Hydrogen Future Corp - FORM 10-Q

Attached files

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EX-32.1 - Hydrogen Future Corp	v223866_ex32-1.htm
EX-32.2 - Hydrogen Future Corp	v223866_ex32-2.htm
EX-31.1 - Hydrogen Future Corp	v223866_ex31-1.htm
EX-31.2 - Hydrogen Future Corp	v223866_ex31-2.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended: March 31, 2011

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

Commission File Number: 333-138927

A5 LABORATORIES INC.

(Exact Name of registrant as specified in its charter)

Nevada	20-5277531
(State or other Jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification Number)

10300 Chemin Core de Liesse

Lachina, Quebec, H8T 1A3

(Address of principal executive offices)

(514) 420-0333

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act:

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 May 23, 2011, there were 48,051,677 shares outstanding of the registrant’s common stock.

TABLE OF CONTENTS

	Page
PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.	3

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3. Quantitative and Qualitative disclosures about Market Risk.	21

Item 4. Controls and Procedures.	21

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.	23

Item 1A. Risk Factors.	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	23

Item 3. Defaults Upon Senior Securities.	23

Item 4. (Removed and Reserved).	23

Item 5. Other Information.	23

Item 6. Exhibits.	23

Signatures	25

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

INDEX TO FINANCIAL STATEMENTS

A5 Laboratories, Inc.

(A Development Stage Company)

Financial Statements

March 31, 2011

(Unaudited)

CONTENTS

	Page(s)

Balance Sheets – As of March 31, 2011 (unaudited) and
September 30, 2010	5

Statements of Operations –
Three and Six Months Ended March 31, 2011 and 2010, and from
June 21, 2006 (Inception) to March 31, 2011 (unaudited)	6

Statement of Stockholders’ Deficit –
Six Months Ended March 31, 2011 and 2010, and from
June 21, 2006 (Inception) to March 31, 2011 (unaudited)	7

Statements of Cash Flows –
Six Months Ended March 31, 2011 and 2010, and from
June 21, 2006 (Inception) to March 31, 2011 (unaudited)	8

Notes to Financial Statements (unaudited)	9 - 16

A5 Laboratories, Inc.

(A Development Stage Company)

Balance Sheets

	March 31, 2011			September 30, 2010
	(Unaudited)

Assets

Current Assets
Cash	$	31,794		$	17,794
Other receivables		64,767			34,164
Total Current Assets		96,561			51,958

Debt issue costs – net		48,929			-

Property & Equipment		1,430,290			1,565,805

Total Assets	$	1,575,780		$	1,617,763

Liabilities and Stockholders' Equity

Current Liabilities
Accounts payable and accrued liabilities	$	61,550		$	33,122
Accrued interest payable		1,775			-
Notes payable - related party		27,101			-
Convertible debt - net of debt discount		7,411			-
Derivative liabilities		1,251,582			-
Total Current Liabilities		1,349,419			33,122

Stockholders' Equity
Preferred stock, $0.001 par value, 100,000,000 shares authorized; none issued and outstanding		-			-
Common stock, $0.001 par value, 100,000,000 shares authorized; 48,051,677 and 47,739,177 shares issued and outstanding		48,052			47,739
Additional paid-in capital		2,102,347			1,948,637
Deficit accumulated during the development stage		(1,915,360	)		(408,656	)
Accumulated other comprehensive loss		(8,678	)		(3,079	)

Total Stockholders' Equity		226,361			1,584,641

Total Liabilities and Stockholders' Equity	$	1,575,780		$	1,617,763

See accompanying notes to financial statements

A5 Laboratories, Inc.

(A Development Stage Company)

Statements of Operations

(Unaudited)

													June 21, 2006
	Three Months Ended March 31,						Six Months Ended March 31,						(Inception) to
	2011			2010			2011			2010			March 31, 2011

General and administrative expenses	$	334,590		$	15,150		$	516,842		$	18,863		$	925,498

Loss from Operations		(334,590	)		(15,150	)		(516,842	)		(18,863	)		(925,498	)

Other Income (Expenses)
Interest expense		(11,158	)		-			(11,158	)		-			(11,158	)
Derivative expense		(1,196,045	)		-			(1,196,045	)		-			(1,196,045	)
Change in fair value of derivative liabilities		217,341			-			217,341			-			217,341
Total Other Expense		(989,862	)		-			(989,862	)		-			(989,862	)

Net Loss	$	(1,324,452	)	$	(15,150	)	$	(1,506,704	)	$	(18,863	)	$	(1,915,360	)

Net loss per common share - basic and diluted		(0	)		(0.00	)		(0.01	)		(0.00	)		(0.02	)

Weighted average number of common shares outstanding during the period - basic and diluted		48,051,677			45,500,000			47,977,845			45,500,000			41,604,630

See accompanying notes to financial statements

A5 Laboratories, Inc.

