GeoBio Energy, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.1 - CERTIFICATION OF OUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - GeoBio Energy, Inc.	exhibit31-1.htm
EX-32.1 - CERTIFICATION OF OUR CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. - GeoBio Energy, Inc.	exhibit32-1.htm
EX-10.24 - AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT OF H&M PRECISION PRODUCTS, INC., DATED MAY 27, 2010 - GeoBio Energy, Inc.	exhibit10-24.htm
EX-10.26 - AMENDMENT NO. 3 TO STOCK PURCHASE AGREEMENT OF H&M PRECISION PRODUCTS, INC., DATED JULY 1, 2010 - GeoBio Energy, Inc.	exhibit10-26.htm
EX-10.23 - AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT OF H&M PRECISION PRODUCTS, INC., DATED APRIL 14, 2010 - GeoBio Energy, Inc.	exhibit10-23.htm
EX-10.27 - AMENDMENT NO. 2 TO STOCK PURCHASE AGREEMENT OF COLLINS CONSTRUCTION, INC., DATED JULY 14, 2010 - GeoBio Energy, Inc.	exhibit10-27.htm
EX-10.25 - AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT OF COLLINS CONSTRUCTION, INC., DATED JUNE 1, 2010 - GeoBio Energy, Inc.	exhibit10-25.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2010

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

For the transition period from

Commission File Number :

333-67174

	GEOBIO ENERGY, INC.
(Exact name of registrant as specified in its charter)

Colorado		84-1153946
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1100 Dexter Avenue North, Suite 100, Seattle, Washington		98109
(Address of principal executive offices)		(Zip Code)

	206-838-9715
(Registrant’s telephone number, including area code)

	Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

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 ninety (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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  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. See definition of “accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer  Accelerated filer  Non-accelerated filer  Smaller reporting company x

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

As of August 20, 2010, 11,573,807,619 shares of the registrant’s common stock were outstanding.

GEOBIO ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

FORM 10-Q

INDEX

Part I	Financial Information		Page

	Item 1	Unaudited Financial Statements:
		Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and
		September 30, 2009…………………………………………………………………………………………………............	3

		Condensed Consolidated Statements of Operations
		(unaudited) for the three months and six months ended June 30, 2010
		and 2009 and for the period from inception
		to June 30, 2010.....……………………………………………………………………………...……….……….............	4

		Condensed Consolidated Statement of Stockholders’ Equity (Deficit) (unaudited)
		for the period from inception to June 30, 2010......……………………………………..………...................................	5

		Condensed Consolidated Statements of Cash Flows (unaudited) for the three
		months ended June 30, 2010 and 2009 and for the
		period from inception to June 30, 2010......………………………………………………………….............................	6

		Notes to Condensed Consolidated Financial Statements (unaudited) ……...................................................................	7

	Item 2	Management’s Discussion and Analysis of Financial Condition
		and Results of Operations………………………………………………………………………………………...............	21

	Item 4	Controls and Procedures…………………………………………………………………………………………….............	23

Part II	Other Information

	Item 1	Legal Proceedings……………………………………………………………………………………………........................	24

	Item 2	Unregistered Sales of Equity Securities and Use of Proceeds…………………………….……….................................	24

	Item 3	Defaults Upon Senior Securities………………………………………………………………………………....................	24

	Item 4	Submission of Matters to a Vote of Security Holders…………………………………………………............................	24

	Item 5	Other Information…………………………………………………………………………………………….……................	24

	Item 6	Exhibits………………………………………………………………………………………………………………………...	25

Signatures……………………………………………………………………………………………………………………………………….......			25

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GEOBIO ENERGY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

	June 30,			September 30,
	2010			2009
	(in thousands, except share and per share amounts)
ASSETS
Current Assets
Cash	$	29		$	-
Prepaid Expenses		100			-
Total current assets		129			-
Total assets	$	129		$	-

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable and accrued expenses	$	1,601		$	771
Notes payable, current portion, net of discount of $89 and $0, respectively		213			134
Embedded fair value derivative liability		117			-
Advances payable to related parties		77			68
Total current liabilities		2,008			973

Notes payable, long-term, net of discount of $97 and $409, respectively		301			348

Commitments and contingencies
Stockholders' Equity (Deficit)
Preferred stock and additional paid-in capital, $0.001 par value; 100,000,000 shares authorized;
30,000,000 and 10,000,000 shares designated as Series A at June 30, 2010 and
September 30, 2009, respectively: 27,500,000 and 5,000,000 issued and outstanding
at June 30, 2010 and September 30, 2009, respectively		110			20
Common stock and additional paid-in capital, $0.001 par value; 25,000,000,000 and
5,000,000,000 shares authorized, respectively: 7,918,807,619 and 1,448,807,619
issued and outstanding at June 30, 2010 and September 30, 2009, respectively		22,087			21,169
Deficit accumulated during the development stage		(24,377	)		(22,510	)
Total stockholders' equity (deficit)		(2,180	)		(1,321	)
Total liabilities and stockholders' equity (deficit)	$	129		$	-

See Notes to Condensed Consolidated Financial Statements

GEOBIO ENERGY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
													From Inception (November 1, 2004) Through June 30, 2010
	For the three months ended June 30,						For the nine months ended June 30,
	2010			2009			2010			2009
	(in thousands, except share and per share amounts)
Sales	$	-		$	-		$	-		$	-		$	12
Cost of sales		-			-		$	-			-			54
Gross profit (loss)		-			-			-			-			(42	)

Operating Expenses
Selling and marketing		-			-			-			-			193
Research and development		-			16			-			16			103
General and administrative		740			117			1,374			371			21,202
Depreciation and amortization		-			-			-			-			185
Impairment		-			-			-			-			1,585
Total operating expenses		740			133			1,374			387			23,268
Loss from operations		(740	)		(133	)		(1,374	)		(387	)		(23,310	)
Interest expense		(169	)		(135	)		(493	)		(209	)		(1,067	)
Net loss	$	(909	)	$	(268	)	$	(1,867	)	$	(596	)	$	(24,377	)
Net loss per common share - basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)
Shares used in computing net loss per share -
basic and diluted		5,730,455,971			268,637,656			3,532,653,773			119,731,184



See Notes to Condensed Consolidated Financial Statements

GEOBIO ENERGY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)

	Preferred Stock and Additional Paid-In Capital				Common Stock and Additional Paid-In Capital
	Shares		Amount		Shares			Amount		Accumulated Deficit			Total
	(in thousands, except share and per share amounts)
At inception November 1, 2004		-	$	-		2,000,000		$	-	$	-		$	-
Sale of common stock at $0.50 per pre-split share		-		-		75,000			-		-			-
Net loss		-		-		-			-		(1	)		(1	)
Balance December 31, 2004		-		-		2,075,000			-		(1	)		(1	)
Sale of common stock at $0.50 per pre-split share		-		-		75,000			-		-			-
Net loss		-		-		-			-		(51	)		(51	)
Balance December 31, 2005		-		-		2,150,000			-		(52	)		(52	)
Sale of common stock at $0.50 per pre-split share		-		-		12,500			-		-			-
Return and cancellation of common stock in exchange for two former subsidiaries		-		-		(162,500	)		-		-			-
Common stock share from reverse split		-		-		1			-		-			-
Issuance of common stock upon conversion of note payable		-		-		1,500,000			507		-			507
Common stock issued to former Member of Domestic Energy Partners LLC (DEP)														-
contributed to DEP in exchange for cash and property		-		-		5,250,000			291		-			291
Issuance of common stock in merger		-		-		21,750,000			-		-			-
Net loss		-		-		-			-		(422	)		(422	)
Balance September 30, 2006		-		-		30,500,001			798		(474	)		324
Issuance of common stock warrants and related repricing per agreement		-		-		-			48		-			48
Discount for beneficial conversion feature		-		-		-			14		-			14
Sale of units in private placement, net		-		-		377,500			679		-			679
Issuance of units in exchange for goods and services		-		-		67,500			135		-			135
Issuance of warrants for consulting services and director compensation		-		-		-			576		-			576
Net loss		-		-		-			-		(2,367	)		(2,367	)
Balance September 30, 2007		-		-		30,945,001			2,250		(2,841	)		(591	)
Issuance of common stock on conversion of note payable		-		-		44,000			220		-			220
Common stock received from DEP in exchange for property and liabilities		-		-		(14,255,500	)		-		-			-
Issuance of common stock and warrants to consultants for services		-		-		17,724,118			15,821		-			15,821
Issuance of common stock for extension of due-date for note payable		-		-		125,000			75		-			75
Issuance of common stock to an employee for amounts owed		-		-		200,000			60		-			60
Issuance of common stock to a former note holder in settlement of a dispute		-		-		450,000			135		-			135
Issuance of common stock for acquisition of GeoAlgae Technology Inc.		-		-		5,875,000			1,469		-			1469
Issuance of warrants to officer		-		-		-			130		-			130
Net loss		-		-		-			-		(18,481	)		(18,481	)
Balance September 30, 2008		-		-		41,107,619			20,160		(21,322	)		(1,162	)
Issuance of common stock and warrants to consultant for services		-		-		1,000,000			53		-			53
Beneficial conversion feature of convertible debt		-		-		-			733		-			733
Stockholder payment of expenses on behalf of the Company		-		-		-			24		-			24
Issuance of preferred stock in settlement of accounts payable		5,000,000		20		-			-		-			20
Issuance of common stock in settlement of accounts payable		-		-		1,402,200,000			199		-			199
Issuance of common stock pursuant to cashless exercise of warrant		-		-		4,500,000			-		-			-
Net loss		-		-		-			-		(1,188	)		(1,188	)
Balance September 30, 2009		5,000,000		20		1,448,807,619			21,169		(22,510	)		(1,321	)
Issuance of common stock on conversion of convertible liabilities		-		-		630,000,000			118		-			118
Issuance of preferred stock to officer and consultant for services		22,500,000		90		-			-		-			90
Issuance of common stock upon conversion of notes payable		-		-		5,840,000,000			372					372
Stockholder payment of expenses on behalf of the Company		-		-		-			310		-			310
Beneficial conversion feature of convertible liabilities		-		-		-			118		-			118
Net loss		-		-		-			-		(1,867	)		(1,867	)
Balance June 30, 2010		27,500,000	$	110		7,918,807,619		$	22,087	$	(24,377	)	$	(2,180	)

