UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

———————

FORM 10-Q

———————

(Mark One)

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarter Ended: September 30, 2011
For The Quarter Ended: March 31, 2012
Or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: _____________ to _____________

Commission File Number: 000-22024

———————

NEW LEAF BRANDS, INC.

(Exact name of registrant as specified in its charter)

———————

Nevada		77-0125664
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

One De Wolf Road Suite 208, Old Tappan, New Jersey 07675

(Address of principal executive offices) (Zip Code)

(201) 784-2400

(Registrant’s telephone number, including area code)

(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 90 days. Yes o No þ

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 þ

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of ~~December~~January 2724th, ~~2011~~2013, there were ~~150~~328,~~811~~533,~~031~~316 shares of our common stock, $0.001 par value, outstanding.

NEW LEAF BRANDS, INC.

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1	Financial Statements	3	3
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	24	28
Item 3	Quantitative and Qualitative Disclosures About Market Risk	32	34
Item 4	Controls and Procedures	32	35
PART II – OTHER INFORMATION
Item 1	Legal Proceedings	34	36
Item 1A	Risk Factors	35	36
Item 4	Removed and Reserved
Item 5	Other Information	37	42
Item 6	Exhibits	37	42

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~New~~NEW ~~Leaf~~LEAF ~~Brands~~BRANDS, ~~Inc~~INC.

~~Condensed~~CONDENSED ~~Consolidated~~CONSOLIDATED ~~Balance~~BALANCE ~~Sheets~~SHEETS

	September 30,			December 31,
	March 31,			December 31,
	2011			2010
	2012			2011
	Unaudited
	(Unaudited)
CURRENT ASSETS
Cash & cash equivalents	$	19154,~~057~~436		$	1375,~~024~~762
Accounts receivable, net of allowances for doubtful accounts of approximately $41,300 at September 30, 2011 and $35,000 at December 31, 2010:		74,982			148,833
Accounts receivable, net of allowance of $37,689 for March 31, 2012 and December 31, 2011		39,692			169,490
Inventory		573,017			435,414
Inventories		202,472			163,709
Prepaid expense and other current assets		42,230			67,780
Prepaid expenses and other assets		288,833			8,462
Total current assets		~~709~~685,~~286~~433			~~665~~417,~~051~~423
Property and equipment, net		6551,~~093~~010			9158,~~099~~000
Intangible assets, net		21,~~253~~073,~~952~~948			41,~~040~~117,~~824~~609
Total assets	$	31,~~028~~810,~~331~~391		$	41,~~796~~593,~~974~~032
CURRENT LIABILITIES
Accounts payable	$	21,~~158~~220,~~099~~436		$	21,~~670~~805,~~993~~361
Purchase order financing		~~460,124~~-			-306,037
Accrued liabilities		~~547~~227,~~953~~323			~~449~~469,~~431~~447
Accrued liabilities related parties		479,362			750,103
Accrued liabilities related party		183,585			582,787
Accrued dividends		177,971			-
Accrued dividend		191,275			196,978
Interest payable		~~178~~146,~~173~~857			~~118~~130,~~784~~270
Short-term notes - other		251,287			3,282,954
Short-term debt		539,530			120,490
Notes payable to related parties		647,594			777,273
Current portion of notes payable to related parties		866,822			752,787
Current portion of long-term debt		~~844~~21,~~039~~119			~~838~~21,~~741~~119
Total current liabilities		5,744,602			8,888,279
Other current liabilities		245,275			245,275
Long-term debt		22,409			34,904
Current liabilities of discontinued operations		835,612			835,612
Derivative payable		65,293			594,271
Total current liabilities		4,477,834			5,466,163
Total long-term liabilities		87,702			629,175
Long-term debt		14,338			14,338
Total liabilities		5,832,304			9,517,454
Long-term notes payable to related parties		119,024
Contingencies (Note 12 )
Derivative liabilities		288,939			45,613
STOCKHOLDERS' EQUITY (DEFICIT)
Total long-term liabilities		422,301			59,951
Preferred stock, $0.001 par value, convertible 10,000,000 shares authorized, Series K 10% Convertible Preferred Stock, 1,000 cumulative shares designated; 30 issued and outstanding (liquidation preference $841,977 and $0 respectively)		-			-
Total liabilities		4,900,135			5,526,114
Common Stock, $0.001 par value, 500,000,000 shares authorized; issued and outstanding 146,886,031 and 75,761,856 at September 30, 2011 and December 31, 2010 respectively:		146,886			75,762
Commitment and contingencies (Note 12)
Shares issuable		31,250			-
STOCKHOLDERS’ DEFICIT
Additional paid-in capital		43,258,315			36,440,087
Preferred stock, $0.001 par value per, convertible 10,000,000 shares authorized Series K 10% Convertible Preferred Stock, 1,000 cumulative shares designated; 24 issued and outstanding (liquidation preference $725,744)		-			-
Accumulated deficit		(46,240,424	)		(41,236,329	)
Common Stock, $0.001 par value per share, 500,000,000 shares authorized, issued and outstanding: 161,171,031 at March 31, 2012 and 150,811,031 at December 31, 2011		161,171			150,811
Total stockholders' equity (deficit)		(2,803,973	)		(4,720,480	)
Shares issuable		113,239			5,550
Total liabilities and stockholders' equity (deficit)	$	3,028,331		$	4,796,974
Additional paid-in capital		47,527,712			44,025,118
Accumulated deficit		(50,891,866	)		(48,114,561	)
Total stockholders' deficit		(3,089,744	)		(3,933,082	)
Total liabilities and stockholders' deficit	$	1,810,391		$	1,593,032

See accompanying notes to the condensed consolidated financial statements

~~New~~NEW ~~Leaf~~LEAF ~~Brands~~BRANDS, ~~Inc~~INC.

~~Condensed~~CONDENSED ~~Consolidated~~CONSOLIDATED ~~Statements~~STATEMENTS ofOF ~~Operations~~OPERATIONS

(Unaudited)

	Three month period ended September 30,						Nine month period ended September 30,
	Three Months Ended March 31,
	2011			2010			2011			2010
	2012			2011
Net sales	$	128,796		$	1,051,547		$	1,474,909		$	3,671,328
Net Sales				$	687,586
Cost of goods sold	$	~~115~~20,~~277~~728			~~647~~557,~~459~~118			~~1,168,540~~			~~2,414,261~~
Gross profit		13(20,~~519~~728)			~~404~~130,~~088~~468			~~306,369~~			~~1,257,067~~
Operating expenses:
Shipping and handling		34,350			140,969			246,872			438,909
Shipping & handling		3,408			127,833
Selling and Marketing		690,009			1,267,479			1,855,373			3,982,307
Marketing		102,728			617,997
General and administration		538,702			410,178			1,564,355			2,492,160
General and administrative		2,715,717			569,829
Depreciation and amortization		129,292			129,200			387,877			387,659
Depreciation & amortization		50,651			129,292
Impairment of intangibles		1,100,000			-			1,100,000			-
Total operating expenses		2,872,504			1,444,951
Total operating expenses		2,492,353			1,947,826			5,154,477			7,301,035
Loss from operations		(2,893,232	)		(1,314,483	)
Loss from continuing operations		(2,478,834	)		(1,543,738	)		(4,848,108	)		(6,043,968	)
Other income (expense)
Other income (expense):
Miscellaneous (expense), net		(25,327	)		(19	)
Miscellaneous Income (expense)		7,629			(1,851	)		(29,255	)		(10,827	)
Interest expense, net		(44,862	)		(49,931	)
Interest expense		(50,636	)		(75,273	)		(120,585	)		(208,646	)
Gain (loss) on settlement of accounts payable and extinguishment of long-term debt		562,893			(118,504	)
Net loss on settlement of accounts payable and extinquishment of long-term debt		(134,406	)		-			(241,757	)		(1,628,166	)
Amortization of debt discount & deferred financing costs		(102,589	)		(68,943	)
Amortization of debt discount & deferred financing costs		(46,454	)		(60,031	)		(115,397	)		(290,304	)
Change in fair value of derivative liabilities		(256,956	)		(64,269	)
Change in fair value of derivative liabilities		157,791			114,074			528,978			1,047,615
Total other income (expense)		(133,159	)		(301,666	)
Total other income (expense), net		(66,076	)		(23,081	)		21,984			(1,090,328	)
Loss from operations before provision for income taxes		(2,760,073	)		(1,616,149	)
Loss from continuing operations before provision for income taxes		(2,544,910	)		(1,566,819	)		(4,826,124	)		(7,134,296	)
Provision for income taxes		-			-
Provision for income taxes		-			-			-			-
Net loss	$	(2,760,073	)	$	(1,616,149	)
Loss from continuing operations		(2,544,910	)		(1,566,819	)		(4,826,124	)		(7,134,296	)
Dividend on Series K Preferred Stock		17,232
Loss from discontinued operations, net		-			-			-			(50,000	)
Net Loss available to common stockholders’	$	(2,777,305)			(1,616,149)
Net loss		(2,544,910	)		(1,566,819	)		(4,826,124	)		(7,184,296	)
Net loss per share-basic and diluted:
Deemed dividends - Series K Preferred stock and warrants		-			-			1,967,699			-
Net loss per share-basic and diluted	$	(0.02	)	$	(0.02	)
Dividends Series K Preferred		18,994			-			177,971			-
Basic and diluted weighted average common shares outstanding		158,757,031			76,233,134
Net loss available to common stockholders	$	(2,563,904	)	$	(1,566,819	)		(6,971,794	)		(7,184,296	)
Net loss per share - basic and diluted
Continuing operations	$	(0.02	)	$	(0.02	)		(0.07	)		(0.11	)
Discontinued operations	$	-		$	-			-			(0.00	)
Net loss per share- basic and diluted	$	(0.02	)	$	(0.02	)		(0.07	)		(0.11	)
Basic and diluted weighted average common shares outstanding		145,082,300			74,443,272			96,361,621			65,716,793

See accompanying notes to the condensed consolidated financial statements

~~New~~NEW ~~Leaf~~LEAF ~~Brands~~BRANDS, ~~Inc~~INC.

~~Condensed~~CONDENSED ~~Consolidated~~CONSOLIDATED ~~Statements~~STATEMENTS ofOF ~~Cash~~CASH ~~Flows~~FLOWS

(Unaudited)

	For the nine months ended September 30,
	Three Months Ended March 31,
	2011			2010
	2012			2011
Operating Activities:
Cash flows from operating activities:
Continuing operations:
Net loss	$	(2,760,073	)	$	(1,616,149	)
Net Loss from continuing operations	$	(4,826,124	)	$	(7,134,296	)
Adjustments to reconcile net loss to net cash (used in) operating activities:
Adjustments to reconcile net loss from continuing operations to net cash used in continuing operating activities:
Depreciation & amortization		50,651			129,293
Depreciation and amortization		387,877			387,659
(Gain) loss on settlement of accounts payable and extinguishment of long-term debt		(562,893)			118,504
Allowance of doubtful accounts		6,300
Amortization of debt discount & deferred financing cost		102,589			68,944
Loss on settlement of accounts payable and extinguishment of long-term debt		241,757			1,628,166
Warrants issued for services		200,618			10,398
Amortization of debt discount & deferred financing cost		162,052			290,304
Stock based compensation		12,561			62,217
Warrants issued for services		10,398			54,913
Common stock issued for services		2,311,158			139,999
Stock based compensation		131,862			168,661
Change in fair value of derivative liabilities		256,956			64,269
Common stock issued for services		140,000			1,043,142
Changes in assets & liabilities:
Loss on disposal of property and equipment					4,249
Accounts receivable		129,798			(158,166	)
Change in fair value of derivatives payable		(528,978	)		(1,047,615	)
Inventories		(38,763	)		129,536
Impairment of intangible asset		1,100,000			-
Prepaid expenses and other current assets		(186,350	)		(51,067	)
Changes in continuing operating assets & liabilities:
Accounts payable		510,370			(119,222	)
Accounts receivable		67,551			(267,108	)
Accrued liabilities and other liabilites		(198,037	)		(15,455	)
Inventory		(137,603	)		(11,008	)
Net cash (used in) operating activities		(171,415	)		(1,236,899	)
Prepaid expenses and other current assets		25,550			(38,676	)
Cash flows from investing activities:
Accounts payable		(400,108	)		786,896
Net cash (used in) investing activities		-			-
Accrued expenses		68,422			(5,731	)
Cash flows from financing activities
Due to related parties		54,259			(94,399	)
Proceeds from notes payable		250,000			205,000
Interest payable		59,389			33,738
Proceeds from exercise of warrants		306,126			-
Net cash (used in) continuing operating activities		(3,437,396	)		(4,201,105	)
Payments on purchase order financing		(306,037)			-
Discontinued Operations:
Net proceeds from sale of preferred stock and warrants		-			1,068,401
Net Loss from discontinued operations		-			(50,000	)
Principal payments on notes payable		-			(11,474	)
Adjustment to reconcile net loss from discontinued operations to net cash provided by discontinued operating activities
Net cash provided by financing activities		250,089			1,261,927
Write-off of escrow from sale of discontinued operations		-			50,000
Net increase in cash for the period		78,674			25,028
Net cash provided by discontinued operations		-			-
Cash and cash equivalents at the beginning of period		75,762			13,024
Net cash (used in) operating activities		(3,437,396	)		(4,201,105	)
Cash and cash equivalents at the end of period	$	154,436		$	38,052
Investing Activities:
Purchases of property & equipment, net		-			(16,945	)
Cash (used in) investing activities		-			(16,945	)
Financing Activities:
Proceeds from issuance of long-term debt and notes payable to related parties		1,174,600			1,587,313
Proceeds from issuance of warrants		-			316,687
Receipt of escrow from sale of discontinued operations		-			200,000
Proceeds from sale of common stock and warrants, net		425,000			964,998
Proceeds from sale of preferred stock and warrants		1,068,401			-
Repayment on long-term debt		(184,696	)		(87,917	)
Proceeds from exercise of warrants		500,000			10,000
Purchase order financing		460,124			-
Fees Paid in connection with the sale of common stock and warrants		-			(75,320	)
Net cash provided by financing activities		3,443,429			2,915,761
Change in cash & cash equivalents		6,033			(1,302,289	)
Cash & cash equivalents beginning of year		13,024			1,547,924
Cash & cash equivalents end of period		19,057		$	245,635
Supplemental disclosures:
Cash paid during the period for:
Interest	$	~~44,432~~		$	~~135~~76,~~160~~482
Non-cash investing and financing activities:
NONCASH INVESTING AND FINANCING ACTIVITIES:
Deemed dividend on Conversion of Series K Preferred and warrants		1,967,699			-
Settlement of accounts payable for shares and warrants		660,446			100,000
Dividends Series K Preferred stock		177,971			-
Conversion of debt obligations					4,129,171
Settlement of accounts payable for common stock and warrants		100,000			-
Forgiveness of earn-out and reduction of intangibles					325,000
Conversion of debt and accrued expense into common stock		4,129,172			-
Conversion of accrued expenses - related party into note payable		200,000
Debt discount on debt issued		46,655			-
Forgiveness of earn-out		325,000			-
Fair value of shares used for commons stock		31,250			-
Recognition of beneficial conversion feature on long-term debt		-			100,000
Settlement of accounts payable for common stock		-			163,781
Settlement of long-term debt for common stock		-			212,500
Issuance of warrants in connection with common stock and debt offering		-			2,078,818
Classification of derivative payable to additional paid in capital upon the exercise of warrants		-			14,560
Warrants Issued to placement agent which have been classified as derivative liabilities and deferred financing costs		-			34,913

See accompanying notes to the condensed consolidated financial statements

~~New~~NEW ~~Leaf~~LEAF ~~Brands~~BRANDS, ~~Inc~~INC.

~~Notes~~NOTES toTO ~~unaudited~~UNAUDITED ~~condensed~~CONDENSED ~~consolidated~~CONSOLIDATED ~~financial~~FINANCIAL ~~statements~~STATEMENTS

1. ~~Organization~~ORGANIZATION ~~and~~AND ~~Basis~~BASIS ofOF ~~Presentation~~PRESENTATION

The condensed consolidated financial statements include NEW LEAF BRANDS, INC. (“the Company”) and its wholly-owned subsidiaries, Baywood New Leaf Acquisition, Inc. and Nutritional Specialties. Nutritional Specialties was acquired by the Company in March 2007 and sold in July 2009.Organization

The condensed consolidated financial statements include NEW LEAF BRANDS, INC. (“the Company”) and its wholly-owned subsidiaries Nutritional Specialties and Baywood New Leaf Acquisition, Inc. Nutritional Specialties was acquired by the Company effective March 30, 2007. Skae Beverage International LLC was acquired by Baywood New Leaf Acquisition, Inc. effective September 9, 2008. On July 24, 2009 the Company sold substantially all of our rights and assets of Nutritional Specialties to Nutra, Inc.

The Company develops markets and distributes healthy and functional ready-to-drink (“RTD”) beverages. The Company distributes its products through independent distributors both internationally and domestically.

The Company ~~was~~ incorporated as Baywood Financial, Inc. in Nevada on June 13, 1986 ~~as Baywood Financial, Inc~~. In March 1992, the Company changed its name from Baywood Financial, Inc. to Baywood International, Inc. InBetween ~~March~~1992 ~~2007,~~and ~~Baywood International~~1998, ~~Inc. created~~ the ~~acquisition~~Company ~~subsidiary~~directed ~~Baywood~~most ~~Acquisition~~of ~~Inc. to acquire Nutritional Specialties. Baywood Acquisition Inc. changed~~ its ~~name~~sales efforts to ~~Nutritional~~nutraceutical ~~Specialties~~international ~~Inc~~markets. In ~~September 2008~~1999, ~~Baywood International, Inc. created~~ the ~~acquisition~~Company ~~subsidiary~~expanded ~~Baywood New Leaf Acquisition, Inc. to acquire Skae Beverage International. In October 2009, Baywood International, Inc. changed~~ its ~~name~~nutraceutical tobusiness ~~New~~into ~~Leaf~~domestic ~~Brands, Inc~~markets.

~~The~~Baywood ~~accompanying~~International, ~~condensed~~Inc. ~~consolidated~~changed ~~financial~~its ~~statements~~name ~~include~~effective ~~all~~October ~~adjustments (consisting only of normal recurring adjustments) which are~~16, in2009 ~~the~~to ~~opinion~~New ofLeaf ~~management~~Brands, ~~considered~~Inc. ~~necessary~~to ~~for~~reflect ~~a fair presentation of~~ the ~~results~~change ~~for the periods presented. The information included~~ in ~~this~~strategic ~~Quarterly~~direction ~~Report on Form 10-Q should be read in conjunction~~ with the ~~condensed~~sale ~~consolidated~~of ~~financial~~Baywood ~~statements~~International, ~~and~~Inc.’s ~~accompanying~~nutraceutical ~~notes~~businesses ~~included in our Annual Report~~ on ~~Form~~October ~~10-K for the year ended December 31~~9, ~~2010~~2009. The ~~results~~name ofchange ~~operations~~was ~~for~~effective ~~interim~~in ~~periods~~the ~~are~~market ~~not~~at ~~necessarily~~the ~~indicative~~opening of ~~the~~business ~~results~~October ~~that~~19, ~~may~~2009, beat ~~expected~~which ~~for~~time ~~any~~the ~~other~~Company’s ~~interim~~ticker ~~period~~symbol orchanged ~~for~~from ~~the~~BAYW.OB ~~full~~to ~~year~~NLEF.OB.