(A Development Stage Company)

Statement of Stockholders' Equity

Period from June 21, 2006 (Inception) to March 31, 2011

					Additional			Deficit Accumulated						Total
	Common Stock, $0.001 Par Value				Paid In			During the			Accumulated			Stockholders'
	Shares		Amount		Capital			Development Stage			Other Comprehensive Loss			Equity

Proceeds from the issuance of common stock - founder ($0.0005/share)		10,000,000	$	10,000	$	(5,000	)	$	-		$	-		$	5,000

Proceeds from the issuance of common stock - founders ($0.001/share)		15,000,000		15,000		-			-			-			15,000

Net loss for the period from June 21, 2006 (Inception) to September 30, 2006		-		-		-			(2,631	)		-			(2,631	)

Balance - September 30, 2006		25,000,000		25,000		(5,000	)		(2,631	)		-			17,369

Proceeds from the issuance of common stock ($0.004/share)		20,500,000		20,500		61,500			-			-			82,000

Net loss for the year ended September 30, 2007		-		-		-			(16,960	)		-			(16,960	)

Balance - September 30, 2007		45,500,000		45,500		56,500			(19,591	)		-			82,409

Net loss for the year ended September 30, 2008		-		-		-			(18,199	)		-			(18,199	)

Balance - September 30, 2008		45,500,000		45,500		56,500			(37,790	)		-			64,210

Net loss for the year ended September 30, 2009		-		-		-			(19,076	)		-			(19,076	)

Balance - September 30, 2009		45,500,000		45,500		56,500			(56,866	)		-			45,134

Proceeds from the issuance of common stock ($0.65/share)		250,000		250		162,250			-			-			162,500

Proceeds from the issuance of common stock ($0.80/share)		250,000		250		199,750			-			-			200,000

Common stock issued for consulting services ($0.80/share)		20,000		20		15,980			-			-			16,000

Common stock issued for consulting services ($0.90/share)		150,000		150		134,850			-			-			135,000

Common stock issued to acquire software ($0.88/share)		1,569,177		1,569		1,379,307			-			-			1,380,876

Net loss for the year ended September 30, 2010		-		-		-			(351,790	)		-			(351,790	)
Translation loss		-		-		-			-			(3,079	)		(3,079	)
Accumulated other comprehensive loss		-		-		-			-			-			(354,869	)

Balance - September 30, 2010		47,739,177		47,739		1,948,637			(408,656	)		(3,079	)		1,584,641

Proceeds from the issuance of common stock ($0.32/share)		312,500		313		99,688			-			-			100,000

Warrants - debt issue costs		-		-		26,901			-			-			26,901

Debt discount - OID		-		-		27,122			-			-			27,122

Net loss for the six months ended March 31, 2011		-		-		-			(1,506,704	)		-			(1,506,704	)
Translation loss		-		-		-			-			(5,599	)		(5,599	)
Accumulated other comprehensive loss		-		-		-			-			-			(1,512,303	)

Balance - March 31, 2011 - Unaudited		48,051,677	$	48,052	$	2,102,347		$	(1,915,360	)	$	(8,678	)	$	226,361

See accompanying notes to financial statements

A5 Laboratories, Inc.