GEOBIO ENERGY, INC.
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
	For the Nine Months Ended June 30, 2010			For the Nine Months Ended June 30, 2009			From Inception (November 1, 2004) through June 30, 2010
	(in thousands)
Cash Flows From Operating Activities
Net loss	$	(1,867	)	$	(596	)	$	(24,377	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		-			-			193
Amortization of debt discount		457			194			860
Non-cash stock-based compensation for consulting, director fees and other expenses		90			53			16,903
Non-cash expense for bad debt reserve and write-down of inventory		-			-			59
Loss of assets due to fire		-			-			50
Non-cash extension fee on note payable		-			-			75
Impairment of assets		-			-			1,585
Changes in operating assets and liabilities, excluding assets and liabilities
from acquisitions and dispositions:
Accounts receivable		-			-			(5	)
Inventory		-			-			(79	)
Prepaid expenses		(100	)		-			(100	)
Employee advances		-			-			(6	)
Deposits		-			-			(6	)
Accounts payable and accrued expenses		957			239			2,760
Net cash used in operating activities		(463	)		(110	)		(2,088	)
Cash Flows From Investing Activities
Purchases of property and equipment		-			-			(477	)
Net cash used in investing activities		-			-			(477	)
Cash Flows From Financing Activities
Advances from related parties for company expenses		50			-			368
Repayment of advances from related parties		(50	)		-			(50	)
Stockholder payment of expenses on behalf of the Company		310			22			334
Borrowings on notes payable		132			143			637
Proceeds from sale of units in private placement		-			-			755
Borrowings on related party notes payable		50			-			550
Net cash provided by financing activities		492			165			2,594
Net Change In Cash		29			55			29
Cash, beginning of period		-			-			-
Cash, end of period	$	29		$	55		$	29

Supplemental Disclosure:
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-
Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Conversion of advances payable to related party to accounts payable	$	-		$	23		$	23
Common and preferred shares issued on conversion of liabilities	$	490		$	134		$	979
Conversion of accounts payable to notes payable	$	-		$	484		$	562
Beneficial conversion feature of convertible liabilities	$	118		$	598		$	851
Contribution of airplane and other assets by related party	$	-		$	-		$	139
Conversion of related party note payable and accrued interest to common stock	$	-		$	-		$	507
Conversion of contributions of cash and airplane by related party to common stock	$	-		$	-		$	291
Accrued financing fees for private placement	$	-		$	-		$	(76	)
Issuance of warrants as financing fee on private placement	$	-		$	-		$	(66	)
Contribution of inventory and assets in exchange for units	$	-		$	-		$	47
Non-cash adjustment of assets and liabilities due to disposition:
Disposition of inventory	$	-		$	-		$	36
Disposition of advances	$	-		$	-		$	6
Disposition of deposits	$	-		$	-		$	6
Disposition of property and equipment	$	-		$	-		$	409
Settlement of payroll obligations	$	-		$	-		$	(261	)
Settlement of related party payable and interest payable	$	-		$	-		$	(80	)
Issuance of common stock for note payable extension fee	$	-		$	-		$	(75	)

See Notes to Condensed Consolidated Financial Statements

GEOBIO ENERGY, INC.

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the three and nine months ended June 30, 2010 and 2009 and for the period from inception to June 30, 2010 (Unaudited)

Note 1. Business and Organization

GeoBio Energy, Inc. (“GeoBio” or the “Company”) was incorporated in Colorado in November 1990. The Company was known as Mountain State Holdings, Inc., (“MSH”) until September 2006, when it was renamed in anticipation of a merger in September 2006, when it acquired all of the Member Units of Domestic Energy Partners, LLC, (“DEP”), a Utah limited liability corporation. The previous assets and liabilities of MSH were spun off to two stockholders in August 2006 in exchange for the return of common shares. At the time of the acquisition of DEP, the Company had no assets and no liabilities and 2,000,001 shares of common stock issued and outstanding carried at nil.

The merger of the Company and DEP was accounted for as a reverse merger. The assets and liabilities of DEP are presented in the condensed consolidated balance sheet at book value. The historical operations presented in our condensed consolidated statements of operations are those of DEP. On December 20, 2007, the Company entered into and closed an Asset Purchase, Settlement and Mutual Release Agreement with the former Members of DEP and effectively disposed of their interest in DEP.

Acquisitions in Process

On July 14, 2010, we entered into an amendment to our Stock Purchase Agreement with Collins Construction, Inc. (“Collins”), dated March 30, 2010, previously amended on June 1, 2010 (the “Collins Stock Purchase Agreement”), for the purchase of 100% of the issued and outstanding capital stock of Collins (the “Amendment”).

The closing was originally scheduled to take place on or before June 1, 2010 (the “Closing Date”), with GeoBio having the right and option to extend the Closing Date until July 1, 2010 (the “Extended Closing Date”), in exchange for an additional, non-refundable down payment (the “Down Payment”) of $50,000. Under the June 1, 2010 amendment, we agreed, in exchange for extending the Closing Date to July 16, 2010, that the Down Payment would be treated as an additional payment of consideration, raising the total purchase price of Collins from (i) $8,000,000 in cash and (ii) a Five (5) year, 8% Subordinated Promissory Note in the amount of $2,500,000 to (i) $8,050,000 in cash and (ii) a Five (5) year, 8% Subordinated Promissory Note in the amount of $2,500,000. Under the July 14, 2010 Amendment, the parties agreed to extend the Closing Date to September 15, 2010.

Collins, based in Colorado, is a civil construction company that primarily constructs sites and platforms for drilling and reclamation of the site locations following the drilling phase, as well as access roads to and from wells, reserve pits and production facility pads, in the Piceance Creek Basin. Its construction services occur primarily during the site construction and site completion or restoration life cycles of natural gas fields and oil wells.

We are also currently seeking to acquire New Mexico based H&M Precision Products, Inc. (“H&M”), as detailed in our Form 8-Ks filed May 27, 2010 and July 1, 2010. H&M sells proprietary chemical blends used to maintain, clean and improve the operating efficiency of natural gas and oil wells. The purchase price is to be determined by the formula of the product of (i) H&M’s 12-month trailing cumulative, “adjusted” earnings before interest, taxes, depreciation and amortization as of the closing date multiplied by (ii) 2.99, with a maximum Purchase Price of $8,410,000.

Additionally, on July 14, 2010, we announced our entry into a letter of intent to purchase Magna Energy Services (“Magna”), a New Mexico Limited Liability Company (LLC). Magna is also a chemical treatment and services company focused on oil and natural gas production improvement in the San Juan Basin shale play area of New Mexico. The proposed purchase price is $3,200,000. The form and terms of payment will be determined under a definitive stock purchase agreement, which the parties are currently negotiating.

We expect to complete the acquisitions of Collins and H&M during September 2010, but not later than September 15, 2010, and Magna shortly thereafter, all subject to receipt of financing for the purchases.

Engagement of I-Banker’s, Inc.

In March 2010, concurrent with entry into the Collins Stock Purchase Agreement, we engaged the financial advisory services of I-Bankers Securities, Inc. (“I-Bankers”) to assist in raising financing for the implementation of our financial strategy (an “Offering”), including strategic planning, acquisitions of businesses in the natural gas and oil services industry and business development, such as the Collins Stock Purchase Agreement and H&M Stock Purchase Agreement, set forth above.

We shall pay to I-Bankers compensation including:

(i)	a cash placement fee (the “Cash Placement Fee”) equal to 8% of the aggregate gross proceeds raised from the sale of securities in an I-Banker’s facilitated Offering, but in no event shall the Cash Placement Fee (net of the Retainer Fee) be less than $500,000;

(ii)

a non-cash placement fee (the “Non-Cash Placement Fee”) in the form of a warrant exercisable for shares of our common stock in an amount equal to 4% of the shares of common stock issued in an Offering or issuable upon conversion of the securities issued therein at an exercise price equal to the effective issue price of such common stock in such offering;

(iii)

an initial Placement Agent retainer fee of $35,000, which shall not be credited against the Cash Placement Fee. This was paid during the three months ended March 31, 2010 and expensed as general and administrative expense.

Note 2: Going Concern

We have prepared our condensed financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As of June 30, 2010, we had a deficit accumulated during the development stage of approximately $24.4 million, negative cash flows from operations since inception and expect to incur additional losses in the future as we continue to develop and grow our business. The further development of our business will require capital. At June 30, 2010, we had a working capital deficit (current assets less current liabilities) of approximately $1.9 million and we have limited cash and other assets. These conditions raise substantial doubt about our ability to continue as a going concern.

