NOTES TO CONDENSED FINANCIAL STATEMENTS

(A Development Stage Company)

(Unaudited)

NOTE 1.    ORGANIZATION AND BASIS OF PRESENTATION

GetFugu, Inc, (“GetFugu,” or “Company”), is developing next generation mobile search tools. The Company’s technology is designed to play on the strengths of mobile handheld devices (mobile phones) and assist consumers in retrieving content more expediently. Consumers will be able to download GetFugu application tools to their mobile phone device.  The GetFugu applications will allow consumers to retrieve content and eliminate the need to type website addresses or search terms into the device’s internet browser.

The Company currently has four products under development.

	1.	See It (ARL): “Vision recognition” This GetFugu application recognizes logos and products through any mobile phone camera. Consumers simply point their phone at a logo and retrieve content from the brand owner.
	2.	Say It (VRL): “Voice recognition” The consumer can simply speak into the phone to retrieve content. In addition to brand names, the consumer can say generic keywords such as “best pizza” or “ATM”.
	3.	Find It (GRL): “Location recognition” For local content, GetFugu is designed to work with the Global Positioning Systems (“GPS”) in mobile phones. The application will return content, based on the proximity to the user. A keyword of “pizza” will return the closest pizza parlors.  Local businesses can pay for voice-activated key words to position themselves at the top of the search list within a geographic area.
	4.	Get it (Hot-Spotting): GetFugu provides advertisers with a way to monetize their marketing efforts through a mobile ecommerce tool called Hot-Spotting.  Hot-Spotting enables the consumer to purchase or retrieve information on any item featured in a video simply by touching products as displayed on the screen.

The Company was incorporated in the State of Nevada on March 14, 2007 under the name Madero, Inc.  On August 29, 2008, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga ( sole director, former President, Chief Executive Officer, and Chief Financial Officer of Madero, Inc.), and Media Power, Inc. (“MPI”). Pursuant to the terms and conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of the Company’s common stock (this number, and all other share amounts presented, is post the 12 for 1 forward stock split which was effectuated on February 11, 2009), or approximately 48.07% of the Company’s then issued and outstanding shares of common stock from Mr. Lizarraga. 

Prior to the closing of the transactions referenced in the Stock Purchase Agreement, the Company was a development stage company in an unrelated industry.  Through March 14, 2007, the Company’s activities had been limited to its formation, business planning and raising capital, and since August 29, 2008 involved in the development of next generation mobile search tools.

On January 23, 2009, the Company amended its Articles of Incorporation to increase the number of authorized common stock, par value $0.001 per share, from 75,000,000 to 500,000,000.  On February 11, 2009, there was a forward split of common stock whereby each issued and outstanding share of common stock was split into 12 shares of common stock.

Effective March 25, 2009, the Company’s Articles of Incorporation were amended to change the name to GetFugu, Inc. 

Basis of Presentation — The accompanying unaudited condensed financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2008 included in the Company's Annual Report on Form 10-K. The results of the nine months ended September 30, 2009, are not necessarily indicative of the results to be expected for the full year ending December 31, 2009.

 

   The Company's principal activities are expected to focus on the commercialization of its technologies.  The accompanying condensed financial statements have been prepared in accordance with Accounting Standards Codification (“ASC”) 915, “Development Stage Entities.”

 

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		September 30, 2009				September 18, 2009
Risk-free interest rate			2.49	%			2.49	%
Expected volatility			171	%			171	%
Expected life (in years)			4.9				5
Expected dividend yield			-				-
Number of warrants			1,500,000				1,500,000
Fair value		$	1,105,753			$	1,045,872

The risk-free interest rate was based on rates established by the Federal Reserve.  The Company’s expected volatility was based on the historical volatility of similar entities whose share prices are publicly available.  The expected life of the warrants was determined by the expiration date of the warrants.  The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

The fair value of this warrant liability was $1,105,753 at September 30, 2009. The $59,881 change in fair value is reported in Company’s condensed statement of operations as a loss on derivative financial instruments. The fair value of this liability will be re-measured at the end of every reporting period and the change in fair value will be reported in the condensed statement of operations as a gain or loss on derivative financial instrument.

Fair Value Measurement

ASC 820, "Fair Value and Disclosures," establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows.  Level 1inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2009:

 

						Fair Value Measurements at September 30, 2009
		Total carrying value at  September 30,  2009				Quoted prices in active markets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Derivative liabilities		$	1,105,753			$	-			$	-			$	1,105,753

 

The carrying amounts of cash, accounts payable, and accrued liabilities approximate their fair value due to their short maturities.  The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors, and are classified within Level 3 of the valuation hierarchy. There were no changes in the valuation techniques during the nine months ended September 30, 2009.