(A Development Stage Company)

Statements of Cash Flows

(Unaudited)

							June 21, 2006
	Six Months Ended March 31,						(Inception) to
	2011			2010			March 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,506,704	)	$	(18,863	)	$	(1,915,360	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		236,219			-			238,785
Share based payments		-			-			151,000
Amortization of debt discount and debt issue costs		9,383			-			9,383
Derivative expense		1,196,045			-			1,196,045
Change in fair value of derivatives liabilities		(217,341	)		-			(217,341	)
Changes in operating assets and liabilities:
(Increase)/Decrease in:
Other receivables		(30,603	)		-			(64,767	)
Prepaid expenses		-			(28,860	)		-
Increase/(Decrease) in:
Accounts payable and accrued liabilities		28,428			(2,591	)		61,550
Accrued interest payable		1,775			-			1,775
Net Cash Used In Operating Activities		(282,798	)		(50,314	)		(538,930	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment		(100,704	)		-			(288,199	)
Net Cash Used in Investing Activities		(100,704	)		-			(288,199	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable - related party		34,430			-			34,430
Proceeds from convertible note payable		300,000			-			300,000
Repayments of notes payable - related party		(7,329	)		-			(7,329	)
Cash paid as debt offering costs		(24,000	)					(24,000	)
Proceeds from issuance of common stock		100,000			-			564,500
Net Cash Provided By Financing Activities		403,101			-			867,601

Net Increase (Decrease) in Cash		19,599			(50,314	)		40,472

Effect of Exchange Rate on Cash		(5,599	)		-			(8,678	)

Cash - Beginning of Period		17,794			50,314			-

Cash - End of Period	$	31,794		$	-		$	31,794

SUPPLEMENTARY CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes	$	-		$			$	-
Interest	$	-		$			$	-

SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Common stock issued to acquire software	$	-		$	-		$	1,380,876
Debt discount recorded on convertible debt accounted for as a derivative liability	$	300,000		$	-		$	300,000
Debt discount recorded on convertible debt accounted for as a derivative liability - original issue discount		27,122						27,122
Debt issue costs - warrants	$	26,901		$	-		$	26,901

See accompanying notes to financial statements

Note 1 Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.

The financial information as of September 30, 2010 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the years ended September 30, 2010 and 2009. The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended September 30, 2010 and 2009.

Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the three and six months ended March 31, 2011, are not necessarily indicative of results for the full fiscal year.

Note 2 Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations

A5 Laboratories Inc. (the “Company”) was incorporated in the State of Nevada on June 21, 2006. The Company was originally incorporated as El Palenque Nercery, Inc. and changed its name to El Palenque Vivero, Inc. on June 30, 2006. On March 23, 2010, the Company changed its name to A5 Laboratories, Inc. and is based in Lachine Quebec, Canada.

The Company intends to provide contract research and laboratory services to the pharmaceutical industry. To date, the activities of the Company have been limited to implementing the business plan and raising capital. The Company is still in its development stage.

The Company’s fiscal year end is September 30.

Risks and Uncertainties

The Company intends to operate in an industry that is subject to rapid change. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 the reported amounts of revenues and expenses during the reporting period.

Such estimates for the period ended March 31, 2011 and 2010, and assumptions affect, among others, the following:

estimated carrying value, useful lives and related impairment of property and equipment;

estimated fair value of derivative liabilities;

estimated valuation allowance for deferred tax assets, due to continuing losses; and

estimated fair value of share based payments.

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from estimates.

Property and Equipment

Property and equipment (including related party purchases) is stated at cost, less accumulated depreciation computed on a straight-line basis over the estimated useful lives. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized when deemed material. When property and equipment are sold or otherwise disposed of, the asset account and related accumulated depreciation account are relieved, and any gain or loss is included in operations.

Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. There were no impairment charges taken during the period ended March 31, 2011 and the year ended September 30, 2010.

Beneficial Conversion Feature

For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount.

When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.

Derivative Liabilities

Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.

Debt Issue Costs and Debt Discount

The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

Original Issue Discount

For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

Share-based payments

Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.

Earnings per share

In accordance with accounting guidance now codified as FASB ASC Topic 260, “Earnings per Share,” basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

Since the Company reflected a net loss in 2011 and 2010, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.

The Company had the following potential common stock equivalents at March 31, 2011 and 2010:

	March 31, 2011		March 31, 2010

Warrants		8,360,953		-

Fair Value of Financial Instruments

The carrying amounts of the Company’s short-term financial instruments, other receivables, accounts payable and accrued expenses, approximate fair value due to the relatively short period to maturity for these instruments.