Our current cash levels are not sufficient to enable us to execute our business strategy, which includes the acquisitions of Collins and H&M, both of which require significant cash payments. Our operating expenses will also consume a material amount of our cash resources. Company management intends to raise additional debt and equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares of our capital stock to institutional investors and through strategic investments, including convertible bridge loans. If management deems necessary, we might also seek additional loans from related parties or others. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

Note 3. Summary of Critical Accounting Policies and Recently Issued Accounting Standards

Basis of Preparation — The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and note disclosures required by U.S. generally accepted accounting principles for complete financial statements. The accompanying unaudited financial information should be read in conjunction with the audited financial statements, including the notes thereto, as of and for the year ended September 30, 2009, included in our 2009 Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”). The information furnished in this report reflects all adjustments (consisting of normal recurring adjustments), which are, in the opinion of management, necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. The results of operations for the interim periods ended June 30, 2010 are not necessarily indicative of the results for the year ending September 30, 2010 or for any future period.

Use of Estimates—The preparation of financial statements in conformity with generally accepted accounting principles 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant accounting estimates inherent in preparation of our financial statements include estimates as to valuation of equity related instruments issued, valuation of derivatives and valuation allowance for deferred income tax assets.

Net loss per common share —Basic and diluted net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. Diluted loss per share excludes the effect of common stock equivalents (convertible notes, stock options and warrants) since such inclusion in the computation would be anti-dilutive. The following numbers of shares have been excluded as of June 30 (in thousands):

	2010		2009

Series A Preferred Stock		27,500		5,000
Warrants		2,392		2,395
Options		33		33
Convertible debentures		3,240,483		8,080,037
Total		3,270,408		8,087,465

In March 2008, we entered into a note payable with Tatum, LLC (“Tatum”) in settlement of approximately $28,000 then owed to Tatum for employment related consulting services previously recorded in accounts payable. The note payable is convertible at any time into shares of our common stock at the lesser of $0.75 per share or the 10-day volume weighted average of the closing bid and ask prices of our common stock. We have stated the amount in the table above at a conversion price of $0.75 per share.

On December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other parties, and we entered into convertible promissory notes in aggregate principal amount of $160,000, convertible into shares of our common stock at the lesser of a conversion price of $0.0001 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the notes, which were dated from January 7, 2010 to February 17, 2010. The notes were dated with an effective date of December 31, 2008 and were convertible as of that date and thus have been included in notes payable on the condensed consolidated balance sheets as of September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $160,000. Principal and interest are due, if not previously converted by the holders, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holders’ option, the holders may accelerate the amounts due under the promissory notes. During the three months ended March 31, 2010, all of these convertible notes were converted into 1.6 billion shares of our common stock at their stated conversion rate. The amounts in the table above are stated at the stated conversion price of $0.0001 at June 30, 2009.

On December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $324,000, convertible into shares of our common stock at the lesser of a conversion price of $0.00005 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the notes, which were dated from April 6, 2010 to June 22, 2010. The notes were dated with an effective date of December 31, 2008 and were convertible as of that date and thus have been included in notes payable on the condensed consolidated balance sheets as of June 30, 2010 and September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $324,000. Principal and interest are due, if not previously converted by the holders, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holders’ option, the holders may accelerate the amounts due under the promissory notes. During the three months ended June 30, 2010, certain of these convertible notes with an aggregate principal amount of $212,000 were converted into approximately 4.2 billion shares of our common stock at their stated conversion rate. Certain other notes with an aggregate principal amount of $101,500 were converted into approximately 2.0 billion shares of our common stock at their stated conversion rate subsequent to June 30, 2010. See Note 9, Subsequent Events. The amounts in the table above are stated at the stated conversion price of $0.00005 at June 30, 2010 and 2009.

On July 23, 2009, accounts payable due to Otto Law Group, a related party, were assigned to a stockholder of the Company, and we entered into a convertible promissory note in aggregate principal amount of $50,000, convertible into shares of our common stock at the lesser of a conversion price of $0.00005 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the note, which was dated July 23, 2010. The note was dated with an effective date of July 23, 2009 and thus has been included in notes payable on the condensed consolidated balance sheets as of June 30, 2010 and September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $50,000. Principal and interest are due, if not previously converted by the holder, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holder’s option, the holder may accelerate the amounts due under the promissory notes. In August 2010, this convertible note was converted into 1 billion shares of our common stock at its stated conversion rate. See Note 9, Subsequent Events. The amounts in the table above are stated at the stated conversion price of $0.00005 at June 30, 2010.

During the year ended September 30, 2009, we received an aggregate of $223,000 from BNA Holdings, LLC under a convertible bridge loan. The Company had the right to call for conversion of unpaid principal and accrued interest into shares of our common stock at $0.50 per share beginning April 7, 2010. As such, the shares potentially issuable related to this convertible bridge loan are not reflected in the table above at June 30, 2009 but are shown at the stated conversion rate as of June 30, 2010. In August 2010, this convertible note was converted into 446,000 shares of our common stock.

The shares potentially issuable under our convertible bridge loan agreement with CKNS Capital Group LLC are not included in the table above as the number of shares issuable are not determinable as of the date of this filing.

See further discussion regarding notes payable at Note 5, Notes Payable, and warrants at Note 6, Stockholders’ Equity (Deficit).

Fair Value of Financial Instruments — The carrying value of accounts payable and accrued expenses, advances payable – related parties and current notes payable approximate their fair value because of the short-term nature of these instruments. The carrying value of the BNA Holdings note payable approximates its fair value because the interest rate of the note approximates market interest rates. The fair value of the other long-term notes payable is not determinable due to the unique nature of the terms associated with the notes.

Embedded Derivative Liability — We currently measure and report at fair value the derivative liability related to the conversion feature associated with the CKNS and related convertible bridge loan transaction further discussed in Note 5, Notes Payable. The fair value for the embedded conversion feature related to this transaction, as to which fair value is determined by level 3 inputs, is revalued at each reporting date, with the change in value recorded in earnings.

Note 4. Related Party Transactions

David M. Otto, a principal at The Otto Law Group, served as Secretary and as a director of the Company through July 15, 2009. We recorded approximately $268,000 and $600,000 in legal fees to The Otto Law Group, for the three and nine months ended June 30, 2010, $99,000 (including finance charges of $7,000) and $273,000 (including finance charges of $33,000) for the three and nine months ended June 30, 2009, and $1,734,000 for the period from inception to June 30, 2010 as general and administrative expenses. As of June 30, 2010, the balance due to The Otto Law Group was approximately $366,000, and as of September 30, 2009, approximately $58,000 in fees to Otto Law Group, were unpaid.

On January 25, 2010, we issued 10,000,000 shares of our Series A Preferred stock to David M. Otto, a related party, for management consulting services valued at $40,000, which was recorded to general and administrative expense during the three months ended March 31, 2010.

In June 2009, accounts payable to the Otto Law Group were assigned to Mr. Otto in the aggregate amount of $10,000 and were converted into 2,500,000 shares of our preferred stock.

In June 2009, accounts payable due to our CEO at the time, Mr. Gary DeLaurentiis, in the aggregate amount of $10,000 were converted into 2,500,000 shares of our preferred stock.

During the three months ended March 31, 2009, an additional aggregate of $1,500 of accounts payable due to Otto Law Group, a related party, were assigned to related parties and was converted to 15,333,334 shares of our common stock at a conversion rate of $0.0001. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $1,500 was recorded as interest expense in the three months ended March 31, 2009.

In May and June 2009, we issued an aggregate of 15,000,000 shares of our common stock upon conversion of accounts payable to related parties of $15,000 at a conversion rate of $0.001 and 55,000,000 shares of our common stock upon conversion of accounts payable to related parties of approximately $28,000 at a conversion rate of $0.0005. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $43,000 was recorded as interest expense in the three months ended June 30, 2009.

During the three months ended June 30, 2009, an additional aggregate of $46,000 of accounts payable to related parties was converted to 458,866,666 shares of our common stock at a conversion rate of $0.0001. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $46,000 was recorded as interest expense in the three months ended June 30, 2009.

On September 23, 2009, we appointed Lance Miyatovich as President and Chief Executive Officer and as a director of the Company. We also entered into a 36-month employment agreement with Mr. Miyatovich for $240,000 per year. At June 30, 2010, we had accrued approximately $160,000 related to this employment agreement, which is included in accounts payable and accrued expenses on the accompanying condensed consolidated balance sheet. On January 25, 2010, we issued 12,500,000 shares of our Series A Preferred stock to Mr. Miyatovich for executive consulting services valued at $50,000, which was recorded to general and administrative expense during the three months ended March 31, 2010.

In January 2010, we entered into a promissory note with Otto Law Group, a related party, in the principal amount of $15,000 at an interest rate of 8% per annum, due on or before January 22, 2011. The default rate of interest is 10%.

In January 2010, we entered into a promissory note with Grandview Capital, a stockholder, in the principal amount of $15,000 at an interest rate of 8% per annum, due on or before January 22, 2011. The default rate of interest is 10%.

In January 25, 2010, we entered into a 12-month consulting services contract with a member of our board of directors, Clayton Shelver, and in July 2010, we issued 25,000,000 fully paid, vested and non-assessable shares of our common stock to Mr. Shelver as payment under the consulting services contract. The value of the shares of $2,500 was recorded to general and administrative expense in July 2010.

