfer agent, investor relations, stock-based compensation and loss on settlement of debt.

On June 18, 2013, the Company amended an unsecured, non-interest bearing promissory note payable on demand with a carrying value $1,750 issued to the Cellular Connection Ltd. The modification of the Note has been accounted for as debt extinguishment and the issuance of a new debt instrument. Under the terms of the Side Letter Agreement, the Note has a fixed conversion price of $0.0001 per share of the Company’s common stock. In additional, as a result of the modification the face value of the Note was increased from $1,750 to $3,500 resulting in a finance charge of $1,750. The note bears interest at 20% per annum and allows for the lender to secure a portion of the Company assets up to 200% of the face value of the note and mature one year from the day of their respective issuance. The amendment of the terms of Promissory Note resulted in a beneficial conversion feature of $3,500 since the closing price of common stock on June 18, 2013 exceeded the fixed conversion price. The beneficial conversion feature of $3,500 is included in additional paid-in capital. On June 18, 2013 the holder of the note converted $3,500 of principal plus accrued interest into 35,000,000 shares of the Company's common stock.

On July 2, 2013, the Company agreed to amend the term of an unsecured, non-interest bearing promissory note payable on demand with a carrying value $12,500 issued to the Al Kau. Under the terms of the Side Letter Agreement, the issue price of the Note is $12,500 with a face value of $18,000 and the terms of the Note include a fixed conversion price of $0.0001 per share of Company’s common stock and a maturity date of May 10, 2014. The amendment of the terms of the Note resulted in a beneficial conversion feature of $12,500 since the closing price of common stock on July 2, 2013 exceeded the fixed conversion price. The beneficial conversion feature of $12,500 is included in additional paid-in capital. The Note allows for the lender to secure a portion of the Company assets up to 200% of the face value of the note. On July 11, 15 and 16, 2013 the holder of the note converted $8,900 of principal plus accrued interest into 89,000,000 shares of the Company's common stock. Accreted interest expense of $11,630 as result of the amortization of the debt discount is included in interest expense in the statement of operations for the three and nine months ended September 30, 2013.

Over the next 12 months we expect to expend approximately $50,000 in cash for legal, accounting and related services and an additional $150,000 in cash to implement our business plan. We hope to be able to compensate our independent contractors with stock-based compensation, which will not require us to use our cash, although there can be no assurances that we will be successful in these efforts.

We expect to be able to secure capital through advances from our Chief Executive Officer, note holders, shareholders and others in order to pay expenses such as organizational costs, filing fees, accounting fees and legal fees. We believe it will be difficult to secure capital in the future because we have no assets to secure debt and there is currently no trading market for our securities. We will need additional capital in the next twelve months and if we cannot raise such capital on acceptable terms, we may have to curtail our operations or terminate our business entirely.

The inability to obtain financing or generate sufficient cash from operations could require us to reduce or eliminate expenditures for developing products and services, or otherwise curtail or discontinue our operations, which could have a material adverse effect on our business, financial condition and results of operations. Furthermore, to the extent that we raise additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders. If we raise additional funds through the issuance of debt securities, these securities may have rights, preferences and privileges senior to holders of our common stock and the terms of such debt could impose restrictions on our operations. Regardless of whether our cash assets prove to be inadequate to meet our operational needs, we may seek to compensate providers of services by issuing stock in lieu of cash, which may also result in dilution to existing stockholders.

OPERATING CAPITAL AND CAPITAL EXPENDITURE REQUIREMENTS

We are currently funding our operations by way of cash advances from our Chief Executive Officer, note holders, shareholders and others. We hope to be able to compensate our independent contractors with stock-based compensation, which will not require us to use our cash, although there can be no assurances that we will be successful in these efforts. We expect that we will be required to raise an additional $200,000 in cash by issuing new debt or equity for operating costs in order to implement our business plan in the next twelve months. The funds are loaned to the Company as required to pay amounts owed by the Company. As such, our operating capital is currently limited to the personal resources of our Chief Executive Officer, note holders, shareholders and others. The loans from our Chief Executive Officer, note holders, shareholders and others are unsecured and non-interest bearing and have no set terms of repayment. Our common stock started trading over the counter and has been quoted on the Over-The Counter Bulletin Board since February 17, 2011. The stock currently trades under the symbol “IPRU.OB.”

OFF-BALANCE SHEET TRANSACTIONS

We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Smaller Reporting Company, as defined by Rule 12b-2 of the Exchange Act and in Item 10(f)(1) of Regulation S-K, we are electing scaled disclosure reporting obligations and therefore are not required to provide the information requested by this Item.

ITEM 4T. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our company's disclosure controls and procedures (as defined in Rules 13a-15(e) of the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our company in reports it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities Exchange Commission and to ensure that such information is accumulated and communicated to our company's management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosure. The conclusion that our disclosure controls and procedures were not effective was due to the presence of the following material weaknesses in internal control over financial reporting which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both United States generally accepted accounting principles and Securities and Exchange Commission guidelines. Management anticipates that such disclosure controls and procedures will not be effective until the material weaknesses are remediated.

We plan to take steps to enhance and improve the design of our internal controls over financial reporting. During the period covered by this quarterly report on Form 10-Q, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending December 31, 2013, subject to obtaining additional financing: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out above are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake.

CHANGES IN INTERNAL CONTROLS OVER FINANCIAL REPORTING

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2013 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against our Company or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 1A. RISK FACTORS

A smaller reporting company is not required to provide the information required by this Item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

During the quarter ended September 30, 2013, we did not have any defaults upon senior securities.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION.

The Balance sheet, statement of operations and the statement of cash flows for the three and nine months ended September 30, 2012 have been restated to exclude the operations and cash flows of Cigar & Spirits. On April 11, 2013, the Company reconsidered its original conclusion and determined that the Company is not the primary beneficiary of Cigar & Spirits since it does not have (1) the responsibility to absorb the losses of Cigar & Spirits (2) the ability to direct the activities of Cigar & Spirits. As such, the original Form 10-Q filed by the Company for the quarterly periods ended March 31, 2012, September 30, 2012 and September 30, 2012 should not be relied on.

A summary of the effect of the restatement is as follows:

ITEM 6. EXHIBITS

* In accordance with Regulation S-T, the XBRL-related information on Exhibit No. 101 to this Quarterly Report on Form 10-Q shall be deemed “furnished” herewith and not “filed.”

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.