2On April 9, 2012 the Company completed the sale of its non-operating subsidiary Nutritional Specialties, Inc. ~~Going~~(NSI) ~~Concern~~to Deep South Capital, LLC (DSCL). The terms of the divestiture included consideration of $1.00 plus the assumption of certain liabilities by DSCL. In addition, the Company gave DSCL 6,000,000 shares of the Company’s stock as a reserve against possible offsets. The transaction may reduce liabilities by approximately $835,000.

~~The~~Basis ~~Company has a history~~ of recurring losses from continuing operations, deficiencies in working capital and limited cash on hand. As of September 30, 2011, it has also been unable to generate sustainable cash flows from operating activities. In addition, the Company has $1,765,329 in debt and related party obligations payable within the next twelve months including an obligation which is currently in default (see Note 8). For the three and nine months ended September 30, 2011, the Company’s loss from continuing operations were $2,544,910 and $4,826,124, respectively. As of September 30, 2011, the Company’s cash and cash equivalents and working capital deficiency were $19,057 and $5,035,316, respectively. Collectively, these factors raise substantial doubt about the Company’s ability to continue as a going concern.presentation

~~The~~In ~~Company~~the isopinion ~~dependent~~of ~~upon~~management, ~~its ability to obtain~~ the ~~necessary~~accompanying ~~financing.~~unaudited, ~~The Company believes that its existing cash resources~~condensed, ~~combined~~consolidated ~~with~~financial ~~projected~~statements ~~cash~~contain ~~flows~~all ~~from~~adjustments ~~operations,~~necessary ~~will not be sufficient~~ to ~~execute~~present ~~its~~fairly ~~business~~the ~~plan~~financial ~~and~~position ~~continue~~of ~~operations~~New ~~for~~Leaf ~~the~~Brands, ~~next~~Inc. ~~twelve~~(“New ~~months~~Leaf” ~~without~~or ~~additional~~the ~~funding. The~~ “Company”) ~~intends to continue to explore various strategic alternatives, including asset sales~~ and ~~private~~its ~~placements~~results of ~~debt~~operations and ~~equity~~cash ~~securities~~flows tofor ~~raise~~the ~~additional~~interim ~~capital~~periods presented. InSuch ~~October,~~financial ~~November~~statements ~~and~~have ~~December~~been ~~2011,~~condensed ~~the~~in ~~Company~~accordance ~~raised~~with ~~additional~~the ~~gross~~applicable ~~proceeds~~regulations of ~~$490,000~~the ~~pursuant~~Securities ~~to Secured Notes (see Note 7~~ and ~~14)..~~Exchange InCommission ~~addition to paying down~~ and, ~~restructuring its debt~~therefore, ~~management~~do isnot ~~actively~~include ~~taking~~all ~~steps~~disclosures torequired ~~reduce~~by ~~the~~accounting ~~Company’s~~principles ~~future~~generally ~~operating~~accepted ~~expenses~~in ~~and~~the ~~increase~~United ~~future~~States ~~sales~~of America. ~~However,~~These ~~the~~financial ~~Company~~statements ~~cannot~~should ~~provide~~be ~~any~~read ~~assurance~~in ~~that~~conjunction ~~operating~~with ~~results~~New ~~will~~Leaf's ~~generate~~audited ~~sufficient~~financial ~~cash~~statements ~~flow~~for tothe ~~meet~~year ~~its~~ended ~~working~~December ~~capital~~31, ~~needs~~2011, ~~and~~included ~~service~~in ~~its~~New ~~existing~~Leaf's ~~debt~~Annual orReport ~~that~~filed iton ~~will~~Form be10-K ~~able~~for tosuch ~~raise~~fiscal ~~additional capital as needed~~year.

The ~~condensed~~results ~~consolidated~~of ~~financial~~operations ~~statements~~for dothe ~~not~~three ~~include~~months ~~any~~ended ~~adjustments~~March ~~relating~~31, to2012 ~~the~~are ~~recoverability~~not ~~and~~necessarily ~~classification~~indicative of ~~asset carrying amounts or~~ the ~~amount~~results ~~and~~to ~~classification~~be ofexpected ~~liabilities~~for ~~that might result should~~ the ~~Company~~entire befiscal ~~unable to continue as a going concern~~year.

The condensed consolidated financial statements were prepared using accounting principles generally accepted in the United States (“GAAP”). These principles require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

~~3. Summary of significant accounting policies~~Reclassification

In connection with the preparation of its March 31, 2012 financial statements, the Company has reclassed $349,243 from notes payable to additional paid in capital to properly account for the convertible debt and warrants issued in December 2011. The Company determined that the amount was not material to the financial statements for the year ended December 31, 2011. There was no impact on the statement of operations for the year ended December 31, 2011 or the quarter ended March 31, 2012.

2. GOING CONCERN

The Company has a history of recurring losses from continuing operations, deficiencies in working capital and limited cash on hand as of March 31, 2012. To date, it has also been unable to generate sustainable cash flows from operating activities. In addition, the Company has $4,477, 834 in current liabilities payable within the next twelve months including an obligation which is currently in default (see Item 3 - DEFAULTS UPON SENIOR SECURITIES). For the three months ended March 31, 2012, the Company’s loss from continuing operations was $2,760,073. As of March 31, 2012, the Company’s cash and cash equivalents and working capital deficiency are $154,436 and $ 3,792,401) respectively. Collectively, these factors raise substantial doubt about the Company’s ability to continue as a going concern.

The Company’s existence is dependent upon its ability to obtain necessary financing. The Company believes that its existing cash resources, combined with projected cash flows from operations, will not be sufficient to execute its business plan and continue operations for the next twelve months without additional funding. The Company intends to continue to explore various strategic alternatives, including asset sales and private placements of debt and equity securities to raise additional capital. In the first half of 2012, the Company raised gross proceeds of $767,606 pursuant to Unsecured Note Issuances in February 2012 and the Warrant reset and Exchange Offer in March and May 2012 (Subsequent Events). In addition, the Company raised an additional $360,000 in the second half of 2012 and $150,000 in January 2013. In addition to paying down and restructuring its debt, management is actively taking steps to reduce the Company’s future operating expenses and increase future sales. However, the Company cannot provide any assurance that operating results will generate sufficient cash flow to meet its working capital needs and service its existing debt or that it will be able to raise additional capital as needed. As such the Company’s corporate strategy has broadened from solely New Leaf lemonades and teas to an acquirer of mature beverage distributors and manufactures.

The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company has identified the policies below as critical to its business operations and the understanding of the results of its operations. The impact and any of its associated risks related to these policies on the Company’s business operations are discussed throughout this section.

Principles of consolidation

The condensed consolidated financial statements include the accounts of all subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Inventories

Inventories, ~~as estimated by management,~~ consist primarily of ~~finished~~raw ~~goods,~~material ~~but~~and atfinished ~~times~~product ~~will include certain raw materials~~ and are recorded at the lower of cost (on an average cost basis) or market. ~~The~~Inventories ~~inventory~~consisted ~~is comprised~~ of the following:

	September 30, 2011		December 31, 2010
	March 31, 2012		December 31, 2011
	(Unaudited)
	(unaudited)
Finished goods	$	42,191	$	258,324
Raw material	$	168,567	$	133,376
Raw materials		530,826		177,090
Finished goods		33,905		30,333
Total inventories	$	573,017	$	435,414
	$	202,472	$	163,709

Property and Equipment

Property and equipment are ~~stated~~recorded at cost and depreciated using the straight-line method over ~~the~~their estimated useful lives of five years. Property and Equipment consisted of the following:

	March 31 2012		December 31 2011
	(unaudited)
Furniture and fixtures	$	19,539	$	19,539
Computers		125,654		125,654
Equipment		21,199		21,199
Total		166,392		166,392
Less: Accumulated depreciation		115,382		108,392
Net property and equipment	$	51,010	$	58,000

Intangible assets

Intangible assets consist of brand value ~~including tradenames and trademarks~~ resulted from the September 9, 2008 acquisition of certain net assets from Skae Beverage International, LLC. Intangible assets consisted of the following at ~~September~~March 3031, ~~2011~~2012 (unaudited) and December 31, ~~2010~~2011:

	Brand Value – New Leaf Brands
	Brand Value – New Leaf Tea
Asset carrying value at December 31, 2010	$	5,085,824
Asset value at December 31, 2011	$	4,760,824
Accumulated amortization as of December 31, 2010		(1,045,000	)
Accumulated amortization		(1,488,215	)
Net asset carrying value at December 31, 2010	$	4,040,824
Impairment of intangibles		(2,155,000	)
Asset carrying value at September 30, 2011	$	4,760,824
Net asset value at December 31, 2011	$	1,117,609
Accumulated amortization as of September 30, 2011		(1,406,872	)
Asset value at March 31, 2012	$	2,605,824
Impairment of Long-Lived Assets		(1,100,000)
Accumulated amortization		(1,531,876	)
Net asset carrying value at September 30, 2011	$	2,253,952
Net asset value at March 31, 2012	$	1,073,948

The Company evaluates intangible assets for potential impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred using a two-step process. The first step of the impairment test, used to identify potential impairment, compares the estimated fair value of the intangible with the related carrying amount. If the estimated fair value of the intangibles exceeds its carrying amount, the intangible is not considered to be impaired and the second step is unnecessary. During the nine months ended September 30, 2011, the Company determined that the economic uncertainty surrounding the Company’s ability to remain in business triggered an interim impairment analysis. The Company followed the same methodology as the annual test, using predominately a discounted cash flow model derived from internal budgets in assuming fair values for the impairment testing. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures and resources, and liquidity and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. The Company has concluded that impairment had existed at September 30, 2011 and has recorded an impairment charge, measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value, of $1,100,000 for the three and nine months ended September 30, 2011. In conjunction with preparing the revised forecasts, the Company reevaluated the remaining estimated useful lives of the long-lived intangibles and concluded there is no change in its estimated remaining useful lives.8

7The Company evaluates intangible assets for potential impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred using a two-step process. The first step of the impairment test, used to identify potential impairment, compares the estimated fair value of the intangible with the related carrying amount. If the estimated fair value of the intangibles exceeds its carrying amount, the intangible is not considered to be impaired and the second step is unnecessary.

During the quarter ended September 30, 2011, the Company determined that a triggering event occurred and performed an interim impairment analysis. The ~~brand~~interim ~~carrying~~impairment analysis resulted in an impairment of $1,100,000 for the third quarter of 2011. During the year ended December 31, 2011, the Company determined that the economic uncertainty surrounding the Company’s ability to remain in business triggered an impairment analysis. The Company’s interim and annual tests, using predominately a discounted cash flow model derived from internal budgets in assuming fair values ~~(including~~for ~~Trademarks~~the impairment testing. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures and ~~Trade~~resources, ~~Names)~~and ~~were~~liquidity ~~being~~and ~~amortized~~working ~~over~~capital requirements used in our cash flow models. In addition, selection of a ~~ten~~risk-~~year~~adjusted ~~period~~discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. ~~Amortization~~The ~~expense~~Company’s key assumptions used in its annual impairment analysis included the following: a discount rate of 18% based on the estimated weighted average cost of capital from the market participant point of view; royalty rate of 4.0%; an average perpetual growth rate of 66% for six years and a tax rate of 38%. An increase in the ~~nine~~discount ~~months~~rate of 1% or a 1% deterioration of the perpetual revenue growth rate would increase the impairment loss by approximately $38,000 or $11,000, respectively. The Company bases its fair value estimates on assumptions it believes to be reasonable, but which are unpredictable and inherently uncertain. For the year ended ~~September~~December 3031, 2011, the impairment of the Company’s brand value mainly resulted in the decline in its projected revenues and ~~2010~~operating ~~was~~results ~~$361~~and cash flows. The Company has concluded that impairment had existed at December 31,~~872~~ 2011 and has recorded an impairment charge, measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value, of $~~361~~2,~~875~~155,000 ~~respectively~~for the year ended December 31, 2011. In conjunction with preparing the revised forecasts, the Company reevaluated the remaining estimated useful lives of the long-lived intangibles and concluded there is no change in its estimated remaining useful lives.

~~Based~~The onbrand ~~the~~value ~~Company's~~(including ~~amortizable~~Trademarks ~~intangible~~and ~~assets~~Trade asNames) of ~~September~~continuing ~~30,~~operations ~~2011,~~are ~~amortization~~being ~~expense~~amortized isover ~~expected~~the toestimated belife ~~approximately~~of ~~$87,000,~~ten years. Amortization expense for the ~~remainder~~three ofmonths ~~2011~~ended March 31, 2012 and is2011 was $~~348~~43,~~000~~662 and $120,624 ~~for~~respectively. ~~each~~The ofaggregate amortization for the ~~next~~years ~~five~~ended ~~fiscal~~December 31, 2012 through December 31, 2016 and years. thereafter is as follows:

Year	Amortization
2012	$	130,997
2013		159,658
2014		159,658
2015		159,658
2016		159,658
Thereafter		304,319
Total	$	1,073,948

Option -Warrants issued on debt and beneficial conversion

The Company estimates the fair value of each option and warrant grant and beneficial conversion on the date of grant using the Black-Scholes option-pricing model. The option and warrant estimates are based on the following assumptions for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 (unaudited):

	September 30, 2011		September 30, 2010
	March 31, 2012		March 31, 2011
Dividend yield		–0%		–0%
Volatility	81125.4746% to 98202.0728%		~~98.16~~56% to ~~106.21~~98%
Risk free interest rate	0.0317% to 1.7601%		0.322% to 12.794%
Expected term	01.1908 to ~~4.35~~5 years		10.1929 to ~~4.87~~5 years
Forfeiture rate (options)		8%		8%

~~The Company accounts for the beneficial conversion feature of debt and preferred stock using intrinsic value method measure at the date of the note.~~9

The Company accounts for the beneficial conversion feature of debt and preferred stock using intrinsic value method measure at the date of issuance.

Derivatives

As part of certain note and warrant agreements, the Company has provided holders with the option to convert the note or exercise the warrant into the Company’s common stock at a specified strike price. In order to prevent dilution, if the new strike price may be lower than the original strike price on the day of conversion or exercise, the strike price would be lowered to the new conversion or exercise price. The Company has determined that these types of down round protection terms are considered derivatives.

The Company originally estimated the fair value of these warrants using a Black-Scholes valuation model. The same valuation model approach is applied to the market price of the Company’s common stock at ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011 to determine the amount of the derivative relative to the down round protection. The change in this derivative value is included in the consolidated statement of operations as a change in fair value of derivative liabilities. The Company considers these derivative instruments as used for the purpose of securing financing.

~~During~~The ~~December~~following ~~2009,~~table summarizes the ~~Company~~fair ~~commenced~~value ~~a private placement offering~~ of ~~common stock and~~ warrants ~~with~~classified ~~certain~~as ~~accredited~~liability ~~investors. On February 16~~instruments, ~~2010,~~recorded ~~the~~on ~~company issued a side letter agreement to~~ the ~~shareholders~~consolidated ofbalance ~~this~~sheet ~~offering~~as ~~which included down round protection through April 30, 2010 in which additional shares~~ of ~~common~~March ~~stock and/or warrants would be issued~~31, ~~subject~~2012 to(all ~~certain conditions in the side letter agreement. As~~ of ~~April~~which ~~6, 2010, the Company initiated a new private placement offering where the terms~~ are ~~more~~calculated ~~favorable~~using ~~than~~level ~~the~~3 ~~December~~fair ~~2009~~value ~~private placement offering. Shareholders who participated in the December 2009 offering received an aggregate of 1,499,407 additional warrants with an exercise price of $0.45 per warrant.~~measurements):

The fair value of the derivative payable associated with the private placement in the side letter as of the grant date of February 28, 2010 was $25,000. The fair value of the derivative liabilities at September 30, 2010 was $1,219,331. The decrease in fair value of the Company’s derivative payable resulted in a gain of $114,074 and $1,047,615 for the three and nine months ended September 30, 2010 and is included in the change in fair value of the derivative liabilities. The gain includes a decrease in the derivative liabilities due to the passage of time.

	Total Fair Value
	of Derivative as of
Offering	March 31, 2012
2006 and 2008 Bridge Financing	$	1,210
Warrants issued to Series I and J Preferred Stock holders		436
October 2009 notes		6,309
February 2010 stock and warrant issuance		72,057
April 2010 stock and warrant issuance		67,483
September 2010 notes		141,444
	$	288,939

8The following table summarizes the changes in fair value of warrant liabilities (a level 3 fair value measurement) during the three months ended March 31, 2012:

The following table summarizes the fair value of warrants classified as liability instruments, recorded on the consolidated balance sheet as of September 30, 2011 (all of which are calculated using level 3 fair value measurements):

Balance at December 31, 2011	$	45,616
Reclassification of derivative liability on warrant exercised		(13,633)
Change in fair value of derivative instruments included in net loss for the three months ended March 31, 2012		256,956

Balance at March 31, 2012	$	288,939

	Total Fair Value
	of Derivative as of
Offering	September 30, 2011
2006 and 2008 Bridge Financing	$	54
Warrants issued to Series I and J Preferred Stock holders		25
October 2009 notes		2,076
February 2010 stock and warrant issuance		7,149
April 2010 stock and warrant issuance		28,824
September 2010 notes		27,165
	$	65,293

~~The~~On ~~following~~March ~~table~~7, ~~summarizes~~2012 the ~~changes~~Company incommenced ~~fair~~a ~~value~~warrant reset and exercise offer to eligible holders of ~~warrant~~its ~~liabilities~~outstanding (awarrants, ~~level~~pursuant 3to ~~fair~~which ~~value~~all ~~measurement)~~issued and outstanding warrants to purchase common stock of the Corporation issued, irrespective of current exercise price or expiration date, may, in each holder’s sole discretion, be exercised at $0.03 per share during the ~~nine~~offer ~~months~~period. ~~ended~~Approximately ~~September~~15 30investors elected to exercise their warrants for which the Company received $400,147 ~~2011:~~and issued 13,338,225 shares of common stock.

Balance at December 31, 2010	$	594,271
Change in fair value of derivative instruments included in net loss for the nine months ended September 30, 2011		(528,978	)
Balance at September 30, 2011	$	65,293

On February 3, 2012 one investor in our Series Preferred K converted 4 preferred shares into 2,266,667 shares of common stock and exercised a warrant to purchase 1,333,333 shares of common stock.

~~Revenue~~On ~~Recognition~~February 24, 2012 one investor in our Series Preferred K converted 1.45 preferred shares into 1,210,000 shares of common stock.