 

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NOTE 7 – RELATED PARTY TRANSACTIONS

Effective April 9, 2009, the Company entered into an Agreement for the assignment of Patent Rights (the “Assignment Agreement”) with MARA Group Ltd (“MARA”).  Pursuant to the Assignment Agreement the Company acquired eight patent applications (the “Patent Applications”) from MARA in exchange for 25 million shares of common stock of the Company.  Prior to the closing of this transaction MARA was deemed to be an “affiliate”, as Carl Freer (“Freer”), co-founder of the Company and the then sole owner of MARA owned, directly and indirectly, approximately 21% of the Company’s outstanding common stock.  Subsequent to this transaction, Freer beneficially owned approximately 37.5% of the Company’s outstanding common stock. Since MARA is under common control with the Company (due to the common ownership by Freer), the Company recorded the acquisition of the eight patent applications at MARA’s carrying value of $0, and the difference between the fair market value of the common stock issued to MARA and the carrying value of the patent applications received was recorded as deemed dividend to MARA.  Through his role as co-founder and one of the single largest Company shareholders, Freer is considered to have management control in accordance with ASC 850, “Related Party Disclosures.”

On July 17 2009, the Company agreed to issue Freer 10,000,000 shares of Series A preferred stock with each such share having twenty votes on all matters brought to a shareholder vote.  The issuance of Series A preferred stock is subject to Board approval and the authorization of a sufficient number of shares of Series A preferred.    

On August 19, 2009 the Company and Freer executed a twelve month agreement which limits Freer’s rights to vote shares of the Company’s Common Stock that he owns during this twelve month period to a level of 17% of the total votes cast on any matter brought to Company shareholders for a vote.  On October 16, 2009, Freer created a limited liability company controlled by three individuals including Freer’s daughter.  All shares of Company Common Stock owned by Freer were transferred to this limited liability company.  Concurrent with the creation of this limited liability company, the August 19, 2009 agreement which limited Freer's right to vote shares was terminated.

On November 2, 2009, Freer was appointed President and a member of the Board.

On August 29, 2008, a $15,000 loan from the Company’s then sole director was forgiven without interest or penalty. This forgiven loan was charged to additional paid-in capital.

During 2008, Freer paid $2,025 of the Company’s expenses. On December 31, 2008, this amount was forgiven and charged to additional paid-in capital.

 On August 24, 2009, the Company entered into revolving promissory note (“Promissory Note”) with a lender whose owners include an employee of the Company.  Under the terms of the Promissory Note the maximum available advance shall not exceed $5 million, interest with an annual rate of 10% payable on demand.  As of September 30, 2009, the Company had received advances under the Promissory Note totaling $1,299,849 and repaid $434,807.  Subsequent to September 30, 2009, the Company received an additional $42,180 and repaid an additional $200,000.   As of November 19, 2009, the amount due under this facility totaled $716,912.  

NOTE 8 – LEGAL PROCEEDINGS

 

From time to time, the Company is involved in routine litigation incidental to the normal course of business.  While it is not feasible to predict or determine the final outcome of any known claims, the Company believes the resolution of any of these types of matters will not have a material adverse effect on the Company’s financial position, results of operations or liquidity.

NOTE 9 – SUBSEQUENT EVENTS

On October 21, 2009, the Company executed a mutual general release agreement to cancel a consulting agreement dated February 17, 2009.  As part of this release, the Company will be returned 4,500,000 of the 6,000,000 common shares originally issued as stock compensation on March 4, 2009.

 

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On November 13, 2009 the Company created a new wholly-owned subsidiary, GetFugu Research, Inc. and entered in to a merger agreement with IKDATA DE, Inc. (“IKDATA”) and its sole stockholder, Ivan Kozhuharov, our Chief Software Architect, pursuant to which the Company acquired IKDATA and its intellectual property in exchange for an agreement to issue Mr. Kozhuharov five million shares of the Company's common stock immediately and an additional five million shares in March 2010.  Mr. Kozhuharov also entered in to an employee agreement and a six month non-competition agreement.

A meeting of the Board of Directors (the “Board”) of the Company was held on October 19, 2009.  At this meeting, the Board approved (i) the reincorporation of the Company from Nevada to Delaware, (ii) increasing the number of authorized shares of Common Stock from 500,000,000 to 750,000,000, (iii) issuing up to 200,000,000 shares of “blank check” preferred stock, and (iv) the creation of the 2009 Incentive Compensation Plan with a maximum of 250,000,000 shares of Common Stock to be issued with no more than 100,000,000 shares permitted to be issued in any fiscal year.  All of the above noted items require shareholder approval.  Accordingly, at this meeting, the Board approved the filing with the SEC of a written consent statement.