Foreign Currency Transactions

The Company’s functional currency is the Canadian Dollar. The Company’s reporting currency is the U.S. Dollar. All transactions initiated in Canadian Dollars are translated to U.S. Dollars in accordance with ASC 830-10-20 “Foreign Currency Translation” as follows:

(i)

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)

Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

Adjustments arising from such translations are deferred until realization and are included as a separate component of stockholders’ equity (deficit) as a component of comprehensive income (loss). Therefore, translation adjustments are not included in determining net income (loss) but reported as other comprehensive income (loss).

For foreign currency transactions, the Company translates these amounts to the Company’s functional currency at the exchange rate effective on the invoice date. If the exchange rate changes between the time of purchase and the time actual payment is made, a foreign exchange transaction gain or loss results which is included in determining net income for the period.

No significant realized exchange gains or losses were recorded from June 21, 2006 (Inception) to March 31, 2011.

Comprehensive Income (Loss)

ASC Topic No. 220, “Comprehensive Income,” establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. Comprehensive income or loss is comprised of net earnings or loss and other comprehensive income or loss, which includes certain changes in equity, excluded from net earnings, primarily foreign currency translation adjustments.

Foreign Country Risks

The Company may be exposed to certain risks as its operations are being conducted in Canada. These include risks associated with, among others, the political, economic and legal environment, as well as foreign currency exchange risk. The Company’s results may be adversely affected by change in the political and social conditions in Canada due to governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversions and remittances abroad, and rates and methods of taxation, among other things. The Company does not believe these risks to be significant, and no such losses have occurred in the current or prior years because of these factors. However, there can be no assurance those changes in political and other conditions will not result in any adverse impact in future periods.

Recent Accounting Pronouncements

There are no new accounting pronouncements that have any impact on the Company’s financial statements.

Note 3 Going Concern

As reflected in the accompanying unaudited financial statements, the Company has a net loss of $1,506,704 and net cash used in operations of $282,798 for the six months ended March 31, 2011. The Company has a working capital deficit of $1,252,858 at March 31, 2011.

The ability of the Company to continue as a going concern is dependent on Management’s plans, which include potential asset acquisitions, mergers or business combinations with other entities, further implementation of its business plan and continuing to raise funds through debt or equity raises. The Company will likely rely upon related party debt or equity financing in order to ensure the continuing existence of the business.

The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 4 Fair Value

The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

Level 1:

Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2:

Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.

Level 3:

Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

At March 31, 2011, the Company classified the fair value of software acquired in exchange for stock issued as level 2. The fair value of this asset is $1,380,876.

The Company has no instruments that require additional disclosure for March 31, 2011 or 2010.

Note 5 Other Receivables

As of March 31, 2011, the Company has receivables of $64,767 for taxes paid on products and services. Under Canadian law, the Company is required to pay GST (Goods and Services Tax) and PST (Provincial Sales Tax) on goods and services that are consumed, used or supplied in the course of their business activities. The Company is eligible to receive credit for both taxes and has submitted a request with the Canadian Revenue Agency to be reimbursed. The Company expects reimbursement during fiscal 2011.

Note 6 Property and Equipment

Property and equipment consists of the following:

	March 31, 2011			Estimated Useful Lives

Office equipment	$	37,335		5
Lab equipment		106,062		10
Leasehold improvements		144,802		*
Software development		1,380,876		3
		1,669,076

Less: Accumulated depreciation/amortization		(238,785	)
Property and equipment - net	$	1,430,290

*The lesser of the estimated useful life, or the life of the operating lease.

The leasehold improvements were not completed at March 31, 2011, and the Company may incur additional costs in order to complete these improvements. The Company expects to place the leasehold improvements in service during fiscal 2011.

The Company purchased $104,122 of lab equipment from an entity controlled by the Company’s Chief Executive Officer during fiscal years ended 2011 and 2010 as follows:

2010	$	79,765
2011		24,357
	$	104,122

See Note 7 for software purchase.

Note 7 Stockholders’ Equity

(A) Common Stock

Stock issued in 2010

On March 9, 2010, the Board authorized a 10-for-1 forward split of its common stock effective April 8, 2010. Each stockholder of record on April 7, 2010 received ten new shares of the Company’s $0.001 par value stock for every one old share outstanding. The effects of the split have been retroactively applied to all periods presented in the accompanying financial statements.

On June 3, 2010, the Company issued 250,000 shares of common stock for $162,500 ($0.65/share).