Revenue ~~is recognized when the earnings process is complete and the risks and rewards of ownership have transferred to the customer~~Recognition, ~~which~~Sales isReturns ~~generally considered to have occurred upon the shipment of product to the customer. The earnings process is complete once the customer order has been placed~~ and approved and the product shipped to the customer. Product is sold to customers on credit terms established on an individual basis. The credit factors used include historical performance, current economic conditions and the nature and volume of the product.Allowances

~~The~~Revenue ~~Company~~is ~~offers~~recognized ~~its~~when ~~customers~~the ~~and~~product ~~consumers~~is shipped. Sales returns are recorded as a ~~variety~~reduction ofto sales when a customer and ~~incentive~~the ~~programs,~~Company ~~including~~agree ~~discounts,~~a ~~allowances,~~return ~~coupons,~~is ~~slotting~~warranted. ~~fees,~~All returns must be authorized in advance and ~~co-op~~must ~~advertising;~~be ~~such~~accompanied ~~amounts~~by an invoice number within 180 days. If returned, the Company’s customers are ~~estimated~~responsible ~~and~~for ~~recorded~~returning asmerchandise ain ~~reduction~~resalable condition. Full credit cannot be given for merchandise that has been defaced, marked, stamped, or priced in ~~revenue~~any way. The Company ~~sells~~does ~~its~~not accept products tokept ~~customers~~longer than two years. Management communicates regularly with acustomers ~~right~~to compile data on the volume of ~~return~~product ~~and~~being sold to the end consumer. This information is ~~obligated~~used by management to ~~accept~~evaluate the need for additional sales returns allowance. The Company’s experience has been such that sales returns can be estimated accurately based on feedback from the customer.

Net Loss per Share of Common Stock

Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the period. The Company has adopted the Earnings Per Share Topic of the Codification (ASC Topic 260-10). Diluted earnings, or (loss,) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share may not been presented if the effect of the assumed exercise of options and warrants to purchase common shares would have an anti-dilutive effect.

Income Taxes

The Company accounts for income taxes under the liability method under the Income Taxes Topic of the Codification (ASC Topic 740-10). Deferred taxes arise from temporary differences, due to differences between accounting methods for tax and financial statement purposes. The Company establishes a valuation allowance for the uncertainty related to its ability to generate sufficient future taxable income to utilize the net operating loss ~~carryforwards~~carry forwards and other deferred items.

The Company recognizes interest and penalties related to uncertain tax positions in interest and general and administrative expense. As of ~~September~~March 3031, ~~2011~~2012, the Company has no unrecognized ~~uncertain~~ tax positions, including interest and penalties.

The tax years ~~2007~~2008-~~2010~~2011 are open to examination by the major tax jurisdictions in which the Company operates.

Comprehensive Income (Loss)

The Company accounts for its Comprehensive Income (Loss) under the Topic of the Codification (ASC Topic 220-10), “Comprehensive Income (Loss),” establishes standards for the reporting and display of comprehensive income (loss) and its components within the financial statements. Other comprehensive income (loss) consists of charges or credits to stockholders’ equity, other than contributions from or distributions to stockholders, excluded from the determination of net income (loss). There were no other components of comprehensive income (loss) other than the net loss for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011, respectively.

Financial Instruments

Financial instruments consist primarily of cash and cash equivalents, accounts receivable and obligations under accounts payable, accrued expenses, derivatives and notes payables. The carrying amounts of cash, accounts receivable, accounts payable, short term debt obligations and accrued expenses approximate fair value because of the short term maturity of those instruments.

Fair Value Measurements

The Company applies recurring fair value measurements to its derivative liabilities. In determining fair value, the Company uses a market approach and incorporates assumptions that market participants would use in pricing the liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation techniques. These inputs can be readily observable, market corroborated, or generally unobservable internally-developed inputs. Based upon the observation of the inputs used in these valuation techniques, the Company's derivative liabilities are classified as follows:

●

Level 1: The fair value of derivative liabilities classified as Level 1 is determined by unadjusted quoted market prices in active markets for identical liabilities that are accessible at the measurement date. The Level 1 inputs used in calculating the fair value of derivative liabilities include traded market values and volatilities calculated thereon.

●

Level 2: The fair value of derivative liabilities classified as Level 2 is determined by quoted market prices for similar assets or liabilities in active markets, quoted market prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data. The Level 2 inputs used in calculating the fair value of derivative liabilities include current published yields on United States Treasury securities.

●

Level 3: The fair value of derivative liabilities classified as Level 3 is determined by internally-developed models and methodologies utilizing significant inputs that are generally less readily observable from objective sources. The Level 3 inputs used in calculating the fair value of derivative liabilities include the remaining terms of the warrants and effective exercise prices.

~~Use~~4. ofGEOGRAPHIC ~~Estimates~~AREA INFORMATION

The ~~preparation~~Company ofgenerates ~~financial~~its ~~statements~~revenues infrom ~~conformity~~numerous ~~with~~customers, ~~accounting~~primarily ~~principles generally accepted~~ in the United States. ~~requires~~The ~~management~~following totable ~~make~~outlines ~~estimates and assumptions that affect~~ the ~~reported~~breakdown ~~amounts~~ of ~~assets~~sales ~~and~~to ~~liabilities~~unaffiliated ~~and~~customers ~~disclosure~~domestically ~~of contingent assets~~ and ~~liabilities~~internationally atfor the ~~date~~three ofmonths ~~the~~ended ~~financial~~March ~~statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.~~31:

Recently Issued Accounting Pronouncements

	2012		2011
United States	$	-	$	675,038
Other International		-		12,548
Totals	$	-	$	687,586

In June 2011, the FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220), Presentation of Comprehensive Income. This update is intended to increase the prominence of other comprehensive income in the financial statements by requiring public companies to present comprehensive income either as a single statement detailing the components of net income and total net income, the components of other comprehensive income and total other comprehensive income, and a total for comprehensive income or using a two statement approach including both a statement of income and a statement of comprehensive income. The option to present other comprehensive income in the statement of changes in equity has been eliminated. The amendments in this update, which should be applied retrospectively, are effective for public companies for fiscal years, and interim periods beginning after December 15, 2011. The Company is in the process of determining if it will present other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements.

In September 2011, the FASB issued ASU No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment. This update allows an entity, when conducting its annual or interim goodwill impairment analysis, to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after conducting this assessment, an entity determines that it is more likely than not that the fair value of a reporting unit exceeds its carrying amount, then performing the two-step goodwill impairment test is unnecessary. The amendments in this update are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company’s did not early adopt this guidance on September 30, 2011 and does not expect the adoption to have a material impact on its financial position, results of operations or cash flows.

4. Geographic area information

The Company generates its revenues from numerous customers, primarily in the United States. The following table outlines the breakdown of sales to unaffiliated customers domestically and internationally for the nine months ended September 30:

	2011		2010
United States	$	1,459,824	$	3,584,206
Other International		15,085		87,122
Totals	$	1,474,909	$	3,671,328

The Company holds all its assets in the United States.

5. Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade receivables. The Company maintains the majority of its cash and cash equivalents in the form of demand deposits with financial institutions that management believes are creditworthy. At September 30, 2011, the cash balances in these institutions were insured in full by the Federal Deposit Insurance Corporation. Concentrations of credit risk relative to trade receivables are limited due to our diverse client base. The Company does have one customer that accounted for approximately 17.5% of sales during the nine months ended September 30, 2011. The aggregate accounts receivable from this customer amounted to zero of the accounts receivable balance outstanding at September 30, 2011.

The Company does have three vendors that accounted for approximately 96.3% of purchases during the nine months ended September 30, 2011. The aggregate accounts payable due to these vendors amounted to approximately 15.1% of the accounts payable balance outstanding at September 30, 2011.

A slowdown or loss of these customers or vendors could materially adversely affect the results of operations and the Company’s ability to generate significant cash flow.

6. Notes payable to related parties

Notes payable to related party at September 30, 2011 and December 31, 2010 consisted of the following:

	September 30,		December 31,
Description	2011		2010
Unsecured note payable to an officer with a face amount of $20,000 bearing interest at 6% per annum and payable on demand (D)	$	20,000	-
Unsecured note payable to a director with a face amount of $75,000 bearing interest at 12% per annum and payable on demand (D)		75,000	-
Unsecured note payable to a director with a face amount of $10,000 bearing interest at 10% per annum and payable on demand (E)		10,000	-
10% Secured Convertible Subordinated Notes to a principal shareholder with a face amount of $125,000 bearing interest at 10% payable July 23, 2012 (I)	$	125,000
Secured factoring loan agreement to a principal shareholder with a face amount of $298,227 bearing interest at 10% payable July 23, 2012 (F)(G)(H)		298,227
10% Secured Convertible Subordinated Notes to a director with a face amount of $120,517 bearing interest at 10% payable July 23, 2012 (F)(G)(H)		120,517	-
Secured note payable to an officer with a face amount of $30,100 bearing interest at 10% payable August 13, 2012 (G)		30,100		-
Unsecured note payable to a director with a face amount of $50,000 bearing interest, which is payable at maturity, at 10% per annum. The note was originally payable on demand but was amended to be payable on demand after December 31, 2010 (A) (B)		-	$	50,000
Unsecured non-interest bearing note payable to an officer with a face amount of $50,000 which was originally payable on demand, but was amended to be payable on demand after December 31, 2010 (B)		-		50,000
Unsecured note payable to a director with a face amount of $150,000 bearing interest, which is payable at maturity, at 10% per annum. The note was originally scheduled to mature in June 2010, but was extended to January 12, 2011 (A)		-		150,000
Unsecured note payable to a director with a face amount of $300,000 bearing interest, which is payable maturity, at 15% per annum. The note was originally scheduled to mature in July 2010, but was extended to December 31, 2010 (A)		-		300,000
Unsecured non-interest bearing note payable to a director which was issued at an original issuance discount of $27,273. The note matures on the three month anniversary of its issuance date on December 21, 2010 but was later extended to January 21, 2011 (C)		-		227,273
Notes payable to related parties	$	678,844	$	777,273
Discount on Debt		(31,250)		-
Notes payable to related parties	$	647,594	$	777,273

A) In connection with the issuance of the $300,000 unsecured note payable to a director, the Company agreed to amend the terms of the two previous outstanding notes payable to the director to provide the director with the option to convert the outstanding note balance to common stock at $0.35 per share, subject to a reset provision which contingently adjusts the conversion price in certain circumstances through July 19, 2010. The Company concluded that the addition of the embedded conversion option to the two previous outstanding notes qualified as modification resulted in extinguishment of the notes and the resulted loss was de minimis. The Company also determined that the embedded conversion option did not need to be bifurcated as a derivative instrument. However, since the embedded conversion option contained a beneficial conversion feature of $57,143 in intrinsic value, and the notes were either payable on demand or in default, the Company immediately recognized the intrinsic value in amortization of debt discount and deferred financing costs. This note was converted into Series K Preferred stock in January 2011.

In June 2010, the Company entered into a transaction which triggered the reset provision contained in the amended note terms resulting in a reduction of the conversion price to $0.30 per share. The $42,857 in incremental intrinsic value created by the reduction of the conversion price was immediately recognized in amortization of debt discount and deferred financing costs.

On January 21, 2011, $500,000 of these notes were converted into 20 units of Series K Preferred Shares and 1,666,667 warrants, which are described in Notes 7 and 9. At September 30, 2011, accrued interest of $57,500 was not converted in the January 21, 2011 transaction, and is included in accrued liabilities related party.

B) In August 2010, these notes were amended to be payable on demand after December 31, 2010. The holder did not receive any additional consideration for amending the note. The Company concluded that the modification of the note did not result in an extinguishment of debt and therefore did not record any gain (loss) on the modification of the note. This note was converted on January 21, 2011 into 2 units of Series K Preferred Stock and 166,667 Series Y warrants which are discussed in Note 9.

C) The note was issued in connection with the Company’s private placement of promissory notes and warrants in September 2010. The note was extended to January 21, 2011, as part of this extension the company issued 45,455 Common shares and reflected a charge of $7,500 as extinguishment of debt for the period ended March 31, 2011. On January 21, 2011, $235,294 of these notes was converted into 9.41 units of Series K Preferred shares and 3,137,255 warrants, which are described in Notes 7 and 9.

D) These notes were issued during the nine months ended September 30, 2011 to provide short-term financing.

E) On June 30, 2011, the Company issued a $10,000 Demand 10% Promissory Note to a director of the Company. The note required a $5,000 repayment on July 7, 2011 which the holder converted to due on demand on the same day at no additional cost to the Company.

F) On June 15, 2011, the Company entered into a Secured Factoring Loan with a principal amount of $426,680 with four lenders, The total amount received on the Secured Factoring Loan was $400,000 of which $125,000 was purchased by a director of the Company and $200,000 was purchased by a principal shareholder. These loans matured on August 20, 2011 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities. On August 24, 2011 these notes were converted into the recasted notes described in (H) below. The Company determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt.

G ) On July 14, 2011, July 28, 2011 and July 29, 2011 we issued Original Issue Discount Notes with three lenders receiving amounts of $75,000 from a principal shareholder, $50,000 and $25,000 respectively from other investors5. ~~These~~CONCENTRATION ~~notes~~OF ~~mature~~CREDIT on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to the principal shareholder. On August 24, 2011 these notes were converted into the recast notes described in (H) below. The Company determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt.RISK

H)Financial Oninstruments ~~August~~which ~~24,~~potentially ~~2011,~~subject the Company ~~recasted~~to ~~$606,381(principal~~concentrations ~~plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one~~ of ~~whom~~credit isrisk aconsist ~~director~~principally of ~~the Company for $120~~cash,~~517,~~ ~~another~~cash ofequivalents ~~whom is an executive officer~~ and ~~director~~trade ofreceivables. ~~the~~The Company ~~for~~maintains ~~$30,100~~the ~~and~~majority ~~another~~of ~~who~~its iscash aand ~~principal~~cash ~~shareholder~~equivalents ~~for $298,227,~~ in ~~exchange~~the ~~for~~form ~~10%~~of ~~Secured~~demand ~~Convertible~~deposits ~~Subordinated Notes (“Secured Notes”) which Notes were coupled~~ with ~~common~~financial ~~stock.~~institutions ~~Each~~that ~~Secured~~management ~~Note~~believes isare ~~collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0~~creditworthy.05 ~~per~~At ~~share.~~March ~~Additionally~~31, ~~such~~2012, ~~lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. The Company determined that~~ the ~~conversion~~cash ofbalances ~~the~~in ~~secured~~these ~~notes~~institutions ~~into~~were ~~the~~insured ~~secured~~in ~~recast~~full ~~notes~~by ~~was more than~~ the ~~carrying~~Federal ~~value~~Deposit ofInsurance ~~the~~Corporation. ~~obligation~~Concentrations ~~on the date~~ of ~~the~~credit ~~conversion~~risk ~~and~~relative ~~recorded~~to atrade ~~loss~~receivables onare ~~extinguishment~~limited ofdue ~~debt~~to ofour ~~$144,392~~diverse ~~for~~client ~~the three and nine months ended September 30, 2011~~base.

I)As ~~Between~~discussed ~~September~~in ~~13-16,~~the ~~2011,~~section we“NEAR ~~borrowed~~TERM ~~$250~~BUSINESS STRATEGY”,~~000~~ ~~from~~on ~~two~~February ~~investors~~14, ~~one~~2012, ofthe ~~whom~~Board iselected aDavid ~~principal~~Fuselier ~~shareholder~~as ofNew ~~the~~Leaf’s ~~Company~~Chairman, ~~($125~~President,~~000)~~ and ~~refinanced~~Chief anExecutive ~~existing~~Officer ~~unsecured~~and ~~loan~~simultaneously, ~~with~~Eric ~~one~~Skae ~~officer~~stepped indown ~~the~~as ~~amount~~our ~~of $30~~Chairman,~~100~~ President and Chief Executive Officer. Mr. WeFuselier ~~issued~~immediately ~~these~~implemented ~~investors~~a ~~the~~turnaround ~~same~~plan ~~10%~~to ~~Secured~~(a) ~~Convertible~~refocus ~~Subordinated~~our ~~Notes~~sales weand ~~had~~marketing ~~issued~~efforts to ~~the~~our ~~lenders~~core ~~reported~~product inmarkets, ~~the~~(b) ~~above~~restructure ~~paragraph.~~corporate ~~Additionally,~~operations ~~such~~and ~~investors~~product ~~received~~mix anto ~~additional~~significantly 5improve ~~shares~~operating ofmargins, ~~our~~(c) ~~common~~achieve ~~stock~~significant ~~for~~debt ~~each~~restructurings ~~$1.00~~and ~~invested.~~interim ~~The~~financings ~~shares~~to ~~were~~both ~~valued~~strengthen atthe ~~$31,250~~balance assheet ~~discount~~and ~~debt~~support sustainable growth and ~~will~~(d) beachieve ~~amortized~~additional ~~over~~tactical ~~the~~and ~~term~~strategic financing to support anticipated growth, research and development and release of ~~notes~~new product lines and acquisitions.

~~Interest~~While ~~expense~~the inCompany made considerable progress towards the ~~nine~~turnaround plan during the three months ended ~~September~~March 3031, ~~2011~~2012, ~~and~~a ~~2010~~delay ~~amounted~~in tointerim ~~$21,248~~financing ~~and~~delayed ~~$32~~production,~~500,~~ ~~respectively.~~shipment ~~The~~of ~~weighted~~open ~~average~~customer ~~interest~~orders ~~rate~~and ~~for~~inventory ~~all~~purchases ~~short~~from ~~term~~distributors ~~borrowings,~~until ~~excluding~~after the ~~amortization~~period ofended. ~~debt~~Production ~~discount~~and ~~was~~sales ~~3.9%~~activity ~~for~~resumed ~~nine~~during ~~months~~the ~~ended~~first ~~2011~~week ~~and~~of ~~10.8%~~April, ~~in 2010~~2012.

The ~~following~~aggregate isaccounts areceivable ~~schedule~~from ofthree ~~principal~~customers ~~maturities~~amounted ~~for~~to ~~the~~81% ~~next~~of ~~five years and~~ the ~~total~~accounts ~~amount~~receivable ~~thereafter~~balance onoutstanding ~~these~~at ~~related~~March ~~party notes as of September 30~~31, ~~2011:~~2012.

Year Ending December 31,	Principal Maturities
2011	$	678.844
2012		-
2013		-
2014		-
2015		-
Total	$	678,844

The aggregate accounts payable due to the top four vendors amounted to approximately 32% of the accounts payable balance outstanding March 31, 2012.

A slowdown or loss of these customers or vendors could materially adversely affect the results of operations and the Company’s ability to generate significant cash flow.