In March 2010, we entered into a promissory note with David M. Otto, a former director of the Company, in the principal amount of $20,000 at an interest rate of 8% per annum, due on or before March 23, 2011. The default rate of interest is 10%.

On March 31, 2010, we entered into an employment letter with John Sams pursuant to which Mr. Sams accepted the position of Chief Executive Officer of the Company upon closing of the transactions relating to the acquisition of H&M at an annual salary of $300,000, which commences on the effective date of March 31, 2010. He will also be entitled to an annual target bonus of 50% of his annual base salary, up to a maximum of two times the target bonus, at the discretion of the compensation committee of the board of directors based on his and the Company’s performance over the year. Mr. Sams will also be entitled to an incentive option grant, representing not less than 6.5% of the fully diluted shares at the time of capitalization, issuable upon the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing. Of the total issuable, 25% will be issuable and vest upon completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing, with the remaining 75% issued the month following the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing and vesting over a 36-month period. The options have a 7 year term, commencing on the completion of the $20 million financing. The strike price of the options will be set at fair market value, or the price of the $20 million financing. As of June 30, 2010, we had accrued approximately $53,000, net of payments to Mr. Sams under the terms of his employment letter.

On March 31, 2010, we entered into an employment letter with Joseph Titus pursuant to which Mr. Titus accepted the position of Chief Operating Officer of the Company upon closing of the transactions relating to the acquisition of H&M at an annual salary of $225,000, which commences on the effective date of March 31, 2010. He will also be entitled to an annual target bonus of 50% of his annual base salary, up to a maximum of two times the target bonus, at the discretion of the compensation committee of the board of directors based on his and the Company’s performance over the year. Mr. Titus will also be entitled to an incentive option grant, representing not less than 2.5% of the fully diluted shares at the time of capitalization, issuable upon the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing. Of the total issuable, 25% will be issuable and vest upon completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing, with the remaining 75% issued the month following the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing and vesting over a 36-month period. The options have a 7 year term, commencing on the completion of the $20 million financing. The strike price of the options will be set at fair market value, or the price of the $20 million financing. As of June 30, 2010, we had accrued approximately $37,500, net of payments to Mr. Titus under the terms of his employment letter.

On March 31, 2010, we entered into an employment letter with Douglas Daniel pursuant to which Mr. Daniels accepted the position of Senior Vice President Corporate Development of the Company upon closing of the transactions relating to the acquisition of H&M at an annual salary of $225,000, which commences on the effective date of March 31, 2010. He will also be entitled to an annual target bonus of 50% of his annual base salary, up to a maximum of two times the target bonus, at the discretion of the compensation committee of the board of directors based on his and the Company’s performance over the year. Mr. Daniel will also be entitled to an incentive option grant, representing not less than 2.5% of the fully diluted shares at the time of capitalization, issuable upon the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing. Of the total issuable, 25% will be issuable and vest upon completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing, with the remaining 75% issued the month following the completion of the Company’s contemplated reverse stock split, conversion of preferred stock, and approximately $20 million financing and vesting over a 36-month period. The options have a 7 year term, commencing on the completion of the $20 million financing. The strike price of the options will be set at fair market value, or the price of the $20 million financing. As of June 30, 2010, we had accrued approximately $47,300, net of payments to Mr. Daniels under the terms of his employment letter.

As of June 30, 2010, related party advances and accrued interest totaled approximately $77,000. In March 2010, a party related to a former director of the Company advanced us $50,000 in order to pay expenses. This advance was repaid by the Company in April 2010. In the year ended September 30, 2008, a director advanced the Company a net amount of approximately $4,000 and three other parties related to a director of the Company advanced us an aggregate amount of approximately $86,000 to pay expenses. In December 2008, approximately $23,000 of these advances were converted to accounts payable to other parties. The accounts payable subsequently became convertible into shares of our common stock at a conversion price of $0.005 per share, pursuant to an agreement with the Company in January 2009. See Note 6, Stockholders’ Equity (Deficit). All of these related party advances bear interest at 8% per annum and together with the related accrued interest of approximately $10,000 are included in advances payable at June 30, 2010. We intend to repay the advances.

Note 5. Notes Payable

CKNS Capital Group, LLC Convertible Bridge Loan

In May 2010, we entered into an agreement with CKNS Capital Group, LLC, pursuant to which CKNS Capital Group, LLC purchased two units, at a purchase price of $25,000 per unit, each consisting of (i) a six-month 10% convertible debenture in the principal amount of $25,000 convertible into the principal securities sold in our next capital financing (the “Principal Securities”) defined as a capital financing as not less than $14 million (“Capital Financing”). The Principal Securities will be issued at a conversion price equal to 50% of the per share price of the Principal Securities sold in such Capital Financing; and (ii) a 3-year warrant for common stock for every two Principal Securities acquired by the investor (50% warrant coverage) in connection with the conversion of the convertible debenture. Each warrant will have a strike price equal to 50% of the conversion price or 25% of the price of the Principal Securities sold in the Capital Financing. The convertible debenture automatically converts upon the completion of the sale of the Principal Securities in the Capital Financing, or if not automatically converted, has a maturity date that is six months following the execution of the convertible debenture. In the event that the convertible debenture is repaid, the warrants will be cancelled. During the three months ended June 30, 2010, we received an aggregate of $67,000 from two additional investors under the same terms as CKNS Capital Group, LLC.

As the aforementioned notes contain a conversion feature that is dependent on a future financing of the Company, bifurcation of the embedded conversion options and classification in derivative liabilities at fair value is necessary because they are no longer considered indexed to the Company’s common stock. The fair value of the embedded conversion options was determined to be $117,000 at the date of issuance of the notes. The fair value is determined using level 3 inputs in the fair value hierarchy and was based on management's estimate taking into account various factors including the probability of such a financing occurring. The bifurcation of the derivative liability from the host debt agreements resulted in a discount being recorded on the debt in an amount equal to the fair value of the derivative liability at issuance. The discount is being amortized to interest expense over a six month period. During the three months ended June 30, 2010, we recorded amortization of the discount of approximately $20,000 as interest expense. We will continue to carry the embedded derivative liabilities at fair value, with charges or credits to income for changes in fair value, until the notes are settled through payment or conversion. The fair value of the embedded derivative liabilities did not materially change from the date of issuance of the notes to June 30, 2010, and, thus, no adjustment was recorded for changes in the derivative liability in the condensed consolidated financial statements.

In March 2010, we received $15,000 under the terms of a convertible promissory note with an investor. The terms are currently unspecified. In July 2010, we received an additional $9,000. See Note 9, Subsequent Events.

BNA Holdings, LLC Convertible Bridge Loan

In April 2009, we entered into an agreement with BNA Holdings, LLC, pursuant to which BNA Holdings, LLC was to loan us up to an aggregate of $500,000, payable after five years and bearing interest at a rate of 10% per annum. From April 2009 to September 2009, we received an aggregate of $223,000 from BNA Holdings, LLC pursuant to the terms of this agreement. In August 2010, the $223,000 convertible bridge loan due to BNA Capital Holdings LLC was converted into 446,000 shares of our common stock in accordance with its stated conversion rate.

Other Convertible Notes Payable

On December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other parties, and we entered into convertible promissory notes in aggregate principal amount of $160,000, convertible into shares of our common stock at the lesser of a conversion price of $0.0001 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the notes, which were dated from January 7, 2010 to February 17, 2010. The notes were dated with an effective date of December 31, 2008 and were convertible as of that date and thus have been included in notes payable on the condensed consolidated balance sheets as of September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $160,000. During the three and nine months ended June 30, 2010 and 2009, we recorded amortization of the beneficial conversion feature of approximately nil and $120,000 and $13,000 and $26,000, respectively, as interest expense. Principal and interest are due, if not previously converted by the holders, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holders’ option, the holders may accelerate the amounts due under the promissory notes. During the three months ended March 31, 2010, all of these convertible notes were converted into shares of our common stock at their stated conversion rate.

On December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $324,000, convertible into shares of our common stock at the lesser of a conversion price of $0.00005 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the notes, which were dated from April 6, 2010 to June 22, 2010. The notes were dated with an effective date of December 31, 2008 and were convertible as of that date and thus have been included in notes payable on the condensed consolidated balance sheets as of June 30, 2010 and September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $324,000. During the three and nine months ended June 30, 2010 and 2009, we recorded amortization of the beneficial conversion feature of approximately $133,000 and $187,000 and $27,000 and $54,000, respectively, as interest expense. Principal and interest are due, if not previously converted by the holders, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holders’ option, the holders may accelerate the amounts due under the promissory notes. During the three months ended June 30, 2010, an aggregate of $212,000 of these convertible notes were converted into approximately 4.2 billion shares of our common stock at their stated conversion rate. In July 2010, an additional $101,500 in aggregate principal amount of convertible notes was converted into approximately 2.0 billion shares of our common stock at their stated conversion rate. See Note 9, Subsequent Events.

On July 23, 2009, accounts payable due to Otto Law Group, a related party, were assigned to a stockholder of the Company, and we entered into a convertible promissory note in aggregate principal amount of $50,000, convertible into shares of our common stock at the lesser of a conversion price of $0.00005 per share or the over the counter bulletin board price of our common stock on the date of conversion, bearing interest at 10% per annum from the interest accrual date of the note, which was dated July 23, 2010. The note was dated with an effective date of July 23, 2009 and thus has been included in notes payable on the condensed consolidated balance sheets as of June 30, 2010 and September 30, 2009. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded was $50,000. During the three and nine months ended June 30, 2010, we recorded amortization of the beneficial conversion feature of approximately $4,000 and $12,000, respectively, as interest expense. Principal and interest are due, if not previously converted by the holder, on or before December 31, 2011. Upon event of default, as defined in the promissory note agreement, the default interest rate is 18% per annum commencing on August 14, 2008, payable upon demand. In addition, at the holder’s option, the holder may accelerate the amounts due under the promissory notes. In August 2010, this convertible note was converted into 1 billion shares of our common stock at its stated conversion rate. See Note 9, Subsequent Events.