On July 20, 2010, the Company issued 1,569,177 shares of common stock, having a fair value of $1,380,876 ($0.88/share), based upon the closing trading price, to acquire software from an affiliate of the Company’s Chief Executive Officer.

On July 30, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 18, 2010, the Company issued 125,000 shares of common stock for $100,000 ($0.80/share). In addition, the stockholder received a 2-year warrant for 125,000 shares with an exercise price of $1.20.

On August 23, 2010, the Company issued 20,000 shares of common stock to a consultant, having a fair value of $16,000 ($0.80/share), based upon the closing trading price. At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

On September 17, 2010, the Company issued 150,000 shares of common stock to a consultant, having a fair value of $135,000 ($0.90/share), based upon the closing trading price. At September 30, 2010, the Company expensed this stock issuance as a component of general and administrative expense.

On November 12, 2010, the Company issued 156,250 shares of common stock for $50,000 ($0.32/share).

On December 2, 2010, the Company issued 156,250 shares of common stock for $50,000 ($0.32/share).

Stock issued in 2007

During 2007, the Company issued 20,500,000 shares of common stock for $82,000 ($0.004/share).

Stock issued in 2006

On June 21, 2006 (Inception), the Company issued 10,000,000 shares of common stock for $5,000 ($0.0005/share) to directors and officers of the Company.

On August 1, 2006, the Company issued 15,000,000 shares of common stock for $15,000 ($0.0001/share) to directors and officers of the Company.

(B) Stock Warrants

The following is a summary of the Company’s warrants that are outstanding and exercisable at March 31, 2011 and 2010:

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years		Intrinsic Value

Balance – September 30, 2010		250,000	$	1.20
Granted		8,110,953	$	0.10
Forfeited/Cancelled		-		-
Exercised		-		-
Balance – March 31, 2011 - outstanding		8,360,953	$	0.13		1.67 – 3.98	$	68,684
Balance – March 31, 2011 - exercisable		8,360,953	$	0.13		1.67 – 3.98	$	68,684

Note 8 Commitments and Contingencies

(A)	Contingencies

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise that may harm its business. The Company is currently not aware of any such legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results.

(B)	Operating Lease – Related Party

The Company has subleased office space from a company controlled by the Company’s Chief Executive Officer for a term of two years through March 31, 2012.

Rent expense will be translated in future periods at the balance sheet dates for purposes of financial statement reporting. The following minimum lease payments are presented using the translation rate as of March 31, 2011:

2011	$	139,000
2012		46,000
Total minimum lease payments	$	185,000

Rent expense for the six months ended March 31, 2011 and 2010 was $89,748 and $0, respectively.

Note 9 Notes Payable

(A)	Related Party

On October 22, 2010, the Company executed a note payable with its Chief Executive Officer for approximately $24,360. The note is non-interest bearing, unsecured, and due on demand.

On January 31, 2011, the Company received advances of $9,570 from its Chief Executive Officer. The advances were non-interest bearing, unsecured, and due on demand. The Company repaid $5,309.

On February 8, 2011, the Company received advances of $500 from its Chief Executive Officer. The advances were non-interest bearing, unsecured, and due on demand. The Company repaid $2,020.

(B)	Convertible Debt – Secured – Derivative Liabilities

During 2011, the Company issued convertible notes, totaling $300,000, with the following provisions:

Interest rate 6%;

Default interest rate of 12%;

Notes are due 48 months from the issuance date of February 23, 2011;

Conversion rates equal to 70% or 80% of the market price on date of conversion by applying a specified formula that utilizes the average of the 3 lowest quoted closing prices 20 days immediately preceding the conversion date, and then takes the higher of the average 3 lowest closing prices or $0.12 floor price; and

Secured by the Chief Executive Officer’s 15,000,000 shares of the Company common stock.

The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price as discussed above. The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle. See Note 6 regarding accounting for derivative liabilities.

During 2010, the Company amortized $9,186 to interest expense.

During the year ended 2011 and 2010, the Company paid debt issue costs totaling $50,901 and $0, respectively.

The following is a summary of the Company’s debt issue costs:

Debt issue costs paid - 2011	$	50,901

Amortization of debt issue costs - 2011		(1,972	)
Debt issue costs - net - 2011	$	48,929

During 2011, the Company amortized $1,972.