6. NOTES PAYABLE TO RELATED PARTIES

Related party notes payable at December 31, consisted of:

	March 31,			December 31,
Description	2012			2011
	(unaudited)
Unsecured note payable to a former director with a face amounts of $50,000 bearing interest at 10% per annum and payable on October 31, 2012 (E)(F)(G)(I)	$	50,000		$	50,000
Unsecured note payable to a former director with a face amounts of $5,500 bearing interest at 10% per annum and payable on demand (C)		5,500			5,500
Unsecured note payable to a principal shareholder with a face amounts of $55,000 bearing interest at 10% per annum and payable on September 18, 2012 and October 14, 2012 (E)(F)(G)		55,000			55,000
Unsecured note payable to an officer with a face amount of $20,000 bearing interest at 6% per annum and payable on demand (C)		20,000			20,000
Unsecured note payable to a director with a face amount of $75,000 bearing interest at 12% per annum and payable on demand (C)		75,000			75,000
Unsecured note payable to a director with a face amount of $10,000 bearing interest at 10% per annum and payable on demand (D)		10,000			10,000
10% Secured Convertible Subordinated Notes to a principal shareholder with a face amount of $125,000 bearing interest at 10% payable July 23, 2012 (H)		125,000			125,000
Secured factoring loan agreement to a principal shareholder with a face amount of $298,227 bearing interest at 10% payable July 23, 2012 (E)(F)(G)		298,227			298,227
10% Secured Convertible Subordinated Notes to a director with a face amount of $120,517 bearing interest at 10% payable July 23, 2012 (E)(F)(G)		120,517			120,517
Secured note payable to an officer with a face amount of $30,100 bearing interest at 10% payable August 13, 2012 (H)		30,100			30,100
Unsecured note payable to a former director with a face amount of $50,000 bearing interest, which is payable at maturity on July 15, 2013, at 8% per annum. (A)		50,000			-
Unsecured note payable to a principal shareholder with a face amount of $50,000 which is payable at maturity on July 15, 2013, at 8% annum. (A)		50,000			-
Unsecured note payable to a principal shareholder with a face amount of $37,500 bearing interest, which is payable at maturity on September 3, 2013, at 8% per annum. (A)		37,500			-
Unsecured note payable to a former officer with a face amount of $200,000 bearing interest, which is payable at maturity on August 14, 2013, at 8% per annum. (B)		200,000			-
Unsecured note payable to a former officer with a face amount of $100,000 bearing interest, which is payable on demand, at 8% per annum. (B)		100,000			-

Notes payable to related parties	$	1,226,844		$	789,344
Discount on Debt		(240,998	)		(36,557	)
Total notes payable to related parties	$	985,846		$	752,787
Less current maturities		866,822			-
Long-term notes payable to related parties	$	119,024		$	752,787

7. Short-term notes

Between February 15, 2012 and March 2, 2012, the Company received proceeds of $250,000 from four investors in exchange for 8% 18 month Unsecured Convertible Notes (“Unsecured Note”), which Notes were coupled with warrants. One of the investors is a principal shareholder who invested $87,500 and the other was a former director who invested $50,000 in the Unsecured Notes. Each Unsecured Note is convertible thirteen months after their respective issuance dates into common stock at a conversion price equal to the greater of (i) the Variable Conversion Price of 50% of the Market Price and (ii) the Fixed Conversion Price of $0.01. The investors also received 25,000,000 5 year warrants at a strike price of $0.03 per share. In addition the investors received the right to invest in new notes on the same basis as provided.

On February 14, 2012 the Company entered into a Mutual Termination and Release agreement between New Leaf Brands, Inc. and Eric Skae. On February 15, the Company issued Mr. Skae an 8% 18 month Unsecured Note in the Amount of $200,000 which is convertible if asked by Mr. Skae, 13 months after the date of issuance at $0.01 (subject to a beneficial ownership blocker of 4.99%) and an 8% Demand Note in the amount of $100,000.

~~Short-term~~C) These notes atwere ~~September~~issued ~~30,~~during ~~2011~~the ~~and~~year ended December 31, ~~2010~~2011 ~~consisted~~to ofprovide ~~the~~short-term ~~following:~~financing.

	September 30,			December 31,
Description	2011			2010
Secured factoring loan agreement with a face amount of $282,537 bearing interest at 10% payable July 23, 2012 and August 13, 2012 ( C) (D)	$	282,537			-
Secured notes payable with an aggregate original face amount of $1,500,000 bearing interest, which is payable at maturity, at 10% per annum. The notes were originally scheduled to mature in May 24, 2010, but were extended to January 21, 2011. The notes are secured by the Company’s accounts receivable and inventory. (A)		-		$	1,500,000
Unsecured non-interest bearing notes payable which were issued at an original issuance discount of $213,954. The notes mature on the three month anniversary of their issuance date in December 2010. (B)		-			1,782,954
Total short-term notes before discount on debt		282,537			3,282,954
Discount on Debt		(31,250	)		-
Total short-term notes	$	251,287		$	3,282,954

D)	On June 30, 2011, the Company issued a $10,000 Demand 10% Promissory Note to a director of the Company. The note required a $5,000 repayment on July 7, 2011 which the holder converted to due on demand on the same day at no additional cost to the Company.

(AE). On ~~January~~June 2115, 2011, the Company entered into a Secured Factoring Loan with a principal amount of $426,680 with four lenders, the total amount received on the Secured Factoring Loan was $400,000 of which $125,000 was purchased by a director of the Company and $200,000 was purchased by a principal shareholder. These loans matured on August 20, 2011 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities. On August 24, 2011 these notes were converted into 60the ~~units~~recasted notes described in (G) below. The Company determined that the conversion of ~~Preferred~~the ~~stock~~secured asnotes ~~part~~into the secured recast notes was more than the carrying value of the ~~Series~~obligation Kon ~~Preferred~~the ~~share~~date ~~offering~~of the conversion and recorded a loss on extinguishment of debt. F) On July 14, 2011, July 28, 2011 and July 29, 2011 the ~~note~~Company ~~holders~~issued ~~also~~Original ~~received~~Issue 5Discount Notes with three lenders receiving amounts of $75,000 from a principal shareholder, $50,000 ~~warrants~~and ~~series~~$25,000 Yrespectively ~~which~~from other investors. These notes mature on January 14, 2012 at $170,458 and are ~~discussed~~secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to the principal shareholder. On August 24, 2011 these notes were converted into the recast notes described in (G) below. AtThe ~~September~~Company 30determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt. G) On August 24, 2011, the Company recast $570,281 (principal plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one of whom is a director of the Company for $70120,~~211~~517, ~~was~~and ~~not~~another ~~converted~~who is a principal shareholder for $298,227, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the ~~January~~Company’s 21assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, ~~2011~~such ~~transaction~~lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and isprincipal ~~included~~due inthem totaling 2,881,405 common shares. The Company determined that the ~~accrued~~conversion ~~expenses~~of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the year ended December 31, 2011.

H) Between September 13-16, 2011, the Company borrowed $250,000 from two investors, one of whom is a principal shareholder of the Company (B$125,000) and refinanced an existing unsecured loan with one officer in the amount of $30,100. The ~~payment~~Company ~~term~~issued on these ~~notes~~investors ~~were~~and ~~extended~~officers the same 10% Secured Convertible Subordinated Notes we had issued to ~~January~~the ~~21,~~lenders ~~2011~~reported in the above paragraph. Additionally, assuch ~~part~~investors received an additional 5 shares of ~~this~~our ~~extension,~~common ~~the~~stock ~~company~~for ~~issued~~each ~~356~~$1.00 invested totaling 1,~~596~~400,500 common shares ~~and~~(625,000 ~~reflected~~included ain ~~charge~~shares ofissuable). The common shares were fair valued at $5862,~~838~~500 as ~~extinguishment~~debt ofdiscount ~~debt~~and ~~for~~will ~~the~~be ~~nine~~amortized ~~months~~over ~~ended~~the ~~September~~term ~~30,~~of ~~2011~~the notes.

I) On ~~January~~October 2118, 2011, ~~these~~November ~~notes~~11, ~~were~~2011 ~~converted 73.76 units of Preferred stock as part of the Series K Preferred share offering~~ and ~~also~~November ~~received 24~~14,~~585,026~~ ~~warrants series X~~2011, Ythe ~~and Z which are discussed below. The~~ Company ~~determined~~borrowed ~~that the fair value of the Series K Preferred Stock and Common Stock warrants Series X~~$25, ~~Y and Z collectively~~000, ~~were~~ $450,~~129~~000,~~171~~ and $230,~~284,829, respectively, at the date of the conversion. The $2,050,~~000 offrom ~~note~~two ~~payable to Related Parties and $2~~investors,~~079,171~~ both of ~~Short-term~~whom ~~notes~~are ~~were~~principal ~~converted~~shareholders ~~in accordance with the original terms~~ of the ~~debt~~Company. ~~agreements~~The ~~whereby if, at any time prior to or on the Maturity Date, the~~ Company ~~consummates~~issued athese ~~Qualified~~investors ~~Offering, all of~~ the ~~outstanding~~same ~~Face~~10% ~~Amount~~Secured ofConvertible ~~these~~Subordinated Notes ~~shall,~~as ~~without~~we ~~further~~had ~~act~~issued atto the ~~closing~~lenders ofreported ~~such Qualified Offering, convert into securities identical to those being sold~~ in the ~~Qualified~~above ~~Offering,~~paragraph atH. aAdditionally, ~~conversion~~such ~~price~~investors ~~equal~~received toan ~~the~~additional ~~price~~5 shares of ~~the~~our ~~securities~~common ~~sold~~stock infor ~~the~~each ~~Qualified Offering~~$1.00 Ainvested, ~~“Qualified~~totaling ~~Offering” is defined as proceeds of at least $1~~525,~~200,~~000 ~~and~~common ~~consummated by January 21, 2011~~shares. ~~Under~~The ~~the~~common ~~terms~~shares ofwere ~~the~~fair ~~Qualified~~valued ~~Offering~~at ~~which closed on January 21~~$18,313 ~~2011,~~as ~~the outstanding~~ debt ~~described~~discount ~~above was converted into the respective preferred shares~~ and ~~common~~will ~~stock~~be ~~warrants~~amortized ~~following~~over the ~~terms~~term ~~specified~~of in the ~~debt agreements and therefore, no gain or loss was recorded in the accompanying financial statements~~notes.

C) On June 15, 2011, the Company entered into a Secured Factoring Loan with a principal amount of $426,680 with four lenders, The total amount received on the Secured Factoring Loans was $400,000 of which $125,000 was purchased by a director of the Company and $200,000 was purchased by a principal shareholder (See Related Party Note 6). These notes matured on August 20, 2011 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities. On August 24, 2011 these notes were converted into recast notes described in (D) below.

D) On July 14, 2011, July 28, 2011 and July 29, 2011 we issued Original Issue Discount Notes with three lenders receiving amounts of $75,000from a principal shareholder, and $50,000 and $25,000 respectively from other investors. These notes mature on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to Lorraine DiPaolo, a principal shareholder of the Company. On August 24, 2011 these notes were converted into the recast notes described in below.

On August 24, 2011, we recast $606,381(principal plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one of whom is a director of the Company for $120,517, another who is an executive officer and director of the Company for $30,100 and another who is a principal shareholder for $298,227, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. The Company determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the three and nine months ended September 30, 2011.

~~Between~~The ~~September~~following ~~13-16,~~is ~~2011,~~a weschedule ~~borrowed $250,000 from two investors, one~~ of ~~whom is a~~ principal ~~shareholder~~maturities offor the ~~Company~~next ~~for~~five ~~$125,000~~years and ~~refinanced an existing unsecured loan with one officer in~~ the total amount ofthereafter ~~$30,100.~~on ~~We issued to~~ these ~~investors~~related ~~the~~party ~~same~~notes ~~10%~~as ~~Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares~~ of ~~our~~March ~~common stock for each $1.00 invested. The shares were valued at $~~31,~~250~~ ~~as discount debt and will be amortized over the term of notes.~~2012:

8. Long-term debt

Year Ending December 31,	Principal Maturities
2012	$	889,344
2013		337,500
Total	$	1,226,844

~~Long~~7. SHORT-~~term~~TERM ~~debt at September 30, 2011 and December 31, 2010 consisted of the following:~~DEBT

Description	September 30, 2011		December 31, 2010
Note payable to a trust, bearing interest at 5% per annum, unsecured(A)	$	822,920	$	822,920
Equipment loan bearing interest at 11% per annum, mature in November 2013 (B)		43,528		50,725
Total long-term debt		866,448		873,645
Less current maturities		844,039		838,741
Long-term debt	$	22,409	$	34,904

Short-term debt at March 31, 2012 and December 31, 2011 consisted of the following:

Interest expense for the nine months ended September 30, 2011 and 2010 amounted to $37,133 and $44,016, respectively. The weighted average interest rate for all long-term borrowings was 5.7% for 2011 and 3.8% for 2010.

	March 31,			December 31,
Description	2012			2011
	(unaudited)
Secured loan agreement with a face amount of $155,000 bearing interest at 10% payable November 21, 2012 ( A) (B) (D)	$	155,000		$	155,000
Secured loan agreement with a face amount of $175,000 bearing interest at 10% payable November 1, 2012 (A) (B) (D)		175,000			175,000
Secured loan agreement with a face amount of $30,000 bearing interest at 10% payable October 14, 2012 ( A) (B) (C) (E)		30,000			30,000
Secured loan agreement with a face amount of $25,000 bearing interest at 10% payable October 18, 2012 ( A) (B) (C) (E)		25,000			25,000
Secured factoring loan agreement with a face amount of $282,537 bearing interest at 10% payable July 23, 2012 and August 13, 2012 ( A) (B)		282,537			282,537

Total short-term debt before discount on debt		667,537			667,537
Discount on Debt (D)		(128,007	)		(547,047)
Total short-term debt	$	539,530		$	120,490

(A) ~~The~~On June 15, 2011, the Company isentered ininto ~~negotiation~~a Secured Factoring Loan with ~~certain~~a ~~former~~principal ~~shareholders~~amount of ~~Nutritional~~$426,680 ~~Specialties~~with four lenders, ~~Inc.~~total ~~The~~amount received on the Secured Factoring Loans was $400,000 of which $125,000 was purchased by a director of the Company ~~stopped~~and ~~making~~$200,000 was purchased by a principal ~~and~~shareholder ~~interest~~(See ~~payments~~Related onParty ~~these~~Note 6). These notes inmatured ~~September~~on ~~2009~~August 20, 2011 and are secured by all of the ~~notes~~Company ~~were~~assets, ~~considered~~subject to besubordinations inof ~~default~~certain ~~and~~assets ~~presented~~to aspresent aand ~~current~~future ~~liability~~factoring facilities. ~~(See~~On ~~Note~~August 1224, 2011 these notes were converted into recast notes described in (D) below.

(B) On ~~December~~July 314, ~~2008~~2011, July 28, 2011 and July 29, 2011 the Company ~~completed~~issued ~~the~~Original ~~purchase~~Issue Discount Notes with three lenders receiving amounts of $75,000 from a ~~new~~principal ~~ERP~~shareholder, ~~system~~and $50,000 and ~~financed~~$25,000 ~~that~~respectively ~~purchase~~from ~~through~~other ainvestors. ~~third-party~~These ~~equipment~~notes ~~financing~~mature ~~arrangement~~on ~~having~~January an14, ~~interest~~2012 ~~rate~~at $170,458 and are secured by all of ~~11%~~the ~~and~~Company ~~requiring~~assets, ~~payments~~subject to subordinations of ~~monthly~~certain ~~interest~~assets to present and ~~principal~~future factoring facilities, of which $185,~~719~~227 ~~which~~was ~~matures~~due byto ~~December~~Lorraine ~~2013~~DiPaolo, a principal shareholder of the Company. On August 24, 2011 these notes were converted into the recast notes described below.

The following is a schedule of principal maturities for the next five years and the total amount thereafter on these notes as of September 30 2011:

Year Ending December 31,	Principal Maturities
2011	$	844,039
2012		17,340
2013		5,069
2014
2015
Total	$	866,448

9. Stockholders’ deficit

During the nine months ended September 30, 2011, the Company converted $100,000 of accrued expense into 4 Series K Preferred shares at the Series K Preferred share offering rate of $25,000 per shares and issued 333,333 Series X and Y warrants and 666,666 Series Z warrants. The Company determined that the issuance of the Series K Preferred and the warrants on the conversion of the accrued expense was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $52,166.

On April 29, 2011 the Company and certain Series K Preferred shareholders agreed to convert 187.6 Series K preferred shares for 31,268,984 common shares. As an inducement to convert the Series K Preferred stock into common shares, the Company issued 21,262,909 additional common shares and recorded a deemed dividend of $1,701,032.

On April 29, 2011 the Company and certain Series K Preferred shareholders agreed to exercise their warrants to acquire 6,666,665 shares of common stock for $500,000 at an exercise price of $0.075 per share, which was $0.075 per share less than the original exercise price. The Company determined that the inducement to reduce the conversion price resulted in a deemed dividend to the preferred stock warrant holders of $266,667.

OnC) ~~April~~Between 29September 13 and 16, 2011, the Company ~~entered~~borrowed ~~into~~$250,000 from two investors, one of whom is a ~~private~~principal ~~placement~~shareholder ~~arrangement~~of the Company for $125,000 and refinanced an existing unsecured loan with ~~accredited~~one officer in the amount of $30,100. The Company issued to these investors ~~who~~and ~~acquired~~officers 5the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally,~~666,667~~ such investors received an additional 5 shares of ~~Common~~our common stock for each $~~425~~1.00 invested totaling 1,400,500 common shares (625,000 anincluded ~~exercise~~in ~~price~~shares ofissuable). The common shares were fair valued at $~~0.075~~62,500 ~~per~~as ~~share~~debt discount and will be amortized over the term of the notes.

Between December 1 and December 21, 2011 the Company borrowed $330,000 from an investor. We issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested totaling 1,650,000 common shares (1,650,000 shares included in shares issuable). The shares were valued at $565,890 as debt discount and will be amortized over the term of notes. In addition we agreed in a side letter to revenue participation based on 2% of the first $2,000,000 of revenue and 3% of revenue above $2,000,000 in 2012. This agreement may be terminated by the Company with a penalty of 3 times the annual revenue participation. On July 11, 2012 both notes were converted into common stock.

During first quarter of 2012, the Company reclassified approximately $349,000 of debt discount to additional paid in capital due to previously over allocated embedded beneficial conversation in excess of carrying value of the related notes.