Tatum Convertible Note Payable

In March 2008, we entered into a note payable with Tatum, LLC (“Tatum”) as settlement of approximately $28,000 then owed to Tatum for employment-related consulting services previously recorded in accounts payable. The note payable was due at the earlier of one year or a financing of at least $1.5 million and carries an interest rate of 10% compounded annually and payable upon maturity. At the election of Tatum, the note payable is convertible at any time into shares of our common stock at the lesser of $0.75 per share or the 10 day volume weighted average of the closing bid and ask prices. The note is currently past due.

National Convertible Debenture

In December 2006, we received an advance of $200,000 from National Real Estate Solutions Group (“National”) in anticipation of negotiating and executing a debt agreement. In February 2007, pursuant to a subscription agreement between National and the Company, a convertible debenture was executed in exchange for the advance. Both the subscription agreement and the debenture provided that, at maturity, we had the option to convert the debenture and accrued interest into shares of our common stock at a share price which is the greater of either $5.00 or 75% of the most current 10-day trailing average bid price. We valued the beneficial conversion feature at $14,000 and recorded a discount on the debenture. Warrants to purchase 3,125 shares of our common stock at an initial exercise price of $8.00 and an exercise period of three years were issued to the holder. The exercise price of the warrant may be adjusted downward if we issue common stock or securities convertible or exchangeable into common stock at a lower price. The warrants were valued utilizing the Black-Scholes model with the following assumptions: volatility of 192%, risk-free interest rate of 4.7%, expected life of three years and 0% dividend yield resulting in a value of $4.44 per warrant. The valuation was recorded as a $13,000 discount on the debenture. The discount was determined based on the relative fair value of the warrants and note. On December 31, 2008, we issued convertible debt securities that were convertible into shares of our common stock at a price of $0.00005 per share, triggering a revaluation of these warrants. However, expense related to the revaluation of the warrants was not determined to be material. Effective October 1, 2009 and at December 31, 2009, March 31, 2010 and June 30, 2010, we analyzed these warrants in accordance with the authoritative literature with respect to derivatives related to the exercise of the warrants at a variable exercise price. According to our analysis, the resulting derivative is not material to the transaction or to the financial statements taken as a whole and as a result, we did not record the derivative liability.

Placement fees of $18,000 were paid to an outside party. In addition, warrants were issued to that party to purchase 3,200 shares of our common stock with an initial exercise price of $5.00 with an exercise period of five years for placement services. The exercise price of the warrant may be adjusted downward if we issue common stock or securities convertible or exchangeable into common stock at a lower price. The warrants were valued utilizing the Black-Scholes model with the following assumptions: volatility of 192%, risk-free interest rate of 4.7%, expected life of five years and 0% dividend yield resulting in a value of $4.86 per warrant. The valuation of $16,000 and the placement fee of $18,000 were recorded as an additional discount on the debenture, all of which has been fully amortized to interest expense. The discount was determined based on the relative fair value of the warrants and debenture. During May and June 2007, we issued shares and warrants that triggered a revaluation lowering the exercise price to $2.00 per warrant associated with the debenture resulting in an increase in valuation of $1,000. All of the change was expensed as interest expense. On December 31, 2008, we issued convertible debt securities that were convertible into shares of our common stock at a price of $0.00005 per share, triggering a revaluation of these warrants. However, expense related to the revaluation of the warrants was not determined to be material. Effective October 1, 2009 and at December 31, 2009, March 31, 2010 and June 30, 2010, we analyzed these warrants in accordance with the authoritative literature with respect to derivatives related to the exercise of the warrants at a variable exercise price. According to our analysis, the resulting derivative is not material to the transaction or to the financial statements taken as a whole and as a result, we did not record the derivative liability.

In November 2007, we issued National 44,000 shares of our common stock. In March 2008, we issued National an additional 450,000 shares of our common stock in settlement of disputed amounts due under this agreement.

Baer (formerly Sausalito) Note Payable

In November 2006, we received an advance of $100,000 from Sausalito Capital Partners (a shareholder of the Company) in anticipation of negotiating and executing a promissory note. In February 2007, a note payable was executed, and the note was subsequently assigned to Henry Baer (“Baer”). The interest rate on the note payable is 6% per annum. Principal and accrued interest were due at the earlier of February of 2008 or within two days of the Company completing a private placement of at least $3.0 million. Warrants to purchase 5,000 shares of our common stock were issued to the investor in connection with the execution of the note. The warrants were granted with an initial exercise price of $5.00 per share and expired in February of 2009. The exercise price of the warrant may be adjusted downward if we issue common stock or securities convertible or exchangeable into common stock at a lower price. The warrants were valued utilizing the Black-Scholes model with the following assumptions: volatility of 192%, risk-free interest rate of 4.8%, expected life of two years and 0% dividend yield resulting in a value of $4.17 per warrant. The value of the warrants was recorded as a $17,000 discount on the note payable and was expensed over the life of the note payable as interest expense. The discount was determined based on the relative fair value of the warrants and the note payable. During May and June 2007, we issued shares and warrants that triggered a revaluation, lowering the exercise price to $2.00 per warrant resulting in an increase in valuation of approximately $1,000, which was expensed as interest expense. On December 31, 2008, we issued convertible debt securities that were convertible into shares of our common stock at a price of $0.00005 per share, triggering a revaluation of these warrants. However, expense related to the revaluation of the warrants was not determined to be material. In February 2008, Baer granted a nine-month extension of the due date in exchange for 125,000 shares of our common stock, valued at $75,000. The note is currently in default.

Related Party Promissory Notes Payable

As previously discussed in Note 4, Related Party Transactions, in January 2010, we entered into a promissory note with Otto Law Group, a related party, in the principal amount of $15,000 at an interest rate of 8% per annum, due on or before January 22, 2011. The default rate of interest is 10%.

As previously discussed in Note 4, Related Party Transactions, in January 2010, we entered into a promissory note with Grandview Capital, a stockholder, in the principal amount of $15,000 at an interest rate of 8% per annum, due on or before January 22, 2011. The default rate of interest is 10%.

As previously discussed in Note 4, Related Party Transactions, in March 2010, we entered into a promissory note with David M. Otto, a former director of the Company and principal of the Otto Law Group, in the principal amount of $20,000 at an interest rate of 8% per annum, due on or before March 23, 2011. The default rate of interest is 10%.

6. Stockholders’ Equity (Deficit)

Preferred Stock

On June 9, 2009, we amended our articles of incorporation to increase the number of authorized shares of preferred stock from 5,000,000 shares of no par value preferred stock to 100,000,000. This class of stock is a “blank check” class in that the rights of such stock would be established at the time of its issuance.

On June 9, 2009, 10,000,000 shares of our preferred stock were designated as Series A Convertible Preferred Stock, par value of $0.001 per share. On January 25, 2010, we increased the number of shares of preferred stock which are designated as Series A Preferred from 10,000,000 to 30,000,000. The holders of the Series A Convertible Preferred Stock are entitled to 1,000 votes per one (1) share of stock held. The Series A Convertible Preferred Stock is convertible at the stockholder’s option into shares of our common stock on the basis of 1:1. Holders of the Series A Convertible Preferred Stock have liquidation preference over holders of common stock in the event of liquidation, dissolution or winding up.

On June 8, 2009, $10,000 of the accounts payable outstanding at June 30, 2009 to The Otto Law Group, a related party, was assigned to a member of our board of directors, David M. Otto, who then presented the debt to the Company for the purposes of cancelling the debt in exchange for the purchase of 2,500,000 shares of our Series A Preferred Stock. In addition, on June 8, 2009, $10,000 of accounts payable to our former CEO, Mr. Gary De Laurentiis, was also converted into 2,500,000 shares of our Series A Preferred Stock.

On January 25, 2010, we issued 10,000,000 shares of our Series A Preferred stock to David M. Otto, a related party, for management consulting services valued at $40,000, and 12,500,000 shares of our Series A Preferred stock to Lance Miyatovich, our President and Chief Executive Officer for executive consulting services valued at $50,000. The value assigned to these shares was recorded to general and administrative expense during the three months ended March 31, 2010.

Common Stock

On March 31, 2009, we amended our articles of incorporation to increase the number of authorized shares of common stock from 200,000,000 shares to 500,000,000 shares. Then, on June 9, 2009, we amended our articles of incorporation to increase the number of authorized shares of common stock from 500,000,000 to 5,000,000,000. On January 25, 2010, we amended our articles of incorporation to increase the number of authorized shares of common stock from 5,000,000,000 to 25,000,000,000.

Common Stock Issuances — As of the effective date of inception (November 1, 2004), the Company, then operating as MSH, had 4,000,000 shares of its common stock issued and outstanding. In August 2006, two former stockholders of MSH exchanged a total of 325,000 common shares for two former subsidiaries of MSH, which comprised all of the assets and liabilities of MSH. The remaining common stock shares of MSH were then subject to a two-for-one reverse split, resulting in 2,000,001 shares of its common stock issued and outstanding at the time of merger. These stockholders, combined with the new shares issued in the merger, comprise the 30,500,001 shares of our common stock issued and outstanding at September 30, 2006.