(D)	Debt Discount

During the year ended 2011 and 2010, the Company recorded debt discounts totaling $300,000 and $0, respectively.

The debt discount recorded in 2011 pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value.

During 2011, the Company amortized $7,411 in debt discount.

Note 10 Derivative Liabilities

The Company identified conversion features embedded within convertible debt ($300,000) issued in 2011 (see Note 9(B)). The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.

As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:

Derivative liability balance at September 30, 2010	$	-
Fair value at the commitment date for convertible notes issued		1,468,923
Fair value mark to market adjustment		(217,341	)
Derivative liability balance at March 31, 2011	$	1,251,582

The Company recorded the derivative liability to debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. The Company recorded a derivative expense of $1,196,045 for 2011.

The fair value at the commitment and remeasurement dates were based upon the following management assumptions:

	Commitment Date			Remeasurement Date
Expected dividends		0	%		0	%
Expected volatility		180	%		180	%
Expected term: conversion feature	4 years			3.90 years
Risk free interest rate		1.73	%		1.73	%

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

Forward Looking Statements

This quarterly report on Form 10-Q and other reports filed by the Company from time to time with the U.S. Securities and Exchange Commission (the “SEC”) contain or may contain forward-looking statements (collectively the “Filings”) and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate”, “believe”, “estimate”, “expect”, “future”, “intend”, “plan”, or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors, including the risks contained in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2010, filed with the SEC, relating to the Company’s industry, the Company’s operations and results of operations, and any businesses that the Company may acquire. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.

Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.

Plan of Operation

A5 Laboratories, Inc. is a development stage company specializing in production of natural interferons using a unique technology that allows the Company to produce interferons for the human and animal health market. In order to execute our business plan, we need to raise additional capital to avoid the interruption of our current Custom Research Organization (CRO) and CRO related software sales operations.

On August 2, 2010, the Company filed a provisory patent with the U.S. Patent office in order to preserve our technology for the production of natural gamma interferons. Over the next 12 months, the Company plans to produce interferon in different research centers worldwide. The Company currently has two research labs engaged to produce interferons using our own technology. The first lab in Europe has finished their work and the results will be published in the next fiscal quarter. The second lab in North America will being testing immediately after the publication of the first set of results. Although this technology has previously been tested, the Company is currently focused on producing interferons in different independent laboratories.

After completion of lab scale production of interferons using our technology in North America and with the assurance of repeatability of our technology in various centers, we will begin producing interferons for in vitro testing at our own facility in Montreal. Simultaneously, we plan to proceed with the necessary regulatory efforts needed in Europe to register our product for veterinary use. If successful, we plan on introducing the interferon for one species (bovine or porcine). The Company also hopes to begin clinical trials in United States, including satisfying various FDA requirements, by the end of 2011.

Results of Operations

Our results of operations are summarized below:

	Quarter Ended March 31, 2011 ($)			Quarter Ended March 31, 2010 ($)
Revenue		0.00			0.00
Expenses		334,590			15,150
Other Expenses		989,862			-
Net Loss from Operations		(1,324,452	)		(15,150	)
Loss Per Share		(0.01	)		0.00

Results of Operations

Three Months Ended March 31, 2011 Compared to the Three Months Ended March 31, 2010

During the three months ended March 31, 2011, we did not earn any revenues. We have not earned any revenues since our inception and there is no assurance that we will be able to earn any revenues in the future.

Our expenses for the three months ended March 31, 2011 and 2010 can be summarized as follows:

	For the Three Months Ended March 31,
	2011 ($)		2010 ($)		Difference ($)
Professional Fees		54,729		4,611		50,118
Rent		45,499		0.00		45,499
General and administrative		234,362		10,539		223,823
Other expense - net		989,862		-		989,862

For the three months ended March 31, 2011, we incurred a net loss of $1,324,452. During the same period in 2010, we incurred a net loss of $15,150. Our expenses during the three months ended March 31, 2011, consisted of $989,861 in other expenses, net, which includes interest expenses and derivative expense and change in fair value of derivative liabilites, $234,362 in general and administrative expenses, $45,499 in rent and $54,729 in professional fees. Comparatively, our expenses during the three months ended March 31, 2010, consisted of $10,539 in general and administrative expenses and $4,611 in professional fees. General and administrative expenses consist of management fees, transfer agent fees, consulting fees, investor relations expenses and general office expenses. Professional fees include legal, accounting and auditing fees. The increase in expenses during the three months ended March 31, 2011, was mostly due to depreciation related to the acquisition of software from an affiliate of the Company’s Chief Executive Officer, the derivative liability, and professional fees associated with the recent SEC filings. In addition, our company located to new premises in Quebec, Canada and incurred rent of $45,499. Rent expense is paid to an affiliate of our Chief Executive Officer at market value.