On October 18, 2011 and November 14, 2011 the Company borrowed $25,000 and $30,000 from one investor. The Company issued to this investor the same 10% Secured Convertible Subordinated Notes as we had issued to the lenders reported in the above paragraph E. Additionally, such investor received an additional 5 shares of our common stock for each $1.00 invested, totaling 275,000 common shares (275,000 included in shares issuable). The common shares were fair valued at $12,313 as debt discount and will be amortized over the term of the notes

8. LONG-TERM DEBT

Long-term debt at March 31, 2012 and December 31, 2011 consisted of the following:

Description	March 31, 2012			December 31, 2011
	(unaudited)
$822,920 Note payable to a trust, bearing interest at 5% per annum, unsecured(A)
Unsecured note payable to a shareholder with a face amount of $25,000 bearing interest at 8% per annum and payable July 15, 2013 (C)	$	25,000
Unsecured note payable to a shareholder with a face amount of $50,000 bearing interest at 8% per annum and payable July 15, 2013(C)		50,000
Unsecured note payable to a shareholder with a face amount of $37,500 bearing interest at 8% per annum and payable September 3, 2013(C)		37,500
Equipment loan bearing interest at 11% per annum, mature in November 2013 (B)		35,457		$	35,457
Total long-term debt		147,957			35,457
Less current maturities		21,119			21,119
Discount on Debt		(112,500	)
Long-term debt	$	14,338		$	14,338

Interest expense for the three months ended March 31, 2012 and 2011 amounted to $28,850 and $13,743, respectively. The weighted average interest rate for all long-term borrowings was 17.34% for 2012 and 6% for 2011.

The Company is in negotiation with certain former shareholders of Nutritional Specialties, Inc. The Company stopped making principal and interest payments on these notes in September 2009 and the notes were considered to be in default and presented as a current liability (See Note 12 Contingencies). In March 2012, the Company approved the sale of the Nutritional Specialties, Inc and all outstanding liabilities have been reclassified to discontinued operations for all periods presented. The sale was consummated in April 2012.

B)	On December 3, 2008, the Company completed the purchase of a new ERP system and financed that purchase through a third-party equipment financing arrangement having an interest rate of 11% and requiring payments of monthly interest and principal of $1,719 which matures by December 2013.

The following is a schedule of principal maturities for the next five years and the total amount thereafter on these notes as of March 2012:

Year Ending December 31,	Principal Maturities
2012	$	21,119
2013		126,838
Total	$	147,957

9. STOCKHOLDERS’ DEFICITS

On March 7, 2012 the Company commenced a warrant reset and exercise offer to eligible holders of its outstanding warrants, pursuant to which all issued and outstanding warrants to purchase common stock of the Corporation issued, irrespective of current exercise price or expiration date, may, in each holder’s sole discretion, be exercised at $0.03 per share during the offer period. Approximately 15 investors elected to exercise their warrants for which the Company received proceeds of $400,147 and issued 13,338,225 shares of common stock.

During the quarter ended March 31, 2012, the Company issued 12,401,000 common shares in settlement of accounts payable for $660,446.

On February 3, 2012 one investor in our Series Preferred K converted 4 preferred shares and Series X, Y and Z warrants to purchase 1,333,333 shares of common stock into 3,600,000 shares of common stock.

On February 24, 2012 and June 5, 2012 three investors in our Series Preferred K converted 1.45 and 5.8 preferred shares into 1,210,000 and 4,829,216 shares of common stock, respectively.

On March 21, 2012 the Company granted 25,000,000 restricted shares of common stock to an investor who loaned the Company $330,000 on December 1, 2011 and December 22, 2011 in connection with the termination of the revenue participation agreement.

In February 2011, the Company issued 1,000,000 common shares for marketing services at stated market value on the date of the agreement of $0.14 per share. In June 2011 issued and additional 80,000 shares for marketing services at stated market value on the date of the agreement of $0.0625 per share.

On February 24, 2011, the Company received proceeds of $60,000 and $30,000 of unsecured notes from investors and a director, respectively. On April 29, 2011, these unsecured notes were converted into 800,000 and 400,000 common shares respectively.

On January 12, 2011, the Company’s OID note holders agreed to extend the maturity of their notes to January 17, 2011. In granting the extensions to January 17, 2011, the OID note holders received 402,045 Common Shares in the Company. As this exchange was to extend the term of the debt the Company accounted for the extension as a material modification and recognized a loss on extinguishment of debt of $66,338 in January 2011.

On January 21, 2011, the Company completed a unit offering of an aggregate of $1,215,000 of its Series K 10% Convertible Preferred Stock (“Series K Preferred Stock”) and three series (Series X, Y and Z) of common stock purchase warrants (“Warrants”) to eleven accredited investors. Each unit sold consisted of one share of $25,000 stated value (and liquidation preference) of Series K Preferred Stock and Warrants to purchase up to an aggregate of 333,333 shares of common stock at $0.15 per share, subject to adjustment. A total of 48.6 units were sold. The Series X Warrants are five-year warrants, exercisable immediately to purchase an aggregate of 4,049,999 shares of common stock. The Series Y Warrants are exercisable until 45 days after the effectiveness of a certain registration statement and are exercisable to purchase an aggregate of 4,049,999 shares of common stock. The Series Z Warrants are ‘five-year’ warrants whose effectiveness are conditional upon the exercise of the holder’s Y warrants and are exercisable to purchase an aggregate of 8,100,001 shares of common stock. Pursuant to a Registration Rights Agreement described below, Investors also received the right to demand that the Company file one or more registration statements covering the securities into which the Series K Preferred Stock is convertible and as to which the Warrants are exercisable. As a condition to consummation of the offering, certain individuals converted outstanding debt in the original principal amount of $2,050,000 into 82 shares of the Company’s Series K Preferred Stock and 6,833,334 Series Y warrants. Additionally, all subscribers to the Company’s 12% Original Issue Discount Notes sold in September and October 2010, whose then current balances on such Notes aggregated $2,079,171, were automatically converted into 83.16 units of the Company’s Series K Preferred Stock and were issued X, Y and Z warrants pari- passu to the current unit investors (an aggregate of 6,930,571 Series X warrants, 6,930,571 Series Y warrants and 13,861,139 Series Z warrants).

In connection with the transaction, the Company entered into a Securities Purchase Agreement, dated January 20, 2011, with eleven investors (“SPA”). In addition to providing for the purchase of the Series K Preferred Stock and warrants by such investors as above, the SPA also provided for the Company to amend its earn-out arrangement with Eric Skae, its Chief Executive Officer, as set forth in a certain Amendment to Asset Purchase Agreement; placed certain restrictions on the Company in connection with additional equity offerings by it for a period of 12 months; caused each executive officer and director to enter into a “lock-up” agreement valid until 90 days after the effectiveness of one or more registration statements to be filed to be filed pursuant to the Registration Rights Agreement described below; and caused the conversion to equity of certain outstanding debt of the Company as set forth in the last two sentences of the preceding paragraph.

The Company also entered into a Registration Rights Agreement, dated January 20, 2011 with each unit subscriber pursuant to which the Company agreed, at its expense, to file and gain effectiveness for one or more registration statements covering the Company common stock issuable pursuant to exercise of the Warrants and conversion of the Series K Preferred Stock. The Company further agreed to file such registration statement within 60 days of the closing of the offering and to obtain its effectiveness within 90 days of such closing (or 120 days if such registration statement is subject to full Securities and Exchange Commission review), failing which monetary penalties are imposed. The registration statement(s) is (are) to be maintained effective until all securities registered for sale there under have been sold. On April 29, 2011 holders of the rights agreed to amend the Registration Rights Agreement, dated as of January 21, 2011, between the Corporation and each of the several purchasers signatory ~~theretoand~~thereto and eliminated Section 2(b) thereof in its entirety in order to remove the liquidated damages provisions from the agreement.

1618

The Company also filed a Certificate of Designation of its Certificate of Incorporation which created a class of 1,000 shares of Series K 10% Convertible Preferred Stock, par value $.001 per share. The Series K Preferred Stock ranks senior to the common stock, carries a 10% cumulative rate of interest, has a liquidation preference and is convertible into shares of the Company’s common stock at $.15 per share, subject to adjustment and anti-dilution protection. The Series K Stock is callable and redeemable by the Company under certain circumstances. The Series K Stock may be converted by the Company into shares of its common stock if the market price of the common stock is at least 300% of the conversion price for a period of 30 days and at least 200,000 shares have traded each day during such 30 day period. The Series K Preferred Stock has voting rights, voting with the Company’s common stock on an assumed-converted basis. The Certificate of Designation contains additional restrictions on the Company’s operations, including a restriction prohibiting the payment of any dividends on the Company’s common stock without the affirmative consent of the holders of the Stock.

The Warrants are represented by warrant certificates and are exercisable at $.15 per share. They are exercisable in whole or in part and the Series X and Z (but not Y) warrants may be exercised on a cashless basis.

The placement agent for the offering received $72,435 in cash fees and 361,000 warrants valued at $18,804 using the Black-Scholes model described above, to purchase common stock which have terms similar to the Series X warrants.

~~During April 2010, the Company commenced a private placement offering of common stock and warrants with certain accredited investors~~10. ~~The~~STOCK ~~offering~~OPTIONS ~~was~~AND for the sale of up to 40 Units at a price of $25,000 per Unit, each Unit consisting of 71,428 shares of its common stock and warrants to purchase 71,428 shares of its common stock at an exercise price of $0.45 per share. The warrants expire on or about three years from the date of issuance and have anti-dilution provisions during that period.WARRANTS

OnSet ~~February~~forth ~~22,~~below ~~2010,~~is ~~the Company closed~~ a ~~private~~description ~~placement~~ of ~~common stock and warrants with certain accredited investors. Pursuant to~~ the ~~private placement, the~~ Company’s ~~agreed to issue an aggregate of 1,988,889 shares of common stock, plus~~ warrants toas ~~purchase 1,057,727 shares~~ of ~~common~~March ~~stock at an exercise price of $0.55 per share~~31, subject to adjustment. Gross proceeds from the private placement were approximately $895,000. The Warrants will expire on or about five years from the date of issuance and have anti-dilution provisions, including that through the period ended April 30, 2010, if the Company issues any common stock or securities that can be converted or exercised for common stock at an effective price that is less than the unit price, then the purchasers would receive additional common stock and/or warrants. As of April 6, 2010, the Company initiated a new private placement offering where the terms are more favorable than the December 2009 private placement offering. Shareholders who participated in the December 2009 offering will receive an aggregate of 568,253 additional shares of common stock and 1,499,407 additional warrants with an exercise price of $0.45 per warrant and a term of three years.2012:

10. Stock options and warrants

Designation / Reason Granted	Original issue date	Shares of Common Stock Upon Exercise	Exercise Price / Share		Expiration Date

Marketing Program Development	October-07	250,000	$	1.00	October-12
Ancillary Warrants	June-07	5,000	$	0.40	June-12
April 2008 Bridge Notes Warrants (1)	April-08	15,625	$	0.80	April-13
September 2008 Bridge Note Warrants (1)	September-08	25,884	$	0.85	September-13
Series J Warrants (1)	December-08	14,368	$	0.87	December-13
October 2009 Note Warrants (1)	October-09	200,000	$	0.25	October-14
Investor Warrants 2009 Private Placement (1)	December-09	531,817	$	0.55	December-14
Investor Warrants 2009 Private Placement (1)	February-10	289,545	$	0.55	February-15
Marketing Program Development	March-10	150,000	$	0.49	March-15
Investor warrants 2009 Private Placement (1)(2)	May-10	1,164,346	$	0.25	May-15
Investor Warrants 2010 Private Placement (1)	June-10	1,821,414	$	0.45	June-15
Investor Warrants 2010 Original Issue Discount Private Placement (1)	September/October 2010	3,338,703	$	0.25	September, October 2015
Placement agent Warrants (1)	October-10	444,609	$	0.25	October-15
Investor X Warrants 2011 Series K Preferred stock	January 2011	8,054,102	$	0.15	January-16
Investor Y Warrants 2011 Series K Preferred stock	January 2011	8,054,102	$	0.15	45 days after registration statement
Investor Z Warrants 2011 Series K Preferred stock	January 2011	16,129,835	$	0.15	January-16
Placement agent X Warrants	January 2011	361,000	$	0.15	January-16
Debt conversion Y Warrants	January 2011	1,833,333	$	0.15	45 days after registration statement
Marketing Program Development	2/1/2011	100,000	$	0.15	February-16
Investor Relations	November-11	5,000,000	$	0.25	11/20/2016
2012 Unsecured Note Warrants	February March 2012	19,166,667	$	0.03	February, March 2017
Warrants issued for services	March 2012	3,750,000	$	0.03	March 2017

Options

The Company did not grant any stock options to directors or employees during the nine months ended September 30, 2011. The Company granted 1,390,000 options to purchase common stock to an officer during the nine months ended September 30, 2010. Compensation cost recognized in general and administrative expenses during the nine months ended September 30, 2011 and 2010 related to stock-based awards was $131,862 and $168,661, respectively. Options are usually issued at an exercise price equal to or above the fair value at the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model.

The summary of activity for the Company's stock options is presented below:

	September 30, 2011			Weighted Average Exercise Price
Options outstanding at December 31, 2010		3,538,750		$	0.65
Granted for the period		-
Exercised for the period		-
Terminated/Expired		(727,500	)		0.51
Options outstanding at September 30, 2011		2,811,250		$	0.69
Options exercisable at September 30, 2011		1,626,166		$	0.70
Options available for grant at September 30, 2011		3,251,448
Exercise price per share of options outstanding	$	0.40 to 1.60
Weighted average remaining contractual lives	7.1 years
Sum of fair value of options granted during the quarter	$	-

The common stock options expire as follows:

Year	Number of options
2011		-
2012		10,000
2013		-
2014		-
2015-2019		2,801,250
Total		2,811,250

The aggregate intrinsic value of the options outstanding at September 30, 2011 was $0 with a weighted average remaining contract term of 7.1 years.

Unrecognized compensation costs related to non-vested share-based compensation for the above options amounted to $649,250 as of September 30, 2011.

Warrants

Set forth below is a description of the Company’s warrants outstanding as of September 30, 2011

Designation / Reason Granted	Original issue date	Shares of Common Stock Upon Exercise	Exercise Price / Share		Expiration Date
Marketing Program Development	October-07	250,000	$	1.00	October-12
Investor Warrants / 2007 Private Placement (1)	March-07	58,749	$	0.40	March-12
Placement Agent Warrants	March-07	155,000	$	0.80	March-12
12% Bridge Note Warrants (1)	March-07	35,000	$	1.00	March-12
Ancillary Warrants	June-07	5,000	$	0.40	June-12
April 2008 Bridge Notes Warrants (1)	April-08	15,625	$	0.80	April-13
September 2008 Bridge Note Warrants (1)	September-08	25,884	$	0.85	September-13
Series J Warrants (1)	December-08	14,368	$	0.87	December-13
October 2009 Note Warrants (1)	October-09	310,000	$	0.25	October-14
Investor Warrants 2009 Private Placement (1)	December-09	649,999	$	0.55	December-14
Investor Warrants 2009 Private Placement (1)	February-10	407,727	$	0.55	February-15
Marketing Program Development	March-10	150,000	$	0.49	March-15
Investor warrants 2009 Private Placement (1)(2)	May-10	1,499,410	$	0.25	May-15
Investor Warrants 2010 Private Placement (1)	June-10	1,821,414	$	0.45	June-15
Investor Warrants 2010 Original Issue Discount Private Placement (1)	September/October 2010	2,412,273	$	0.25	September, October 2015
Placement agent Warrants (1)	October-10	266,760	$	0.25	October-15
Investor X Warrants 2011 Series K Preferred stock	January 2011	8,647,238	$	0.15	January-16
Investor Y Warrants 2011 Series K Preferred stock	January 2011	9,313,905	$	0.15	45 days after registration statement
Investor Z Warrants 2011 Series K Preferred stock	January 2011	17,294,492	$	0.15	January-16
Placement agent X Warrants	January 2011	361,000	$	0.15	January-16
Debt conversion Y Warrants	January 2011	2,766,666	$	0.15	45 days after registration statement
Accounts payable conversion X Warrants	January 2011	333,333	$	0.15	January-16
Accounts payable conversion Y Warrants	January 2011	333,333	$	0.15	45 days after registration statement
Accounts payable conversion Z Warrants	January 2011	666,667	$	0.15	January-16
Marketing Program Development	2/1/2011	100,000	$	0.15	February-16

-1

The exercise price of the warrants and the number of warrant shares subject thereto shall be subject to adjustment in the event of stock splits, stock dividends, reverse stock splits, and similar events. Further, in the event that the Company should issue shares of its Common Stock at an effective price per share less than the then effective exercise price of the warrants, the exercise price and the number of warrant shares subject to such warrants shall be adjusted on a weighted average basis to reflect the dilution represented by the issuance of such shares of Common Stock and such lower effective price on a non-fully-diluted basis, subject to similar exceptions to those described for such adjustments above with respect to the Convertible Preferred Stock. The impact of this provision would be to reduce the exercise price. The warrants contain standard reorganization provisions. Therefore, these warrants are qualified as liability instruments upon issuance.

-2

In February 2010, the Company issued a side letter to investors in the private placements which closed in December 2009 and February 2010 which effectively amended the terms of the private placements to contain a price protection clause through April 30, 2010. The price protection clause required the Company to issue additional warrants to these investors, based upon a formula contained in the side letter, in the event that common stock was issued during the price protection period at an effective price less than the purchase price paid by such investors, subject to certain exceptions.

During the nine months ended September 30, 2011, the Company issued 100,000 warrants for marketing services at an exercise price of $0.15 per share, 43,922,280 warrants were issued in conjunction with the issuance of Series K Preferred shares, 361,000 warrants were issued to the placement agent of the Series K Preferred shares, 6,833,333 warrants were issued for the conversion of certain notes payable into Series K Preferred shares, and 1,000,000 warrants were issued in conjunction with the conversion of vendor payables. In April 2011, the Company made an offer to the series X, Y and Z warrant holders to exercise their warrants at an exercise price of $0.075 per warrant share; certain warrant holders accepted the Company’s offer and exercised 6,666,665 warrants for $500,000. In addition a series K Preferred shareholder forfeited 666,667 series X warrants and 1,333,313 series Y warrants and a warrant holder who, as previously described, received warrants as part of the conversion certain notes payable agreed to forfeit 4,066,667 series X warrants.

The following table reflects a summary of common stock warrants outstanding and warrant activity during the nine months ended September 30, 2010:

	Number of warrants			Weighted Average Exercise Price		Weighted Average Term (Years)
Warrants outstanding at December 31, 2010		8,098,638		$	0.42		3.85
Granted during the period		52,549,946			0.15		4.55
Exercised during period		(6,666,665	)		0.15		4.55
Forfeited during the period		(6,088,076	)		0.15		4.55
Warrants outstanding at September 30, 2011		47,893,843		$	0.20		3.71

The common stock warrants expire in the years ended December 31 as follows:

Year	Amount
2012		503,749
2013		55,877
2014		959,999
2015		6,557,584
2016		39,816,634
Total		47,893,843

11. Related party transactions

From time to time, certain officers, directors and principal shareholders have lent the Company money as well as defer payment of salaries in order to assist the Company in its cash flow needs.