During May and June 2007, we sold 377,500 units in a private placement. The units consist of 377,500 shares of common stock and warrants to purchase 377,500 share of common stock at $2.65 per share. The units were sold at $2.00 per unit. Gross proceeds totaled $755,000. The common shares have “piggy back” registration rights and demand registration rights after 90 days, subject to limitations for additional financing being sought and limitations under current SEC regulations. The warrants vest immediately, expire in five years and may be exercised for cash or on a cashless basis. A value of approximately $370,000 was ascribed to the warrants. We also issued 28,491 warrants as a placement fee with an exercise price of $2.65, expiring in five years that can be exercised as cash or cashless. The fair value of the warrants of $66,000 was recorded as a reduction to the proceeds from the private placement. The warrants were valued under the Black- Scholes model utilizing the following assumptions: volatility of 184%, risk-free rate of 5.1%, expected life of five years and dividend yield of 0%.

In June 2007, we issued 67,500 units consisting of 67,500 shares of our common stock and warrants to purchase 67,500 shares of our common stock valued at $2.00 per unit. The terms and conditions are the same as the private placement, excluding placement fees. In exchange, we received $11,000 of inventory, $36,000 of property and equipment and $88,000 of services and other. The $135,000 was allocated 51% to common stock and 49% to additional paid in capital.

In June 2007, we issued 200,000 warrants with an exercise of $2.65 per warrant and a five-year expiration to a company in exchange for consulting services. The warrants were valued utilizing the Black-Scholes model with the following assumptions: 184% volatility, risk-free rate of 5.1%, expected life of five years and dividend yield of 0%, resulting in a value of $482,000 which was immediately expensed.

We also issued 11,325 warrants during 2007 associated with our notes payable. See Note 5, Notes Payable.

In November 2007, we issued 44,000 shares of common stock to National per the terms of the subscription agreement and subordinated convertible debenture (the “Securities Agreement”). The issuance of these 44,000 shares at $5.00 per share accounted for as a conversion of the $220,000 note payable and related accrued interest to National into shares of our common stock. In March 2008, we issued an additional 450,000 shares of common stock to National as part of a settlement. See Note 5, Notes Payable.

As discussed above, in December 2007, the Members of DEP returned 14,255,500 shares of our common stock which were held by such Members. No value was assigned for these shares, which had no value assigned at the time of original issuance, and we cancelled the shares upon receipt.

In January 2008, we entered into nine individual consulting agreements for professional services in exchange for an aggregate of 17,330,000 shares of our common stock and 300,000 warrants to purchase of shares of our common stock at an exercise price of $1.00 per share. The closing price our common stock on the over the counter bulletin board on January 16, 2008 was $0.89. We recorded the value of the shares at $15,424,000. The fair value of the warrants was $266,000. The warrants were valued using the Black Scholes model with the following assumptions: volatility of 192%, risk-free interest rate of 3.74%, expected term of ten years and dividend yield of 0% resulting in a value of $0.888 per warrant. The values recorded to equity were expensed as general and administrative expense at the time the securities were issued.

In May 2008, our former CFO, Allen Perron was granted 1,000,000 warrants at an exercise price of $0.13. The five day volume adjusted weighted average closing price of the shares on May 16, 2008 was $0.13. We have computed the fair value of the warrants utilizing the Black Scholes model using the following assumptions: estimated life of 10 years, volatility 214%, risk-free interest rate of 3.83% and 0% dividend rate, for a fair value of $0.13 per warrant or $130,000. The $130,000 was charged to general and administrative expense in 2008.

In February 2008, we obtained an extension of the Baer note payable in exchange for 125,000 shares of our common stock valued at $0.60 per share totaling $75,000. See Note 5, Notes Payable.

In March 2008, we issued 200,000 shares of common stock to a former employee in settlement of all amounts owed to either party by the other. The shares were valued at $0.30 per share totaling $60,000, which was recorded to general and administrative expense in 2008.

In March 2008, we completed our acquisition of GeoAlgae in exchange for 5,875,000 shares of our common stock. The shares were valued at $0.25 per share for a total value of $1,469,000. The entire purchase price was allocated to intangible assets which in total constituted a business plan. The intangible assets were subsequently deemed to be impaired.

In March 2008, we issued 100,000 shares of our common stock to a consultant. The shares were valued at $0.30 per share for a total of $30,000 which was expensed as general and administrative expense in 2008.

In March 2008, we issued 294,118 shares of our common stock to Thomas Lloyd Capital in settlement of a placement and advisory services agreement (see further discussion at Note 8, Commitments and Contingencies – Thomas Lloyd). The shares were valued at $0.17 per share for a total of $50,000. We also issued 715,627 warrants to purchase shares of our common stock at an exercise price of $0.17 per share, which were valued at $0.17 per warrant. The common stock and the warrants were valued at the 10 day trailing volume weighted average closing price immediately prior to May 10, 2008 (the settlement agreement date) which was $0.17. The warrants were valued utilizing the Black-Scholes model with the following assumptions: exercise price of $0.17, volatility of 213%, a risk-free interest rate of 2.99%, expected term of five years and 0% dividend yield, resulting in a value of $0.17 per warrant.

In November 2008, we entered into an agreement with 18KT – TV Communications, whereby we issued 18KT – TV Communications 1,000,000 shares of our common stock, valued at $0.009 per share which was expensed as general and administrative expense in 2008. In addition, we granted 18KT – TV Communications a five-year warrant to purchase 5,000,000 shares of our common stock at an exercise price of $0.002 per share, in exchange for the cancellation of the 10-year warrant to purchase 300,000 shares of our common stock at an exercise price of $1.00 per share previously granted in January 2008. The fair value of approximately $44,000 related to the warrants was recorded to general and administrative expense in 2008. In January 2009, we issued 4,500,000 shares pursuant to the exercise of this warrant on a cashless basis. In July 2010, we entered into an additional agreement with Vitello Capital Ltd., the successor in interest to 18KT-TV Communications, whereby we issued Vitello Capital Ltd. 600,000,000 shares of our common stock, valued at $0.0001 per share, for prior investor relations services.

In January 2009, $11,000 of accounts payable due to a related party was converted into 2,500,000 shares of our common stock pursuant to an agreement at a conversion rate of $0.0045. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $11,000 was recorded as interest expense in the three months ended March 31, 2009.

In February 2009, $12,000 of accounts payable due to a related party was converted into 2,500,000 shares of our common stock pursuant to an agreement at a conversion rate of $0.005. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $12,000 was recorded as interest expense in the three months ended March 31, 2009.

In July 2009, we issued 853,000,000 shares of our common stock upon conversion of accounts payable to related parties of $85,000 at a conversion rate of $0.0001. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liability of $85,000 was recorded as interest expense in the three months ended September 30, 2009.

In October 2009, we issued 140,000,000 shares of our common stock upon conversion of accounts payable to related parties of $28,000 at a conversion rate of $0.0002, and 70,000,000 shares of shares of our common stock upon conversion of accounts payable to related parties of $9,800 at a conversion rate of $0.00014. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liabilities of $37,800 was recorded as interest expense in the three months ended December 31, 2009.

In November 2009, we issued 70,000,000 shares of our common stock upon conversion of accounts payable to related parties of $14,000 at a conversion rate of $0.0002, and 70,000,000 shares of shares of our common stock upon conversion of accounts payable to related parties of $9,800 at a conversion rate of $0.00014. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liabilities of $23,800 was recorded as interest expense in the three months ended December 31, 2009.

In December 2009, we issued 280,000,000 shares of our common stock upon conversion of accounts payable to related parties of $56,000 at a conversion rate of $0.0002. The intrinsic value (the market value of the stock less the conversion price multiplied by the number of shares to be issued upon conversion) of the conversion feature was well in excess of the principal balance of the liability. However, the amount of the beneficial conversion feature to be recorded is limited to the principal amount of the liability, and thus, the beneficial conversion feature recorded related to the convertible liabilities of $56,000 was recorded as interest expense in the three months ended December 31, 2009.

As discussed in Note 5, Notes Payable, on December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $160,000. During the three months ended March 31, 2010, all of these notes were converted to 1.6 billion shares of our common stock at their stated conversion price of $0.0001 per share.

As discussed in Note 5, Notes Payable, on December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $324,000. During the three months ended June 30, 2010, an aggregate of $212,000 of these convertible notes were converted into approximately 4.2 billion shares of our common stock at their stated conversion rate.

Stock Incentive Plans — In August 2002, we established the 2002 Equity Incentive Plan (the “Equity Incentive Plan”), authorizing 1,250,000 shares of our common stock for the grant of incentive and non-qualified stock options stock options, as well as restricted stock awards.

Stock Options — Stock options to purchase shares of our common stock are granted under our existing stock-based incentive plan to certain employees and consultants, at prices at or above the fair market value on the date of grant.

There was no option activity during the three and nine months ended June 30, 2010 or 2009. There are a total of 33,333 vested options outstanding, with an exercise price of $2.65 per share and grant date fair value of $2.65 per share and 1,150,000 shares were available for future grants or awards under our Equity Incentive Plan.

As of June 30, 2010, we had nil of total unrecognized compensation cost related to unvested stock options. The intrinsic value of stock options outstanding and exercisable was nil at June 30, 2010, based on the $0.0001 closing market price of our common stock on that date. There were no options which vested during the three and nine months ended June 30, 2010 and 2009.