From June 21, 2006 (Inception) to March 31, 2011, our deficit accumulated during the development stage was $1,915,360.

Six Months Ended March 31, 2011 Compared to the Six Months Ended March 31, 2010

During the six months ended March 31, 2011, we did not earn any revenues. We have not earned any revenues since our inception and there is no assurance that we will be able to earn any revenues in the future.

Our expenses for the six months ended March 31, 2011 and 2010 can be summarized as follows:

	For the Six Months Ended March 31,
	2011 ($)		2010 ($)		Difference ($)
Professional Fees		56,595		8,081		48,514
Rent		89,748		0.00		89,748
General and administrative		370,499		10,619		359,880
Other expense - net		989,862		-		989,862

For the six months ended March 31, 2011, we incurred a net loss of $1,506,704. During the same period in 2010, we incurred a net loss of $18,863. Our expenses during the six months ended March 31, 2011, consisted of $989,861 in other expenses, net, which includes interest expenses and derivative expense and change in fair value of derivative liabilites, $370,499 in general and administrative expenses, $89,748 in rent and $56,595 in professional fees. Comparatively, our expenses during the six months ended March 31, 2010, consisted of $10,619 in general and administrative expenses and $8,081 in professional fees. General and administrative expenses consist of management fees, transfer agent fees, consulting fees, investor relations expenses and general office expenses. Professional fees include legal, accounting and auditing fees. The increase in expenses during the six months ended March 31, 2011, was mostly due to depreciation related to the acquisition of software from an affiliate of the Company’s Chief Executive Officer, the derivative liability, and professional fees associated with the recent SEC filings. In addition, the Company located to new premises in Quebec, Canada and incurred rent of $89,748. Rent expense is paid to an affiliate of our Chief Executive Officer at market value.

Liquidity and Capital Resources

As of March 31, 2011, we had cash and cash equivalents of $31,794, other receivables of $64,767, debt issue costs of $48,929, current liabilities of $1,349,419, and a working capital deficit of $1,252,858.

For the six months ended March 31, 2011, we used net cash of $282,798 in operating activities, compared to net cash of $50,314 spent on operating activities during the same period in 2010. From our inception on June 21, 2006 to March 31, 2011, we used net cash of $538,930 in operating activities.

For the six months ended March 31, 2011, we used net cash of $100,704 in investing activities, compared to $0.00 for the same period in 2010. From our inception on June 21, 2006 to March 31, 2011, we used net cash of $288,199 in investing activities. All transactions pertained to the acquisition of equipment.

During the six months ended March 31, 2011, we received $403,101 in cash from financing activities compared to $0.00 for the same period in 2010. From our inception on June 21, 2006 to March 31, 2011, we received $867,601 through financing activities from the sale of our common shares for $564,500, related party loans for $34,430 and a third party convertible note for $300,000 and paid $7,329 for related party loans and $24,000 for debt offering costs.

Our cash level increased by $31,794 from inception to March 31, 2011.

We anticipate that we will meet our ongoing cash requirements by selling our equity securities or through shareholder loans. Our management has changed our business focus to the acquisition of operating assets and we estimate that our expenses over the next 12 months will be approximately $350,000 as described in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.

	Estimated	Estimated Expenses
Description	Completion Date	($)

Legal and accounting fees	12 months		90,000
Due diligence expenses	12 months		60,000
General and administrative expenses	12 months		200,000
Total			350,000

Off-Balance Sheet Arrangements

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

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Critical Accounting Policies

Use of Estimates

Such estimates for the period ended March 31, 2011 and 2010, and assumptions affect, among others, the following:

estimated carrying value, useful lives and related impairment of property and equipment;

estimated fair value of derivative liabilities;

estimated valuation allowance for deferred tax assets, due to continuing losses; and

estimated fair value of share based payments.