The table below sets forth the amounts of notes payable and accrued salaries of the Company’s officers and directors as of September 30, 2011:

Officer/Director	Notes Payable									Accrued Salaries &
	Amount			Accrued Interest			Earn-out Amount			Bonus Amount
Eric Skae, C.E.O. & President		$	30,100		301			$	260,000		$	150,000
David Tsiang, Chief Financial Officer			20,000			780
O. Lee Tawes III, Director			205,517			68,281			-			-
Lorraine DiPaolo, Principal Shareholder			423,227			4,232
Total		$	678,844		$	73,594		$	260,000		$	150,000

On January 12, 2011, O. Lee Tawes, a director of the Company, lent the Company an aggregate of $75,000 for which he received a demand promissory note bearing interest at the rate of 12% per annum. Mr. Tawes lent the Company an additional $30,000 on February 24, 2011 for which he received a promissory note bearing interest at the rate of 0% per annum. This note was converted into 400,000 shares of common stock on April 29, 2011 at $0.075 per share. On June 30, 2011, O. Lee Tawes lent the Company an additional $10,000 for which he received a promissory note bearing interest at the rate of 10% per annum.

On January 12, 2011, Eric Skae, the Company's CEO and a director, lent the Company an aggregate of $20,000 for which he received a demand promissory note bearing interest a the rate of 0% per annum. On January 28, 2011, the Company repaid $7,500 of this loan.

Also on February 24, 2011, David Tsiang the Company's CFO, lent the Company an aggregate of $20,000 for which he received a demand promissory note bearing interest at a rate of 6% per annum.

On(1) ~~June~~The ~~15,~~exercise ~~2011,~~price weof ~~entered~~the ~~into~~warrants aand ~~Secured~~the ~~Factoring~~number ~~Loan~~of ~~with~~warrant ashares ~~principal~~subject ~~amount~~thereto shall be subject to adjustment in the event of ~~$426~~stock splits,~~680~~ ~~with four~~stock ~~lenders~~dividends, ~~The~~reverse ~~total~~stock ~~amount~~splits, ~~received~~and onsimilar events. Further, in the ~~Secured~~event ~~Factoring~~that ~~Loan~~the ~~was~~Company ~~$400,000~~should issue shares of ~~which~~its ~~$125,000~~Common ~~was~~Stock ~~purchased~~at byan O.effective ~~Lee~~price ~~Tawes~~per (ashare ~~director)~~less ~~and $200~~than the then effective exercise price of the warrants,~~000~~ ~~was~~the ~~purchased~~exercise byprice ~~Lorraine~~and ~~DiPaolo~~the (anumber ~~principal~~of ~~shareholder).~~warrant ~~These~~shares ~~loans~~subject ~~matured~~to such warrants shall be adjusted on ~~August~~a ~~20,~~weighted ~~2011~~average ~~and~~basis ~~are~~to ~~secured~~reflect the dilution represented by ~~all~~the issuance of ~~the~~such ~~Company~~shares ~~assets~~of Common Stock and such lower effective price on a non-fully-diluted basis, subject to ~~subordinations~~similar ofexceptions ~~certain~~to ~~assets~~those todescribed ~~present~~for ~~and~~such ~~future~~adjustments ~~factoring~~above ~~facilities~~with respect to the Convertible Preferred Stock. OnThe ~~August~~impact ~~24,~~of ~~2011~~this ~~these~~provision ~~notes~~would ~~were~~be ~~converted~~to ~~into~~reduce the ~~recasted~~exercise ~~notes~~price. ~~described~~The inwarrants ~~(H)~~contain ~~below~~standard reorganization provisions. Therefore, these warrants are qualified as liability instruments upon issuance.

On(2) ~~July~~In ~~14,~~February ~~2011~~2010, ~~July~~the ~~28,~~Company ~~2011~~issued ~~and~~a ~~July~~side ~~29,~~letter ~~2011~~to weinvestors ~~issued~~in ~~Original~~the ~~Issue~~private ~~Discount~~placements ~~Notes~~which ~~with~~closed ~~three~~in ~~lenders~~December ~~receiving~~2009 ~~amounts~~and ofFebruary ~~$75,000from~~2010 ~~Lorraine~~which ~~DiPaolo~~effectively (aamended ~~principal~~the ~~shareholder),~~terms ~~$50,000~~of ~~and~~the ~~$25,000~~private ~~respectively~~placements ~~from~~to ~~other~~contain ~~investors.~~a ~~These~~price ~~notes~~protection ~~mature~~clause onthrough ~~January~~April 1430, ~~2012~~2010. atThe ~~$170,458~~price ~~and~~protection ~~are~~clause ~~secured~~required ~~by all of~~ the Company ~~assets,~~to ~~subject~~issue additional warrants to ~~subordinations~~these ofinvestors, ~~certain~~based ~~assets~~upon toa ~~present~~formula ~~and~~contained ~~future~~in ~~factoring~~the ~~facilities~~side letter, ofin ~~which~~the ~~$85,227~~event that common stock was ~~due~~issued toduring ~~Lorraine~~the ~~DiPaolo~~price (aprotection ~~principal~~period ~~shareholder).~~at Onan ~~August~~effective ~~24,~~price ~~2011~~less ~~these~~than ~~notes~~the ~~were~~purchase ~~converted~~price ~~into~~paid ~~the~~by ~~recasted~~such ~~notes~~investors, ~~described~~subject into ~~(H)~~certain ~~below~~exceptions.

OnDuring ~~August~~the 24year ended December 31, 2011, wethe ~~recast~~Company ~~$606~~issued 100,~~381(principal~~000 ~~plus~~warrants ~~accrued~~for ~~interest)~~marketing inservices ~~existing~~at ~~secured~~an ~~loans~~exercise ~~with~~price ~~six~~of ~~parties~~$0.15 ~~(entered~~per ~~into~~share ~~between~~with ~~June~~a ~~and~~fair ~~July~~value ~~2011), one~~ of ~~whom is~~$10,388, a43,922,280 O.warrants ~~Lee~~were ~~Tawes~~issued (ain ~~director)~~conjunction ~~for~~with ~~$120,517,~~the ~~another~~issuance ~~who~~of isSeries anK ~~Eric~~Preferred ~~Skae~~shares, ~~(Company~~361,000 ~~CEO)~~warrants ~~for~~were ~~$30,100~~issued ~~and~~to ~~another~~the ~~who~~placement isagent ~~Lorraine~~of ~~DiPaolo~~the (aSeries ~~principal~~K ~~shareholder)~~Preferred ~~for~~shares, ~~$298~~6,~~227~~833,333 inwarrants ~~exchange~~were issued for ~~10%~~the ~~Secured~~conversion ~~Convertible~~of ~~Subordinated~~certain ~~Notes~~notes ~~(“Secured~~payable ~~Notes”)~~into ~~which~~Series ~~Notes~~K Preferred shares, and 1,000,000 warrants were ~~coupled~~issued in conjunction with ~~common~~the ~~stock~~conversion of vendor payables. ~~Each~~In ~~Secured~~April ~~Note~~2011, isthe ~~collateralized~~Company bymade ~~all~~an ofoffer to the ~~Company’s~~series ~~assets~~X, Y and isZ ~~convertible~~warrant ~~into~~holders ~~common~~to ~~stock~~exercise their warrants at aan ~~conversion~~exercise price of $0.05075 per warrant share.; ~~Additionally,~~certain ~~such~~warrant ~~lenders~~holders ~~were~~accepted ~~granted~~the anCompany’s ~~additional~~offer 5and ~~shares~~exercised of6,666,665 ~~our~~warrants ~~common stock~~ for ~~each~~ $1500,000.00 ofIn ~~interest~~addition ~~and~~a ~~principal~~series ~~due~~K ~~them.~~Preferred ~~The~~shareholder ~~Company~~forfeited ~~determined~~666,667 ~~that~~series ~~the~~X ~~conversion~~warrants ofand ~~the~~1,333,313 ~~secured~~series ~~notes~~Y ~~into~~warrants ~~the~~and ~~secured~~a ~~recast~~warrant ~~notes~~holder ~~was~~who, ~~more~~as ~~than~~previously ~~the~~described, ~~carrying~~received ~~value~~warrants ofas ~~the~~part ~~obligation on the date~~ of the conversion ~~and~~certain ~~recorded~~notes apayable ~~loss~~agreed onto ~~extinguishment~~forfeit ~~of debt of $144~~4,~~392~~066,667 ~~for~~series ~~the~~X ~~three and nine months ended September 30, 2011~~warrants.

Between ~~September~~February ~~13-16~~15, ~~2011~~2012 and March 2, we2012, ~~borrowed~~the Company received proceeds of $250,000 from ~~two~~four investors, ~~one~~in ofexchange ~~whom~~for ~~was~~8% ~~Lorraine~~18 ~~DiPaolo~~month Unsecured Convertible Notes (“Unsecured Note”), which Notes were coupled with warrants. One of the investors is a principal shareholder~~) for~~ who invested $~~125~~87,~~000~~500 and ~~refinanced~~the another ~~existing~~was ~~unsecured~~a ~~loan~~former ~~with~~director ~~one~~who ~~officer~~invested $50,000 in the ~~amount~~Unsecured ~~of $30,100~~Notes. WeEach ~~issued~~Unsecured toNote ~~these~~is ~~investors~~convertible ~~the~~thirteen ~~same~~months ~~10%~~after ~~Secured~~their ~~Convertible~~respective ~~Subordinated~~issuance ~~Notes~~dates weinto ~~had~~common ~~issued~~stock at a conversion price equal to the ~~lenders~~greater ~~reported~~of in(i) the ~~above~~Variable ~~paragraph.~~Conversion ~~Additionally,~~Price ~~such~~of ~~investors~~50% ~~received~~of anthe ~~additional~~Market 5Price ~~shares~~and of(ii) ~~our~~the ~~common~~Fixed ~~stock~~Conversion ~~for~~Price ~~each~~of $10.~~00 invested~~01. The ~~shares~~investors ~~were~~also ~~valued~~received 25,000,000 5 year warrants at ~~$31,250~~a asstrike ~~discount~~price ~~debt~~of ~~and~~$0.03 ~~will~~per beshare. ~~amortized~~In ~~over~~addition the ~~term~~investors ofreceived the right to invest in new notes on the same basis as provided.

OnThe ~~October~~fair ~~18,~~value ~~2011, the Company borrowed $50,000 from to lenders in exchange for 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock, one of whom~~ was ~~Lorraine~~determined ~~DiPaolo~~using ~~( a principal shareholder) for $25,000. Each Secured Note is collateralized by all of~~ the ~~Company’s~~Black-Scholes-Merton ~~assets~~option ~~and~~valuation ~~assignment~~model ofusing the ~~Company’s~~following trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.assumptions:

On November 1, 2011, the Company borrowed $50,000 from O. Lee Tawes (a director). in exchange for 10% Secured Convertible Subordinated Note which Note was coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them

Stock price	$	0.015 to 0.06
Term (Years)	5
Volatility		125.46 to 126.53	%
Risk-free interest rate		0.81 to 1.01	%
Exercise price		0.03
Dividend yield		0	%

On ~~November~~March 147, ~~2011,~~2012 wethe ~~borrowed~~Company ~~aggregate~~commenced ~~gross~~a ~~proceeds~~warrant ofreset ~~$60,000~~and ~~from~~exercise ~~two~~offer ~~investor~~to ineligible ~~exchange~~holders ~~for~~of ~~10%~~its ~~Secured~~outstanding ~~Convertible~~warrants, ~~Subordinated~~pursuant ~~Notes~~to ~~(“Secured~~which ~~Notes”)~~all ~~which~~issued ~~Notes~~and ~~were~~outstanding ~~coupled~~warrants ~~with~~to purchase common stock, ~~one~~ of ~~whom~~the ~~was~~Corporation ~~Lorraine~~issued, ~~DiPaolo~~irrespective (aof ~~principal~~current ~~shareholder)~~exercise ~~for~~price ~~$30,000. Each~~or ~~Secured~~expiration ~~Note~~date, ismay, ~~collateralized~~in byeach ~~all of the Company~~holder’s ~~assets~~sole ~~and~~discretion, ~~assignment~~be ofexercised ~~the~~at ~~Company’s~~$0.03 ~~trademark~~per ~~with~~share during the USoffer ~~Patent~~period. ~~and~~Approximately ~~Trademark~~15 ~~Office~~investors ~~and~~elected isto ~~convertible~~exercise ~~into~~their ~~common~~warrants ~~stock~~for atwhich athe ~~conversion~~Company ~~price~~received of $~~0.05 per share. Additionally~~400,147 ~~such~~in ~~lenders~~proceeds ~~were~~and ~~granted~~issued an13,338,225 ~~additional 5~~ shares of ~~our~~ common stock ~~for each $1~~.~~00 of interest and principal due them.~~

~~12.~~The ~~Contingencies~~following table reflects a summary of common stock warrants outstanding and warrant activity during 2012:

In connection with the acquisition of Skae Beverage International LLC (“Skae”) in 2008, the Company agreed to provide the former member of Skae, who is also the Company’s current Chief Executive Officer, with a three year earn-out arrangement. Under the terms of the earn-out arrangement, the Company can be required to pay an additional $4,776,100 to the owner of Skae if the acquired operations meet certain performance targets related to sales and gross profit. As of September 30, 2011 and December 31, 2010, the Company has accrued $260,000 and $535,000 respectively related to the achievement of the performance targets. Currently, the Company is unable to determine the likelihood that future performance targets will be met or estimate the future liability that will be incurred. In January 2011, the Company amended the earn-out agreement with the CEO, where by Mr. Skae forgave his 2010 earn-out of $325,000 which also reduced the intangible by a same amount.

	2012
	# Warrants		Weighted Average Exercise Price		Weighted Average Term (Years)
Warrants outstanding at January 1,		52,893,843		0.20		3.46
Granted during the year		30,536,111		0.03		4.91
Exercised during the year		(12,580,855)		0.03		4.57
Expired during the year		(148,749)		0.15		4.57
Warrants outstanding at December 31,		70,700,350	$	0.1454		3.40

OnThe ~~January~~Common ~~29,~~Stock ~~2009,~~warrants ~~the~~expire ~~Company~~in ~~was~~years ~~notified~~ended ~~that~~December it31 ~~was named~~ as a defendant, along with 54 other defendants, in a class action lawsuit under California Proposition 65 for allegedly failing to disclose the amount of lead in one of its products. The Company has responded to discovery requests from the Attorney General of California. To date, no trial date has been set. The Company is currently investigating the merits of the allegation and is unable to determine the likelihood of an unfavorable outcome or a range of possible loss. This matter remains pending.follows:

On December 7, 2009, the Company received a demand notice for payment for $822,920 from the estate of a former owner of Nutritional Specialties, Inc. Without acknowledging liability, the Company offered to settle any claims against us in this matter for cash and restricted common stock. The Company's offer lapsed before it was accepted. The Company intends to continue to attempt to negotiate a settlement for this debt. The Company has accrued for this payment of $822,920 as of December 31, 2010 as a current portion of note payable. On July 7, 2010, the Company was served with a Complaint demanding payment of the remaining balance of a $1,200,000 note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc. The parties have attended mediation and the Company is hopeful that this may be amicably resolved. This matter remains pending.

2012			255,000
2013			55,877
2014			731,817
2015			7,208,617
2016 and thereafter			52,561,604
45 days after registration statement			9,887,435
Total			70,700,350

OnStock March 12, 2010, the Company was notified that it was named as a defendant in lawsuit in the United States District Court, Eastern District of Texas, brought by Vitro Packaging de Mexico, SA de CV, the assignee of a former supplier. Vitro Packaging alleges the Company owed unpaid accounts payable and is seeking payment of approximately $345,000. The Company has entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreeing not to execute on an Agreed Final Judgment for $245,275until after May 16, 2011, which the Company has not paid and is recorded as a current liability. On August 17, 2011the judgment was recorded in the State of New Jersey.options

InUnder ~~December~~the ~~2010~~Company’s Employee Incentive Stock Option Plan (the “1996 Plan”) approved by the stockholders in 1996, the total number of shares of Common Stock that may be granted is 500,000, amended to 325,000 in 1999. The 1996 Plan provides that shares granted come from the Company’s ~~Chief~~authorized ~~Operating~~but ~~Officer~~unissued Common Stock. The price of the options granted pursuant to these plans will not be less than 100% of the fair market value of the shares on the date of grant. The options expire ten years from date of grant. At the Company’s Annual Meeting held on December 10, ~~William~~2004, ~~Sipper~~the Company’s stockholders approved the 2004 Stock Option Plan (the "2004 Plan"). At the Company’s Board of Directors meeting held on July 28, ~~resigned~~2007, ~~following~~the Board approved an ~~alleged~~increase ~~incident~~in ~~involving~~the anumber ~~prospective~~of ~~employee~~shares of Common Stock that may be granted to 2,000,000 under all plans. At the Company’s Board of Directors meeting on June 27, 2008, the Board approved a new Stock Option Plan (the “2008 Plan”) for a total of 2,000,000 additional shares. ~~The~~At the Company’s ~~has~~Board ~~turned~~of Directors meeting held on February 2, 2010, the ~~matter~~Board ~~over~~approved a new Stock Option Plan (the “2010 Plan”) for a total of 3,000,000 additional shares. The price of the options granted pursuant to ~~its~~these ~~insurance~~plans ~~carrier~~will not be less than 100% of the fair market value of the shares on the date of grant. ~~Management~~The ~~believes~~option ~~its~~vesting ~~insurance~~period is ~~adequate~~determined by the Board of Directors at the time of grant and ranges from immediately to ~~cover~~five years. The Company did not grant any ~~liability~~stock inoptions ~~connection~~to ~~with~~directors and employees during the ~~claim~~three months ended March 31, 2012. Compensation cost recognized during the three months ended March 31, 2012 and ~~takes~~2011 related to stock-based awards was $12,561 and $62,217 respectively. Options are usually issued at an exercise price equal to or above the ~~position~~fair ~~that~~value ~~any~~at ~~acts~~the bydate Mrof grant. ~~Sipper~~The ~~were~~fair ~~done~~value ~~outside~~of each option grant is estimated on the ~~scope~~date of ~~his~~grant ~~employment.~~using ~~This~~the ~~matter~~Black-Scholes-Merton ~~remains~~option-pricing ~~pending.~~model

On July 11, 2011, the Company was served with a complaint from Bett-A-Way Traffic Systems, Inc. demanding payment of $90,928 in a debt collection matter. The Company has accrued for this payment of $90,928 as of September 30, 2011 as part of accounts payable. The parties have been involved in settlement negotiations and the Company is hopeful that this may be amicably resolved. This matter is pending.

The Company filed a Certificate of Designation to its Certificate of Incorporation which created a class of 1,000 shares of Series K 10% Convertible Preferred Stock with a par value of $.001 per share. As of September 30, 2011, Series K 10% Preferred stock dividends of $177,971 are accrued.

Purchase Order Financing

On September 20, 2011 the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement provided for the repayment of $307,563 of outstanding accounts payable at September 30, 2011 and $ 443,000 in additional trade credit.