Warrants — In connection with private placements of our common stock, negotiations with vendors and our notes payable, we have issued warrants to purchase shares of our common stock. In May 2010, we entered into an agreement with CKNS Capital Group, LLC, pursuant to which CKNS Capital Group, LLC purchased two units, at a purchase price of $25,000 per unit, each consisting of (i) a six-month 10% convertible debenture in the principal amount of $25,000 convertible into the principal securities sold in our next capital financing (the “Principal Securities”) defined as a capital financing as not less than $14 million (“Capital Financing”). The Principal Securities will be issued at a conversion price equal to 50% of the per share price of the Principal Securities sold in such Capital Financing; and (ii) a 3-year warrant for common stock for every two Principal Securities acquired by the investor (50% warrant coverage) in connection with the conversion of the convertible debenture. Each warrant will have a strike price equal to 50% of the conversion price or 25% of the price of the Principal Securities sold in the Capital Financing. The convertible debenture automatically converts upon the completion of the sale of the Principal Securities in the Capital Financing, or if not automatically converted, has a maturity date that is six months following the execution of the convertible debenture. In the event that the convertible debenture is repaid, the warrants will be cancelled. The warrants have not been included as issued as they are contingently issuable upon future events which were not considered probable at June 30, 2010.

At September 30, 2009, there were warrants outstanding for the purchase of 2,395,443 shares of our common stock with a weighted average exercise price of $0.83. Warrants to purchase 3,125 shares of our common stock at an exercise price of $2.00 per share expired in February 2010. Warrants to purchase 605,991 and 67,500 shares of our common stock at an exercise price of $2.65 and $2.00 per share, respectively, are exercisable until June 2012 and warrants to purchase 3,200 shares of our common stock at an exercise price of $2.00 per share are exercisable until February 2013. Warrants to purchase 715,627 shares of our common stock at an exercise price of $0.17 per share are exercisable until March 2013. Warrants to purchase 1,000,000 shares of our common stock at an exercise price of $0.13 per share are exercisable until May 2018. At June 30, 2010, there were warrants outstanding for the purchase of 2,392,318 shares of our common stock with a weighted average exercise price of $0.83.

Note 7. Income Taxes

We continue to record a valuation allowance in the full amount of deferred tax assets since realization of such tax benefits has not been determined by our management to be more likely than not. At the end of each interim period, we make our best estimate of the effective tax rate expected to be applicable for the full fiscal year, and the rate so determined is used in providing for income taxes on a current year-to-date basis. The difference between the expected provision or benefit computed using the statutory tax rate and the recorded provision or benefit of zero, is primarily due to the estimated change in valuation allowance more likely to result due to taxable losses anticipated for the applicable fiscal year.

Note 8. Commitments and Contingencies

Employment Agreements

See employment agreements at Note 4 – Related Party Transactions, above.

TanOak Litigation

On May 11, 2010, the Company filed a complaint against its former accountants, TanOak Partners, LLC, Chris Wain and Paul Spencer (collectively, “TanOak”), in King County Superior Court (Geobio Energy, Inc. v. TanOak Partners, LLC, Chris Wain and Paul Spencer, Case Number 10-2-17135-5 SEA), for breach of TanOak’s engagement contract, breach of the covenant of good faith and fair dealing, violation of fiduciary duties, self-dealing and fraudulent misrepresentation/inducement. TanOak filed an answer and counterclaim on June 3, 2010, claiming fraud, breach of contract and breach of the covenant of good faith and fair dealing. Neither Geobio nor TanOak specified damages in their complaint or counterclaim, and both sides moved for monetary damages as well as for declaratory judgment regarding the validity of employment agreements of Chris Wain and Paul Spencer. The case is currently in discovery and the trial date is set for October 24, 2011. The Company intends to pursue the lawsuit vigorously. We have not made any accrual related to future litigation outcomes as of June 30, 2010 or September 30, 2009.

Thomas Lloyd Capital

We had engaged Thomas Lloyd Capital, LLC (“Thomas Lloyd”) as a placement agent to assist us in our financing activities and for financial advisory services. Under our original agreement with Thomas Lloyd, we accrued a cash placement fee of $75,500 and recorded $65,523 representing the value of warrants issuable to Thomas Lloyd to purchase 200,000 shares of our common stock during May through July 2007. In May 2008, we negotiated a settlement, whereby we agreed to issue to Thomas Lloyd (i) 294,118 shares of our common stock valued at $50,000 based on the 10-day trailing volume-weighted average closing price of our common stock of $0.17 per share, for financial advisory services rendered, (ii) five-year immediately exercisable warrants to purchase an additional 300,000 shares of our common stock at $0.17 per share for financial advisory services, (iii) five-year immediately exercisable warrants to purchase an additional 415,627 shares of our common stock at an exercise price of $0.17 per share as placement fees in connection with our 2007 Private Placement transaction and (iv) $53,679 payable in cash upon closing a placement in excess of $2,000,000. We valued the additional warrants to purchase 300,000 shares of our common stock at $51,000, utilizing the Black-Scholes model with the following assumptions: stock price of $0.17, exercise price of $0.17, volatility of 213%, a risk-free rate of 2.99%, expected term of 5 years and a dividend yield of 0%. The value of the warrants was recorded to general and administrative expense during 2008. The additional warrants to purchase 415,627 shares of our common stock were also valued using the same assumptions, resulting in $70,657 recorded as an increase and deduction to additional paid in capital as placement fees during 2008. The $53,679 in contingent cash fees is not reflected as a payable in our accompanying condensed consolidated financial statements as of June 30, 2010 and September 30, 2009 as the closing of such financing was not probable at those dates. The agreement also provided for, at Thomas Lloyd’s election and dependent on our receipt of such election notice, a one-time reset of the common stock value per share and warrant exercise price to a per-share price equal to the lower of (i) the 10-day trailing volume-weighted average closing price at the closing of a placement in excess of $5,000,000 or (ii) the 10-day trailing volume-weighted average closing price six-months after the agreement. Such reset provision expired in November 2008 without notice by Thomas Lloyd.

Goodrich Capital, LLC

In January 2010, we entered into an agreement with Goodrich Capital, LLC, for strategic planning, financial and management consulting services in exchange for a non-refundable cash fee of $50,000, creditable against cash fees earned upon closing a transaction as follows: a cash fee of $1.6 million based upon the total capital raise with respect to all financing transactions of $20 million, with the minimum amount payable for all financing transactions being $400,000 (assuming a $5.0 million capital raise). In addition, warrants are issuable to Goodrich Capital in the form of an equity closing fee, fully vested at the time of issuance, to purchase a number of shares of our common stock equal to 5% of the equity issued in such transaction, determined on an as-converted basis. The strike price of the warrants will be equal to the share price of the instruments issued in the transaction and have a term of 10 years from the date of issuance. Under the terms of the agreement, we paid Goodrich Capital $30,000 in the second quarter of our 2010 fiscal year. In March 2010, the agreement with Goodrich Capital, LLC was amended. The remaining obligation under the amended agreement, which was terminated pursuant to the amendment, represents $13,500 in fees and expenses, and has been included in accounts payable and accrued expenses at June 30, 2010.

Note 9. Subsequent Events

Shares issued upon Conversion of Convertible Liabilities

As discussed in Note 5, Notes Payable, on December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $324,000. In July 2010, an aggregate of approximately $101,500 of these convertible notes were converted into approximately 2.0 billion shares of our common stock at their stated conversion rate.

As discussed in Note 5, Notes Payable, on July 23, 2009, accounts payable due to Otto Law Group, a related party, were assigned to a stockholder of the Company, and we entered into a convertible promissory note in aggregate principal amount of $50,000. In August 2010, this convertible note was converted into 1 billion shares of our common stock at its stated conversion rate.

As discussed in Note 5, Notes Payable, in August 2010, the $223,000 convertible bridge loan due to BNA Capital Holdings LLC was converted into 446,000 shares of our common stock in accordance with its stated conversion rate.

Additional Funds Received Under Bridge Loan Financings

In July 2010, we received an additional aggregate of approximately $83,000 from the two additional investors under the same terms as CKNS Capital Group, LLC.

In July 2010, we received an aggregate of an additional approximately $9,000 under the terms of a convertible promissory note with an investor. The terms are currently unspecified.

Vitello Capital Ltd. Consulting Agreement

As discussed in Note 6, Stockholders’ Equity (Deficit), in July 2010, we entered into an additional agreement with Vitello Capital Ltd., the successor in interest to 18KT-TV Communications, whereby we issued Vitello Capital Ltd. 600,000,000 shares of our common stock, valued at $0.0001 per share, for prior investor relations services.