Derivative Liabilities

Debt Issue Costs and Debt Discount

Original Issue Discount

Share-based payments

Earnings per share

Fair Value of Financial Instruments

ASC 820 defines fair value, provides a consistent framework for measuring fair value under generally accepted accounting principles and expands fair value financial statement disclosure requirements. ASC 820’s valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. ASC 820 classifies these inputs into the following hierarchy:

Level 1 inputs: Quoted prices for identical instruments in active markets.

Level 2 inputs: Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 inputs: Instruments with primarily unobservable value drivers.

Foreign Currency Transactions

(i)

Monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;

(ii)

Equity at historical rates; and

(iii)

Revenue and expense items at the average exchange rate prevailing during the period.

No significant realized exchange gains or losses were recorded from June 21, 2006 (Inception) to March 31, 2011.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

We do not hold any derivative instruments and do not engage in any hedging activities.

Item 4. Controls and Procedures.

(a) Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Management’s Assessment of Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a−15(f) and 15d−15(f) under the Exchange Act. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that internal controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of March 31, 2011. In making this assessment, management used the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The objective of this assessment is to determine whether our internal control over financial reporting was effective as of March 31, 2011. Based on our assessment utilizing the criteria issued by COSO, management has concluded that our internal control over financial reporting was not effective as of March 31, 2011. Management’s assessment identified the following material weaknesses:

As of March 31, 2011, there was a lack of accounting personnel with the requisite knowledge of Generally Accepted Accounting Principles (“GAAP”) in the U.S. and the financial reporting requirements of the SEC.

As of March 31, 2011, there were insufficient written policies and procedures to insure the correct application of accounting and financial reporting with respect to the current requirements of GAAP and SEC disclosure requirements.

As of March 31, 2011, there was a lack of segregation of duties, in that we only had one person performing all accounting-related duties.

Notwithstanding the existence of these material weaknesses in our internal control over financial reporting, our management believes that the financial statements included in its reports fairly present in all material respects the Company’s financial condition, results of operations and cash flows for the periods presented. We continue to evaluate the effectiveness of internal controls and procedures on an on-going basis. We plan to further address these issues once we commence operations and are able to hire additional personnel in financial reporting.

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K/A for the fiscal year ended September 30, 2010, as filed with the SEC on January 20, 2011.

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

There were no unregistered sales of the Company’s equity securities during the period ended March 31, 2011, that were not otherwise disclosed on a Current Report on Form 8-K.

Item 3. Defaults upon Senior Securities.

There has been no default in the payment of principal, interest, sinking or purchase fund installment, or any other material default not cured within 30 days, with respect to any indebtedness of the Company.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits.

(d) Exhibits.

Exhibit No.		Description

4.1		$2,545,000.00 Secured Convertible Note, dated February 23, 2011 (filed as Exhibit 4.1 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

4.2		Common Stock Purchase Warrant, dated February 23, 2011 (filed as Exhibit 4.2 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.1		Note and Warrant Purchase Agreement, dated February 23, 2011 (filed as Exhibit 10.1 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.2		Form of Buyer Note (secured by Trust Deed) (filed as Exhibit 10.2 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.3		Form of Buyer Note (not secured by Trust Deed) (filed as Exhibit 10.3 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.4		Form of Deed of Trust (filed as Exhibit 10.4 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.5		Escrow Agreement, dated February 23, 2011 (filed as Exhibit 10.5 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.6		Form of Deed of Reconveyance (filed as Exhibit 10.6 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.7		Form of Reconveyance Request (filed as Exhibit 10.7 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

10.8		Security Agreement, dated February 23, 2011 (filed as Exhibit 10.8 to the Company’s current report on Form 8-K, filed with the SEC on March 2, 2011)

31.1		Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

31.2		Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)).

32.1		Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

	A5 LABORATORIES INC.

Dated: May 23, 2011	By:	/s/ Richard Azani
	Name:	Name: Richard Azani
	Title:	Title: Chief Executive Officer (Principal Executive Officer)
		Principal Financial Officer

Hydrogen Future Corp - FORM 10-Q - May 23, 2011

Attached files

Hydrogen Future Corp Reports