InThe ~~connection~~summary ~~with~~of ~~this~~activity ~~facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers~~ for the ~~benefit of each Supplier, and (b) consent to the~~ Company’'s ~~segregation~~stock ofoptions ~~proceeds~~is ~~from~~presented Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place.below:

As of September 30, 2011 the Company’s accounts payable to those Suppliers was $621,905 of which $460,124 represented Purchase Order Financing.

	2012			Weighted Average Exercise Price

Options outstanding at beginning of year		2,241,250		$	0.67
Granted		-		$	-
Exercised		-			-

Terminated/Expired		(736,802	)	$	0.58

Options outstanding at end of year		1,504,448		$	0. 70

Options exercisable at end of year		1,323,945		$	0.70

Options available for grant at end of year

Price per share of options outstanding	$	0.40 to 1.02		$	0.40 to 1.02

Weighted average remaining contractual lives of all options	6.41 years

Weighted Average fair value of options granted during the year		0		$	0-

~~13.~~The ~~Net~~Common ~~loss~~Stock ~~per~~options ~~share~~expire as follows:

Convertible preferred stock and outstanding options and warrants were not considered in the calculation for diluted net loss per share for the periods ended September 30, 2011 and 2010 because the effect of their inclusion would be anti-dilutive.

2012
2013			-
2014			-
2015			-
2016			-
After 2016			1,504,448
			1,504,448

AsThe ofaggregate ~~September~~intrinsic ~~30,~~value ~~2011,~~of ~~there~~the ~~were warrants and~~ options ~~to purchase 50,705,093 shares of common stock~~ outstanding ~~and~~at ~~Series~~March ~~K Preferred shares were convertible into 5~~31,~~025,487~~ ~~shares~~2012 ofwas $0 ~~common~~with ~~stock.~~a Asweighted ofaverage ~~September~~remaining ~~30,~~contract ~~2010,~~term ~~there were warrants and options to purchase 11,525,172 shares~~ of ~~common stock outstanding~~6.41 ~~These securities were excluded from the computation of diluted earnings per share because the effect of their inclusion would be anti-dilutive~~years.

~~14.~~Unrecognized ~~Subsequent~~compensation ~~events~~costs related to non-vested share-based compensation for the above options amounted to $49,006 as of March 31, 2012

On October 18, 2011, the Company received proceeds of $50,000 from two lenders in exchange for two $25,000 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock, one of whom was a principal shareholder for $25,000. Each Secured Note is collateralized by all of the Company’s assets and assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of common stock for each $1.00 of interest and principal due them.

On November 1, 2011, the Company received proceeds of $50,000 from a director in exchange for 10% Secured Convertible Subordinated Note which Note was coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 14, 2011, the Company received aggregate gross proceeds of $60,000 from two investors in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock, one of whom was a principal shareholder for $30,000. Each Secured Note is collateralized by all of the Company’s assets and assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 22, 2011 the Company entered into an investor relations maintenance agreement. In addition to the cash compensation of $50,000 of which $25,000 was paid. The party was also granted 3,000,000 restricted shares of common stock and assigned to the principal plus a warrant to purchase 5 million shares of common stock at a strike price of $0.25 per share.

On November 22, 2011 the Company was unable to raise the necessary capital to continue normal daily operations and dismissed all its employees.

On November 30, 2011, the Company reached a tentative agreement with an investor to provide interim funding to resume the Company’s normal daily operations with the intention of re-engaging certain key former employees as consultants and/ or employees as it evaluates its operating plans11. ~~There~~RELATED ~~can~~PARTIES ~~be no assurances that same will result in any transaction, or that, if completed, any transaction will be on attractive terms.~~TRANSACTIONS

OnFrom ~~December~~time 1,to ~~2011~~time, ~~the~~certain ~~Company~~officers received proceeds of $175,000 from one investor in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and ~~assignment~~directors ofloan the Company’s ~~trademark~~money ~~with~~as ~~the~~well USas ~~Patent~~defer ~~and~~payment ~~Trademark Office and is convertible into common stock at a conversion price~~ of ~~$0.01~~salaries ~~per~~in ~~share.~~order ~~Additionally,~~to ~~such~~assist ~~lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. Additionally, for arranging this facility, an assignee of~~ the ~~Lender was granted a Revenue Participation Agreement upon receipt of a total of $330,000 of proceeds. This agreement grants the lender a revenue participation of 2% of the~~ Company’s ~~future annual net sales of the first $2 million and 3% of any net sales~~ in ~~excess~~its ofcash ~~the~~flow ~~first $2 million in annual net sales~~needs. ~~We have also re-engaged certain former employees as consultants and/or employees and are working to secure long term financing with the purpose of resuming normal daily operations.~~

OnThe ~~December~~table ~~14,~~below ~~2011,~~sets forth the ~~Company~~amounts ~~reached~~of annotes ~~agreement~~payable ~~with~~and aaccrued ~~former~~salaries ~~employee~~of tothe ~~grant~~Company’s ~~common~~officers ~~stock~~ and ~~warrants~~directors toas ~~in exchange for satisfaction~~ of ~~deferred~~March ~~salary~~31, ~~of $7~~2012,~~516~~ ~~and~~the antitle ~~outstanding~~reflects ~~note~~the toposition ~~his~~held ~~wife~~by in the ~~amount~~individual as of ~~$4,800,~~September ~~we intend to grant 400~~6,~~000~~ ~~restricted shares of common to them.~~2012:

On December 22, 2011, the Company received proceeds of $155,000 from one investor in exchange for 10% Secured Convertible Subordinated Note (“Secured Note”) which Note were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. This loan satisfied the total proceeds necessary in the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.

Officer/Director	Notes Payable				Earn-out	Accrued Salaries &
	Amount		Accrued Interest		Amount	Bonus Amount

Eric Skae, Former C.E.O. & President	$	330,100	$	2,970	$	$

O. Lee Tawes, III Former Director	$	311,017	$	78,690

~~Going~~On ~~forward~~January 12, 2011, O. Lee Tawes, a then director of the Company, ~~will~~lent ~~continue~~the toCompany ~~concentrate~~an onaggregate ~~seeking~~of ~~strategic~~$75,000 ~~alternatives.~~for ~~Alternatives~~which ~~could~~he ~~include,~~received ~~but~~a ~~may~~demand ~~not~~promissory benote ~~limited~~bearing ~~to,~~interest aat ~~sale,~~the ~~merger~~rate orof ~~other~~12% ~~business~~per ~~combination~~annum. ~~involving~~Mr. Tawes lent the Company, aan ~~sale~~additional of$30,000 ~~shares~~on orFebruary ~~other~~24, ~~recapitalization~~2011 offor ~~the~~which ~~Company,~~he received a ~~joint~~promissory ~~venture~~note ~~arrangement,~~bearing ~~the~~interest ~~sale~~at orthe ~~spinoff~~rate of ~~Company~~0% ~~assets,~~per orannum. ~~the~~This ~~continued~~note ~~execution~~was converted into 400,000 shares of ~~the~~common ~~Company's~~stock ~~business~~on ~~plan~~April 29, 2011 at $0.075 ~~There~~per ~~can~~share. beOn noJune ~~assurance~~30, ~~that~~2011, O. Lee Tawes lent the ~~exploration~~Company ofan ~~strategic~~additional ~~alternatives~~$10,000 ~~will~~for ~~result~~which inhe ~~any~~received ~~transaction,~~a orpromissory ~~that,~~note ifbearing ~~completed,~~interest ~~any~~at ~~transaction~~the ~~will~~rate beof on10% ~~attractive~~per ~~terms~~annum.

On ~~December~~January ~~23rd~~ 12, 2011, Eric Skae, the Company's then CEO and a director, lent the Company an aggregate of $20,000 for which he received ~~majority~~a ~~consent~~demand promissory note bearing interest at the rate of 0% per annum. On January 28, 2011, the Company repaid $7,500 of this loan. During September 2011, the Company refinanced an existing unsecured loan with one officer in the amount of $30,100. The Company issued the officer the same 10% Secured Convertible Subordinated Notes they had issued to: the lenders with the recast notes. Additionally, the officer received an additional 5 shares of its common stock for each $1.00 of interest and principal due them. The Company determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $7,525.

~~● Amend~~On February 14, 2012 the ~~Certificate~~Company ofentered ~~Designation~~into ofa Mutual Termination and Release agreement between New Leaf Brands, Inc. and Eric Skae. On February 15 the ~~Corporation~~Company ~~for~~issued Mr. Skae an 8% 18 month Unsecured Note in the ~~Series~~Amount Kof ~~Preferred~~$200,000 ~~Stock~~which (is convertible if asked by Mr. Skae, 13 months after the ~~“Certificate~~date of ~~Designation”~~issuance at $0.01 (subject to a beneficial ownership blocker) and an 8% Demand Note in the amount of $100,000. As of February 14, 2012, Mr. Skae’s accrued earn out of $260,000 and accrued bonus of $166, 667 was part of the total indebtedness of $508,193 which was recasted into $300,000 in debt and $178,093 of which was forgiven by Mr. Skae.

~~I. ● to~~On ~~eliminate~~May ~~paragraph (f) of Section 9~~16, ~~“Protective Provisions~~2012,” ~~which limits~~ the Company’s ~~ability~~borrowed ~~to enter into~~$20,000 ~~create,~~from ~~incur,~~CS ~~assume~~Healthcare, ~~guarantee~~a orrelated ~~suffer~~party, toin ~~exist~~exchange ~~any indebtedness~~ for ~~borrowed~~an ~~money~~8% of18 ~~any~~month ~~kind,~~Unsecured ~~other~~Promissory ~~than~~Notes (“~~Permitted~~Unsecured ~~Indebtedness~~Note”).

~~II. ●~~ On June 26, 2012, the Company reached an agreement with related party Fuselier Bridge Capital, LLC to ~~eliminate~~provide ~~paragraph~~a secured working capital loan facility up to $300,000. The loan facility is secured by all Company assets including general intangibles (fincluding trademarks, formulations, customer lists) ofand ~~Section~~accounts 9receivables, ~~“Protective~~fixed ~~Provisions~~assets,” ~~which~~inventory ~~limits~~(all raw, work in progress and finished goods including labels) present and hereafter acquired. Each advance under the ~~Company’s~~loan ~~ability~~facility bears an interest rate of 1.5% per month and is due in full ten months after the issuance date. The investors also received up to ~~enter~~10,000,000 ~~into~~5 year warrants at a strike price of $0.03 per share and up to 10,000,000 ~~create~~shares of common stock at a price of $0.03 per share. On June 26, ~~incur~~2012, ~~assume~~the Company borrowed $50,000 ~~guarantee~~under orthis ~~suffer~~loan tofacility. ~~exist~~On ~~any~~August ~~indebtedness~~18, ~~for~~2012, ~~borrowed~~the ~~money~~Company ofborrowed ~~any~~an ~~kind~~additional $100, ~~other~~913 ~~than~~under ~~Permitted~~this ~~Indebtedness~~loan facility.

~~● Amend~~On ~~the~~August ~~Security~~2, ~~Purchase~~2012 ~~Agreement~~David ofFuselier ~~the~~was ~~Corporation~~elected ~~for~~as ~~the~~a ~~Series~~director Kand ~~Preferred~~chairman ~~Stock~~and (appointed the ~~“Security~~position ~~Purchase~~of ~~Agreement”~~chief executive officer of Integrated Freight Corp (Ticker: IFCR.OTCBB), a related party.

● To eliminate paragraph 8.2 “Subsequent Equity Sales,” in its entirety;

● To eliminate paragraph 8.3 “Participation in Future Financing ,” in its entirety;

In Consideration for same, the Company agreed:

● To reduce the conversion price of its Series K Preferred to 3 cents per share.

● To exchange every 5 Warrants (of the X, Y and Z Series) into 1 share of common stock.

~~ITEM~~12. ~~2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~CONTINGENCIES

~~This~~In ~~report~~connection onwith ~~Form~~the ~~10-Q~~acquisition ~~contains~~of ~~forward-looking~~Skae ~~statements~~Beverage ~~that~~International ~~involve~~LLC ~~risk~~(“Skae”) ~~and~~in ~~uncertainties.~~2008, ~~You~~the ~~should~~Company ~~not~~agreed ~~place~~to ~~undue~~provide ~~reliance~~the onformer ~~these~~member ~~forward-looking~~of ~~statements.~~Skae, ~~Our~~who ~~actual~~is ~~results~~also ~~could~~the ~~differ~~Company’s ~~materially~~current ~~from~~Chief ~~those~~Executive ~~anticipated~~Officer inthrough ~~the~~February ~~forward-looking~~14, ~~statements~~2012, ~~for~~with ~~many~~a ~~reasons,~~three ~~including~~year earn-out arrangement. Under the ~~risks~~terms ~~described~~of inthe ~~this~~earn-out ~~report~~arrangement, ~~our~~the ~~annual~~Company ~~report~~can onbe ~~Form~~required ~~10-K~~to ~~and~~pay ~~other~~an ~~filings~~additional we$4,776,100 ~~make~~to ~~from~~the ~~time~~owner toof ~~time~~Skae ~~with~~if the ~~Securities~~acquired operations meet certain performance targets related to sales and ~~Exchange~~gross ~~Commission~~profit. ~~Although~~As weof ~~believe~~September ~~the~~30, ~~expectations~~2011 ~~reflected~~and inDecember 31, 2010, the ~~forward-looking~~Company ~~statements~~has ~~are~~accrued ~~reasonable~~$260,000 ~~they~~and ~~relate~~$535,000 ~~only~~respectively related to ~~events~~the asachievement of the ~~date~~performance ontargets. ~~which~~Currently, the ~~statements~~Company ~~are~~is ~~made.~~unable Weto dodetermine ~~not~~the ~~intend~~likelihood tothat ~~update~~future ~~any~~performance oftargets will be met or estimate the ~~forward-looking~~future ~~statements~~liability ~~after~~that will be incurred. In January 2011, the ~~date~~Company ofamended ~~this~~the ~~report~~earn-out toagreement ~~conform~~with ~~theses~~the ~~statements~~CEO; towhere ~~actual~~by ~~results~~Mr. orSkae toforgave ~~changes~~his in2010 ~~our~~earn-out ~~expectations~~of $325,000 ~~except~~which asalso ~~required~~reduced the intangible by ~~law~~a same amount.

~~This~~On ~~“Management’s~~January ~~Discussion~~29, ~~and~~2009, ~~Analysis~~the ofCompany ~~Financial~~was ~~Condition~~notified ~~and~~that ~~Results~~it ofwas ~~Operations”~~named ~~should~~as bea ~~read~~defendant, inalong ~~conjunction~~ with ~~our~~54 ~~Financial~~other ~~Statements~~defendants, ~~including~~in a class action lawsuit under California Proposition 65 for allegedly failing to disclose the ~~related~~amount ~~Notes,~~of ~~appearing~~lead in ~~our~~one ~~annual~~of ~~report~~its onproducts. ~~Form~~The ~~10-K~~Company ~~for~~has responded to discovery requests from the ~~year~~Attorney ~~ended~~General ~~December~~of 31California. To date, ~~2010~~no trial date has been set. The Company is currently investigating the merits of the allegation and is unable to determine the likelihood of an unfavorable outcome or a range of possible loss. This matter remains pending.

~~The~~On ~~preparation~~December 7, 2009, the Company received a demand notice for payment for $822,920 from the estate of ~~this~~a ~~quarterly~~former ~~report~~owner onof ~~Form~~Nutritional ~~10-Q~~Specialties, ~~requires~~Inc. usWithout acknowledging liability, the Company offered to ~~make~~settle ~~estimates~~any claims against us in this matter for cash and ~~assumptions~~restricted ~~that~~common ~~affect~~stock. ~~the~~The ~~reported~~Company's ~~amount~~offer lapsed before it was accepted. The Company intends to continue to attempt to negotiate a settlement for this debt. The Company has accrued for this payment of ~~assets~~$822,920 ~~and~~as ~~liabilities~~of December 31, ~~disclosure~~2010 as a current portion of ~~contingent~~note ~~assets~~payable. ~~and~~On ~~liabilities~~July at7, 2010, the ~~date~~Company was served with a Complaint demanding payment of ~~our~~the ~~Financial~~remaining ~~Statements~~balance of a $1,200,000 ~~and~~note payable with a current balance of $822,920 from the ~~reported~~estate ~~amounts~~of a former owner of ~~revenue~~Nutritional ~~and~~Specialties, ~~expenses~~Inc. ~~during~~The parties have attended mediation and the ~~reporting~~Company ~~period~~is hopeful that this may be amicably resolved. ~~Our~~This ~~actual~~matter ~~results~~remains ~~reported~~pending. As discussed in Note 14 “Subsequent Events” on April 9, 2012 the ~~future~~Company ~~may~~completed ~~differ~~the ~~from~~sale ~~those~~its ~~estimates~~non-operating ~~and~~subsidiary ~~revisions~~Nutritional Specialties, Inc. (NSI) to Deep South Capital, LLC (DSCL). As part of ~~these~~the ~~estimates~~security ~~may~~purchase ~~become~~agreement, ~~necessary~~DSCL inassumed this obligation and indemnified the ~~future.~~Company for the note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc

~~GENERAL~~On March 12, 2010, the Company was notified that it was named as a defendant in lawsuit in the United States District Court, Eastern District of Texas, brought by Vitro Packaging de Mexico, SA de CV, the assignee of a former supplier. Vitro Packaging alleges the Company owed unpaid accounts payable and is seeking payment of approximately $345,000. The Company has entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreeing not to execute on an Agreed Final Judgment for $245,275 until after May 16, 2011, which the Company has not paid and is recorded as a current liability. On August 17, 2011, the judgment was recorded in the State of New Jersey. During September 2012, the Company re-initiated negotiations to settle this matter. In October 2012, Management negotiated an agreement with Vitro whereby the Company would pay $125,000 in three installments to settle all claims relating to the litigation. To date, no payments have been made under the agreement, however, Vitro and Company continue to discuss a beginning date for the installment payments

~~Our~~On ~~beverages~~January ~~are~~21, ~~classified~~2011, asThe ~~ready-to-drink~~Company ~~teas~~filed ~~and~~a ~~lemonades.~~Certificate Weof ~~believe~~Designation ~~that our products are well-positioned~~ to ~~continue~~its ~~our~~Certificate ~~growth~~of toIncorporation ~~date~~which ~~and~~created ~~we have~~ a ~~competitive~~class ~~edge~~of ~~in ingredients~~1,000 ~~flavor~~shares ~~and~~of ~~packaging.~~Series ~~Our~~K ~~business~~10% ~~plan~~Convertible isPreferred toStock ~~build~~with a ~~competitive~~par ~~beverage~~value ~~company around our New Leaf brand~~ of ~~ready-to-drink~~$.001 ~~teas,~~per ~~lemonades and other new functional beverages~~share. As of ~~September,~~March ~~2011~~31, ~~we sell New Leaf beverages in 37 states~~2012, ~~through~~Series ~~approximately~~K ~~130~~10% ~~distributors~~Preferred instock ~~over~~dividends ~~12,000~~of ~~outlets.~~$ ~~We plan to expand our business by making inroads into larger mainstream grocery~~191,275 ~~convenience, drug stores and other larger accounts. We~~ are ~~making inroads with food, drug and mass accounts including grocery stores and drug stores~~accrued. Our ability to develop new products is limited by our access to capital. We intend to continue to explore various strategic alternatives, including business combinations and private placements of debt and or equity securities to raise capital to grow our Company. We can provide no assurance that we will be able to raise sufficient capital under appropriate terms to complete our strategic objectives

WeOn ~~sold~~July ~~167~~11,~~935~~ ~~cases~~2011, ~~through~~the ~~September~~Company ~~2011,~~was ~~down~~served ~~59.5%~~with a complaint from ~~415~~Bett-A-Way Traffic Systems,~~029~~ ~~cases~~Inc. demanding payment of $90,928 in ~~the~~an ~~same~~accounts ~~period~~payable ofcollection ~~2010~~matter. WeThe ~~anticipate~~parties ~~that~~settled this matter on April 15, ~~after~~2012 ~~our~~for ~~debts~~a ~~are~~combination ~~repaid~~of stock and ~~renegotiated,~~cash. weThe ~~will~~stock becomponent ~~able~~has tobeen ~~raise~~paid ~~additional~~and ~~capital~~the tocash ~~grow~~component ~~our~~remains ~~New~~open. At ~~Leaf~~December ~~brand~~2012, asthe ~~well~~parties ascontinue ~~develop~~to ~~additional~~discuss ~~brands~~payment of the cash component.