 

A meeting of the Board of the Company was held on November 2, 2009.  At this meeting, the Board approved (i) the appointment of five new directors (ii) board compensation of $15,000 per month for the chairman and $10,000 a month for board members, and (iii) granted 2,000,000 options to each of the new directors at the fair value on the grant date of $.37 per share and of which 333,333 options vest in six months and the remainder vests over a period of 3 years.  The fair value of the 10,000,000 options using Black-Scholes of $3,574,280 will be amortized over the 3 years.

 

A meeting of the Board of the Company was held on November 13, 2009.  At this meeting, the Board approved 5,400,000 options to its chief operating officer at $.40 per share of which 2,000,000 options vest on January 10, 2010 and the remainder vests over a period of 20 months. The fair value of the 5,400,000 options using Black-Scholes of $1,898,685 will be amortized over the 22 month term of the contract.

 

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

The information contained in this Form 10-Q is intended to update the information contained in our Annual Report on Form 10-K for the year ended December 31, 2008 (filed under our former name Madero, Inc.) and presumes that readers have access to, and will have read, the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other information contained in such Form 10-K.  The following discussion and analysis also should be read together with our condensed consolidated financial statements and the notes to the condensed consolidated financial statements included elsewhere in this Form 10-Q.

The following discussion contains certain statements that may be deemed “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements appear in a number of places in this Form 10-Q, including, without limitation, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. These statements are not guarantees of future performance and involve risks, uncertainties and requirements that are difficult to predict or are beyond our control.  Forward-looking statements speak only as of the date of this quarterly report. You should not put undue reliance on any forward-looking statements.  Forward-looking statements reflect management’s current expectations and are inherently uncertain.  We strongly encourage investors to carefully read the factors described in our Annual Report on Form 10-K for the year ended December 31, 2008 in the section entitled “Risk Factors” for a description of certain risks that could, among other things, cause actual results to differ from these forward-looking statements. We assume no responsibility to update the forward-looking statements contained in this quarterly report on Form 10-Q. The following should also be read in conjunction with the unaudited Financial Statements and notes thereto that appear elsewhere in this report.

Overview

We are developing next generation mobile search tools. Our technology is designed to play on the strengths of mobile handheld devices (mobile phones) and assist consumers in retrieving content more expediently. Consumers can download GetFugu application tools to their mobile phone device.  The GetFugu applications allow consumers to retrieve content and eliminate the need to type website addresses or search terms into the device’s internet browser.

We currently have four products under development.

	1.	See It (ARL): “Vision recognition” This GetFugu application recognizes logos and products through any   mobile phone camera. Consumers simply point their phone at a logo and retrieve content from the brand owner.
	2.	Say It (VRL): “Voice recognition” The consumer can simply speak into the phone to retrieve content. In addition to brand names, the consumer can say generic keywords such as “best pizza” or “ATM”.
	3.	Find It (GRL): “Location recognition” For local content, GetFugu is designed to work with the GPS systems in modern mobile phones. The application will return content, based on the proximity to the user. A keyword of “pizza” will return the five closest pizza parlors.  Local businesses can pay for voice-activated key words to position themselves at the top of the search list within a geographic area.
	4.	Get it (Hot-Spotting): GetFugu provides advertisers with a way to monetize their marketing efforts through a mobile ecommerce tool called Hot-Spotting, which enables the consumer to purchase or retrieve information on any item featured in a video simply by touching it on the screen. This function is currently limited to touch-screen phones and selected Blackberry models.

We were incorporated in the State of Nevada on March 14, 2007 under the name Madero, Inc.  On August 29, 2008, we entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Mike Lizarraga ( sole director, former President, Chief Executive Officer, and Chief Financial Officer), and Media Power, Inc. (“MPI”). Pursuant to the terms and conditions of the Stock Purchase Agreement, MPI acquired 48,000,000 shares of the our common stock (this number, and all other share amounts presented, is post 12 for 1 forward split which was effectuated on February 11, 2009), or approximately 48.07% of our then issued and outstanding shares of common stock from Mr. Lizarraga. 

Prior to the closing of the transactions referenced in the Stock Purchase Agreement, we were a development stage company in an unrelated industry.  Through March 14, 2007, our activities had been limited to its formation, business planning and raising capital.  Since August 29, 2008, we have been developing next generation mobile search tools.

 

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