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

Statements contained herein may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, an amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect our current views with respect to future events or our financial performance, and involve certain known and unknown risks, uncertainties and other factors, including those identified below, which may cause our or our industry’s actual or future results, levels of activity, performance or achievements to differ materially from those expressed or implied by any forward-looking statements or from historical results. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The following factors, among others, could cause our or our industry’s future results to differ materially from historical results or those anticipated: 1) our limited operating history; (2) our ability to pay down existing debt; (3) our ability to obtain contracts with suppliers of raw materials (for our production of biodiesel fuel) and distributors of our biodiesel fuel product; (4) the risks inherent in the mutual performance of such supplier and distributor contracts (including our production performance); (5) our ability to protect and defend our proprietary technology; (6) our ability to secure and retain management capable of managing growth; (7) our ability to raise necessary financing to execute our business plan; (8) potential litigation with our shareholders, creditors and/or former or current investors; (9) our ability to comply with all applicable federal, state and local government and international rules and regulations; and (10) other factors over which we have little or no control. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price. As a result of these and other factors, we may experience material fluctuations in future operating results on a quarterly or annual basis, which could materially and adversely affect our business, financial condition, operating results and stock price. Additional factors that would cause actual results to differ materially from those projected or suggested in any forward-looking statements are contained in our filings with the Securities and Exchange Commission, including those factors discussed under the caption “Forward-Looking Information” in our most recent Annual Report on Form 10-K, as may be supplemented or amended from time to time, which we urge investors to consider. We have no duty to update, supplement or revise any forward-looking statements after the date of this report or to conform them to actual results, new information, future events or otherwise. The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and notes appearing elsewhere in this Report.

Overview

We are also currently seeking to acquire New Mexico based H&M Precision Products, Inc. (“H&M”), as detailed in our Current Reports on Form 8-K filed May 27, 2010 and July 1, 2010. H&M sells proprietary chemical blends used to maintain, clean and improve the operating efficiency of natural gas and oil wells. The purchase price is to be determined by the formula of the product of (i) H&M’s 12-month trailing cumulative, “adjusted” earnings before interest, taxes, depreciation and amortization as of the closing date multiplied by (ii) 2.99, with a maximum Purchase Price of $8,410,000.

Liquidity, Capital Resources and Going Concern

As of June 30, 2010, we had a deficit accumulated during the development stage of approximately $24.4 million and expect to incur additional losses in the future. Our working capital deficit was approximately $1.9 million as of June 30, 2010 and we have limited cash and other assets. We have received an opinion for the fiscal years ended September 30, 2009 and 2008 from our independent registered public accounting firm noting the substantial doubt about our ability to continue as a going concern due to our significant recurring operating losses and negative cash flows.

We have prepared our condensed consolidated financial statements assuming that we will continue as a going concern, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. We have funded our losses primarily through sales of common stock and warrants in private placements and borrowings from related parties and other investors. The further development of our business will require capital. Our current cash levels are not sufficient to enable us to execute our business strategy, which includes the acquisitions of Collins and H&M, both of which require significant cash payments. We require additional financing to satisfy our near-term working capital requirements. Our operating expenses will also consume a material amount of our cash resources. Company management intends to raise additional debt and equity financing to fund future operations and to provide additional working capital. However, there is no assurance that such financing will be obtained in sufficient amounts necessary to meet our needs. In the event that we cannot obtain additional funds, on a timely basis or our operations do not generate sufficient cash flow, we may be forced to curtail or cease our activities, which would likely result in the loss to investors of all or a substantial portion of their investment. We are actively seeking to raise additional capital through the sale of shares of our capital stock to institutional investors and through strategic investments. If management deems necessary, we might also seek additional loans from related parties or others. However, there can be no assurance that we will be able to consummate any of these transactions, or that these transactions will be consummated on a timely basis or on terms favorable to us. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty.

Discussion of Cash Flows

We used cash of approximately $463,000 and $110,000 in our operating activities in the nine months ended June 30, 2010 and 2009, respectively. Cash used in operating activities relates primarily to funding net losses, partially offset by amortization of debt discount, share-based payments of consulting and other fees and changes in operating assets and liabilities. We expect to use cash for operating activities in the foreseeable future as we continue our operating activities.

Our investing activities used no cash.

Our financing activities provided cash of approximately $492,000 and $165,000 in the nine months ended June 30, 2010 and 2009, respectively. Changes in cash from financing activities are stockholder contributions to pay company expenses, advances from related parties to pay company expenses, net of repayments, and borrowings on notes payable and notes payable to related parties.

Recent Financing Activities

During the three months ended June 30, 2010, we received an aggregate of $67,000 from two additional investors under the same terms as CKNS Capital Group, LLC.

Summary

We are dependent on existing cash resources and external sources of financing to meet our working capital needs. Current sources of liquidity are insufficient to provide for budgeted and anticipated working capital requirements. We will therefore be required to seek additional financing to satisfy our working capital requirements. No assurances can be given that such capital will be available to us on acceptable terms, if at all. In addition to equity financing and strategic investments, we may seek additional related party loans. If we are unable to obtain any such additional financing or if such financing cannot be obtained on terms acceptable to us, we may be required to delay or scale back our operations, which would adversely affect our ability to generate future revenues and may force us to curtail or cease our operating activities. These conditions give rise to substantial doubt about our ability to continue as a going concern. Our ability to expand operations and generate additional revenue and our ability to obtain additional funding will determine our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Comparison of the Three and Nine Months Ended June 30, 2010, to the Three and Nine Months Ended June 30, 2009

In the three months ended June 30, 2010 and 2009, we incurred net losses of approximately $909,000 and $268,000, respectively. In the nine months ended June 30, 2010 and 2009, we incurred net losses of approximately $1,867,000 and $596,000, respectively.

Revenues. We had no revenues in the three and nine months ended June 30, 2010 and 2009.

Cost of Sales. Cost of sales was nil in the three and nine months ended June 30, 2010 and 2009, respectively.

Operating Expenses. Operating expenses increased to $740,000 and $1,374,000 in the three and nine months ended June 30, 2010, respectively, from $133,000 and $387,000 in the three and nine months ended June 30, 2009, respectively, due to an increase in executive compensation and legal fees. Executive compensation was $248,000 and $398,000 in the current year periods compared to $61,000 and $71,000 in the prior year periods. Legal fees were $268,000 and $600,000 in the current year periods, compared to $99,000 (including finance charges of $7,000) and $273,000 (including finance charges of $33,000) in the prior year periods.

Interest Expense. Interest expense increased from $135,000 in the prior year three month period to $149,000 in the current year three month period, and increased from $209,000 in the prior year nine month period to $493,000 in the current year nine month period, due primarily to amortization of the beneficial conversion feature related to convertible liabilities.

Off-Balance Sheet Arrangements

As of June 30, 2010, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

ITEM 4. CONTROLS AND PROCEDURES.

(a) Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation, under the supervision and with the participation of senior management, including Mr. Miyatovich, our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based upon that evaluation, our CEO/CFO concluded that our disclosure controls and procedures were not effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act. As previously reported under Item 9A(T) in our Annual Report on Form 10-K for the year ended September 30, 2009 (the “Annual Report”), we had numerous deficiencies in our disclosures controls as of September 30, 2009. In the Annual Report we described the remediation efforts we have begun to undertake in order to correct such deficiencies. As of June 30, 2010, the deficiencies described in the Annual Report still existed since the remediation efforts had not yet been fully implemented as of such date.

(b) Internal Control over Financial Reporting. There have been no changes in our internal controls over financial reporting or in other factors during the fiscal quarter ended June 30, 2010 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting subsequent to the date we carried out our most recent evaluation. As previously reported in Item 9A(T) of the Annual Report, we had numerous material weaknesses in our internal control over financial reporting as of September 30, 2009. In the Annual Report we described the remediation efforts we have begun to undertake in order to correct such material weaknesses. As of June 30, 2010, the material weaknesses described in the Annual Report still existed since the remediation efforts had not yet been fully implemented as of such date.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

The following sets forth certain information for all securities we sold during the quarter ended June 30, 2010 without registration under the Securities Act of 1933, as amended (the “Securities Act”), other than those sales previously reported in a Current Report on Form 8-K:

On December 31, 2008, accounts payable due to Otto Law Group, a related party, were assigned to certain other related parties, and we entered into convertible promissory notes in aggregate principal amount of $324,000. During the three months ended June 30, 2010, an aggregate of $212,000 of these convertible notes were converted into approximately 4.2 billion shares of our common stock at their stated conversion rate.

During the three months ended June 30, 2010, we received an aggregate of $67,000 from two additional investors under the same terms as CKNS Capital Group, LLC.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters have been submitted to our security holders for a vote, through the solicitation of proxies or otherwise, during the periods ended June 30, 2010.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The exhibits required by this item are listed on the Exhibit Index attached hereto.

SIGNATURES

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

Dated: August 30, 2010 GEOBIO ENERGY, INC.

By: /s/ Lance Miyatovich

Chief Executive Officer, Chief Financial Officer,

and Principal Accounting Officer

EXHIBIT INDEX


Exhibit No.		Description of Exhibit

10.21		Stock Purchase Agreement of Collins Construction, Inc., dated March 29, 2010, incorporated by reference to the Form 10-Q for the quarter ended March 31, 2010.

10.22		Stock Purchase Agreement of H&M Precision Products, Inc., dated March 30, 2010, incorporated by reference to the Form 10-Q for the quarter ended March 31, 2010.

10.23		Amendment No. 1 to Stock Purchase Agreement of H&M Precision Products, Inc., dated April 14, 2010

10.24		Amendment No. 2 to Stock Purchase Agreement of H&M Precision Products, Inc., dated May 27, 2010

10.25		Amendment No. 1 to Stock Purchase Agreement of Collins Construction, Inc., dated June 1, 2010

10.26		Amendment No. 3 to Stock Purchase Agreement of H&M Precision Products, Inc., dated July 1, 2010

10.27		Amendment No. 2 to Stock Purchase Agreement of Collins Construction, Inc., dated July 14, 2010

31.1		Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of our Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

GeoBio Energy, Inc. - FORM 10-Q - August 30, 2010

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GeoBio Energy, Inc. Reports