~~Our~~ On ~~condensed~~January ~~consolidated~~12, ~~financial~~2012 ~~statements~~Key ~~have~~Equipment ~~been~~filed ~~prepared~~a incomplaint ~~accordance~~demanding ~~with~~payment ~~U.S. generally accepted accounting principles which contemplates the realization~~ of ~~assets~~$81,943 and ~~the~~on ~~satisfaction~~August of29, ~~liabilities~~2012 ~~and~~a ~~commitments~~Final inJudgment ~~the~~was ~~normal course of business~~attained. In AsNovember ~~reflected~~2012, in the ~~condensed~~parties ~~consolidated~~agreed ~~financial~~to ~~statements~~a ~~accompanying~~Stipulation ~~this~~of ~~Quarterly~~Settlement ~~Report~~for ~~on Form 10-Q~~$65,000 werequiring ~~had~~an ~~negative~~initial ~~net~~payment ~~working capital~~ of ~~approximately~~ $5,~~035,316~~000 ~~at September 30, 2011. We have not yet created positive cash flows from operating activities~~ and ~~its~~subsequent ~~ability~~monthly topayments ~~generate~~of ~~profitable~~$1,666 ~~operations~~until onfully ~~a sustainable basis is uncertain~~retired. To ~~These~~date, ~~factors~~the ~~raise~~Company ~~substantial~~has ~~doubt~~not ~~about~~begun ~~our~~the ~~ability~~payments ~~to continue~~ as arequired ~~going~~under ~~concern~~the Stipulation.

WeOn ~~believe~~February ~~that~~4, ~~our~~2012, ~~existing~~we ~~cash~~were ~~resources~~served with a complaint by Hartford Meir, ~~combined~~Inc ~~with~~demanding ~~projected~~payment ~~cash~~of ~~flows~~$160,009 ~~from~~in ~~operations~~a ~~will~~collection ~~not~~matter beregarding ~~sufficient~~a totrade ~~execute~~receivable ~~our~~conveyed ~~business~~to ~~plan~~them ~~and~~by ~~continue~~Mode ~~operations~~Transportation ~~for~~(with whom the ~~next~~Company ~~twelve~~originally ~~months~~incurred the debt). ~~Additionally~~We have accrued for this payment of $136,920 weas ~~have~~of ~~taken~~March ~~steps~~31, to2012 ~~reduce~~and ~~our~~December ~~operating~~31, ~~expenses~~2011 as part of accounts payable. WeThe ~~will~~Company ~~continue~~reached toa ~~explore~~settlement ~~various~~agreement ~~strategic~~with ~~alternatives,~~this ~~including~~creditor ~~business~~which ~~combinations~~was ~~and~~completed ~~private~~upon ~~placements~~a final payment of ~~debt~~$20,000 ~~and~~on orJuly ~~equity~~18, ~~securities~~2012. toThe ~~raise~~case ~~capital~~has been dismissed.

On January 9, 2013, we received a complaint from Stephen Gould Corporation alleging that we were in breach of contract and sought $47,587 for such breach. The Company’s counsel is reviewing the complaint.

~~OUR~~Purchase ~~PRODUCTS~~Order Financing

~~New~~On ~~Leaf~~September is20, a2011 ~~natural~~the ~~iced-tea~~Company ~~beverage~~entered ~~that~~into issecured ~~sweetened~~Purchase ~~with~~Order ~~organic~~Financing ~~cane~~agreements ~~sugar~~with ~~and~~certain ~~specifically~~suppliers ~~formulated~~for toadditional ~~address~~trade ~~what~~payable weto ~~believe~~produce isand anship ~~unmet~~approximately ~~consumer~~$750,000 ~~demand~~ in ~~the~~orders ~~very competitive, but rapidly growing, ready-~~to~~-drink~~ ~~beverage~~Company ~~market~~customers. The ~~organic~~agreements ~~cane~~are ~~sugar~~secured ~~sweetening~~by ~~creates~~certain afuture ~~premium~~sales and ~~more~~inventory ~~healthy~~provided ~~product~~by ~~with~~the ~~20-30% fewer calories than high fructose corn syrup competitors~~suppliers. ~~New~~The ~~Leaf~~agreement isprovided ~~available~~for inthe 16repayment ~~varieties~~of ~~that are all-natural and organically-sweetened~~$307,563 of ~~which~~outstanding 2accounts ~~are~~payable ~~diet~~at ~~varieties.~~September ~~Varieties include white~~30, ~~black,~~2011 ~~green~~ and ~~blue teas~~$443,000 ~~lemonades~~in ~~and~~additional ~~half~~trade ~~tea/half~~credit ~~lemonade~~by ~~beverages.~~the ~~New Leaf products include:~~Company.

~~Blue~~ The ~~Teas~~Company ~~White~~further ~~Tea~~agreed ●to ~~Diet~~segregate ~~Blue~~all ~~Tea~~cash ~~with~~proceeds ~~Lemon~~from ●specific ~~White~~sales ~~Tea~~to ~~with~~certain ~~Honey~~customers ~~Dew~~(the ~~Melon~~“Customers”) ●to ~~Diet~~enable ~~Blue~~the ~~Tea~~Company ~~with~~to ~~Peach~~pay ●the ~~White~~suppliers. ~~Tea~~The ~~with~~Company ~~Strawberry~~entered ●into ~~Blue~~an ~~Tea~~Escrow ~~with~~Agreement ~~Lemon ● Blue Tea~~ with ~~Peach~~the ~~Black~~Suppliers ~~Tea~~and ●an ~~Blue~~escrow ~~Tea~~agent ~~with~~for ~~Raspberry~~the ~~Sweet~~purpose ~~Tea~~of ~~Green~~establishing ~~Teas~~a ~~Lemonades~~segregated ●account ~~Green~~controlled ~~Tea~~by ~~with~~the ~~Plum~~Escrow ●Agent ~~Strawberry~~to ●disburse ~~Green~~the ~~Tea~~cash ~~with~~proceeds ~~Mango~~from ●such ~~Homemade~~Customer ●accounts ~~Black~~directly ~~Cherry~~to ●each ●Supplier ●based ~~Tiger~~upon –a ~~Half~~predetermined ~~and Half Lite Tiger – Half and Half Mango Lemonade~~percentage.

WeIn connection with this facility, the Company also ~~distinguish~~received consent from Secured Note holders to consent to (a) the ~~New~~Company ~~Leaf~~entering ~~brand~~into bythe ~~creating~~Escrow ~~unique~~Agreement ~~flavors.~~with ~~For~~the ~~example,~~Escrow ~~New~~Agent ~~Leaf~~and ~~introduced~~the ~~blue~~Suppliers ~~tea,~~for ~~also~~the ~~known~~benefit asof ~~Oolong~~each ~~tea~~Supplier, and (b) consent to ~~mainstream~~the ~~consumers.~~Company’s ~~Oolong~~segregation ~~tea~~of isproceeds ~~sometimes~~from ~~referred~~Customer accounts receivable to asthe ~~“blue~~Escrow ~~tea”~~Account ~~because~~and ~~its~~waive ~~dried~~each ~~leaves~~such ~~have~~Secured aNote ~~bluish~~holder’s ~~hue.~~security Weinterest ~~believe~~in ~~that~~and ~~unique~~lien ~~flavors~~on ~~will~~all ~~continue~~cash toproceeds ~~attract~~in the ~~attention~~Escrow ofAccount ~~consumers~~so long as the Escrow Agreement and the Escrow Account remains in place.

InAs ~~April~~of ~~2010~~March 31, we2012 ~~introduced~~the ~~a lemonade brand. New Leaf'~~Company’s ~~lemonades~~accounts ~~are~~payable ~~available~~to inthose ~~three~~Suppliers ~~flavors~~was ~~-- Homemade~~$120,917 ~~Black Cherry and Strawberry. Additionally, "The Tiger," half-iced tea / half lemonade, debuted as part~~ of ~~our~~which ~~lemonade~~$0 ~~line-up.~~represented InPurchase ~~October~~Order ~~2011, we introduced two new flavors, Mango Lemonade and Lite Tiger – Half and Half~~Financing. ~~Our 100% natural lemonades are made with pure organic cane juice and contain 10% real fruit juice.~~

~~Our products are sold in a proprietary 16~~13.9 ~~ounce~~NET ~~glass~~LOSS ~~bottle~~PER that is designed specifically for our New Leaf brand. The bottles are labeled with vibrant colors and the New Leaf logo, which we believe appeals to and is recognizable by consumers. New Leaf products emphasize wellness and innovation. Our non-diet varieties of New Leaf Tea have 70-80 calories per 8 ounce serving and are sweetened with organic cane sugar, instead of high-fructose corn syrup.SHARE

~~Results~~Convertible ofpreferred ~~Continuing~~stock ~~Operations~~and ~~for~~outstanding options and warrants were not considered in the ~~Three~~calculation ~~and~~for ~~Nine~~diluted ~~months~~net ~~Ended~~loss ~~September~~per 30share for the periods ended March 31, ~~2011~~2012 and ~~2010~~2011 because the effect of their inclusion would be anti-dilutive.

~~Net~~As ~~sales~~of ~~from~~March ~~our continuing operations~~31, ~~New Leaf Brands~~2012, ~~for~~there ~~the nine months ended September 30, 2011~~ were ~~$1,474,909~~warrants ~~compared~~and tooptions ~~$3,671,328 for the same period last year. The decrease in net sales is primarily due~~ to ~~capital~~purchase ~~constraints which delayed the production~~70,700,350 ~~shipments~~shares of ~~open~~common ~~customer~~stock ~~orders~~outstanding and ~~inventory~~Series ~~purchases~~K ~~from~~Preferred ~~distributors~~shares to fulfill open orders in the amount of $740,000. Management is actively working to alleviate the capital constraint issue starting with the Purchase Order Financing we negotiated with certain vendors in September 2011. For the three months ended September 30, 2011 net sales from our operations were ~~$128,796~~convertible ~~compared~~into ~~to $1~~20,~~051~~584,~~547~~118 ~~for~~shares ~~the same period last year. The decrease in net sales is primarily due to capital constraints which delayed the production, shipment~~ of ~~open~~common ~~customer orders and inventory purchases from distributors~~stock.

~~Cost of sales decreased to $1,168,540 for the nine months period ending September 30, 2011 compared to $2,414,261 for the same period in 2010~~14. ~~The~~DISCONTINUED decrease of $1,245,721 or 52% was a result of lower sales. Our gross profit margin for the nine month periods ended September 30, 2011 was 21%, compared to 34% for the same period in 2010. The overall decrease of thirteen percentage points in gross profit margin is primarily due to smaller production runs which, by virtue of their size are less efficient than those for the period ended September 30, 2010. For the three months ended September 30, 2011 cost of sales decreased to $115,277 for the three months period ending September 30, 2011 compared to $647,459 for the same period in 2010. The decrease of $532,182 or 82% was a result of lower sales. Our gross profit margin for the three month periods ended September 30, 2011 was 10%, compared to 38% for the same period in 2010. The overall decrease of eightteen percentage points in gross profit margin is primarily due to smaller production runs which, by virtue of their size are less efficient than those for the period ended September 30, 2010 and issuance of higher discounts.OPERATIONS

On April 9, 2012, the Company completed the sale of its non-operating subsidiary of Nutritional Specialties, Inc. (NSI) to Deep South Capital, LLC (DSCL). The accompanying consolidated financial statements have been reclassified for all prior periods to report the assets and liabilities of this subsidiary.

The major classes of assets and liabilities of the discontinued operations on the balance sheet are as follows:

	March 31, 2012 (unaudited)		December 31, 2011

ASSETS	$	—	$	—

LIABILITIES
Note payable to trust		822,920		822,920
Accounts payable and accrued expenses	$	12,692	$	12,692
Current liabilities of discontinued operations	$	835,612	$	835,612

~~Shipping and handling expenses were $246,872 for the nine months period ending September 30, 2011, and $438,909 for the same period in the prior year~~15. ~~The~~RECENTLY ~~decrease~~ISSUED ofACCOUNTING $192,037 or 44% was due primarily to lower sales offset by shipments to distributors further from our co-packer, higher fuel surcharges and the above mentioned inventories purchased from distributors. Selling and Marketing expenses decreased $2,126,934, or 53% from $3,982,307 for the nine months ended September 30, 2010 to $1,855,373 in the same period in 2011. The decrease was attributable to management’s decision to restrain marketing spending pending resolution of our capital constraints. General and Administrative costs were $1,564,355 for the nine month period ended September 30, 2011 and $2,492,160 for the same period of 2010. The decrease of $927,805 or 37% was due to planned cost reductions and option and stock compensation expenses. Depreciation and amortization expense was $387,877 in the first nine months of 2011, and $387,659 in the first nine months of 2010. PRONOUNCEMENTS

~~Shipping~~In ~~and~~June ~~handling~~2011, ~~expenses~~the ~~were~~FASB ~~$34,350~~issued ~~for~~ASU ~~the~~No. ~~three~~2011-05, ~~months~~Comprehensive ~~period~~Income ~~ending~~(Topic ~~September 30~~220), ~~2011,~~Presentation ~~and~~of ~~$140,969~~Comprehensive ~~for~~Income. ~~the~~This ~~same~~update ~~period~~is inintended to increase the ~~prior~~prominence ~~year.~~of ~~The~~other ~~decrease~~comprehensive ofincome ~~$106,619~~in orthe ~~76%~~financial ~~was~~statements ~~due~~by ~~primarily~~requiring public companies to ~~lower~~present ~~sales~~comprehensive ~~offset~~income byeither ~~shipments~~as toa ~~distributors~~single ~~further~~statement ~~from~~detailing ~~our~~the ~~co-packer,~~components ~~higher~~of ~~fuel~~net ~~surcharges~~income and ~~the~~total ~~above~~net ~~mentioned~~income, ~~inventories~~the ~~purchased~~components ~~from~~of ~~distributors.~~other ~~Selling~~comprehensive income and ~~Marketing~~total ~~decreased~~other ~~$577~~comprehensive income,~~470~~ orand ~~46%~~a ~~from~~total ~~$1,267,479~~ for ~~the~~comprehensive ~~three~~income ~~months~~or ~~ended~~using ~~September~~a ~~30,~~two ~~2010~~statement toapproach ~~$690,009~~including inboth ~~the~~a ~~same~~statement ~~period~~of inincome ~~2011expenses.~~and ~~The~~a ~~decrease~~statement ~~was~~of ~~attributable~~comprehensive toincome. ~~management’s~~The ~~decision~~option to ~~restrain~~present ~~marketing~~other ~~spending~~comprehensive ~~pending~~income ~~resolution~~in ofthe ~~our~~statement ~~capital~~of ~~constraints.~~changes ~~General~~in ~~and~~equity ~~Administrative~~has ~~costs~~been ~~were~~eliminated. ~~$538,702~~The ~~for~~amendments ~~the~~in ~~third~~this ~~quarter~~update, inwhich ~~2011~~should ~~and~~be ~~$410~~applied retrospectively,~~178~~ ~~for~~are ~~the~~effective ~~third~~for ~~quarter~~public incompanies ~~2010.~~for ~~Depreciation~~fiscal years, and ~~amortization~~interim ~~expense~~periods ~~was~~beginning ~~$129,292~~after inDecember ~~the~~15, ~~third~~2011. ~~quarter~~The ofCompany ~~2011,~~adopted ~~and~~this ~~$129,200~~pronouncement in the ~~third~~first quarter of ~~2010~~2012.

~~The~~In Company evaluates intangible assets for potential impairment on an annual basis or whenever events or circumstances indicate that impairment may have occurred using a two-step process. The first step of the impairment test, used to identify potential impairment, compares the estimated fair value of the intangible with the related carrying amount. If the estimated fair value of the intangibles exceeds its carrying amount, the intangible is not considered to be impaired and the second step is unnecessary. During the nine months ended September ~~30,~~ 2011, the ~~Company~~FASB ~~determined~~issued ~~that~~Accounting ~~the~~Standards ~~economic~~Update ~~uncertainty surrounding the Company’s ability to remain in business triggered an interim impairment analysis~~No. The Company followed the same methodology as the annual test, using predominately a discounted cash flow model derived from internal budgets in assuming fair values for the impairment testing. Factors that could change the result of our impairment test include, but are not limited to, different assumptions used to forecast future net sales, expenses, capital expenditures and resources, and liquidity and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. The Company has concluded that impairment had existed at September 30, 2011 ~~and has recorded an impairment charge, measured as the amount by which the carrying amount of the long~~-~~lived asset exceeds its fair value~~08, of“Testing ~~$1,100,000~~Goodwill for ~~the~~Impairment” ~~three~~(ASU ~~and nine months ended September 30,~~ 2011~~. In conjunction with preparing the revised forecasts, the Company reevaluated the remaining estimated useful lives of the long~~-~~lived intangibles and concluded there is no change in its estimates remaining useful lives~~08). Due to the uncertainty involved the Company’s ability to raise additional debt and equity financing and the Company’s ability to continue as a going concern, there may be adverse factors to trigger additional impairment on the recoverability of the Company’s intangible assets.

~~Total~~Under ~~other~~ASU ~~income~~2011-08, ~~(expense)~~an ~~for~~entity has the ~~nine~~option ~~month~~to ~~periods~~first ~~ended~~assess ~~September~~qualitative ~~30,~~factors ~~2011~~to ~~and~~determine ~~2010~~whether ~~was~~the ~~$21,984~~existence ~~and~~of $events or circumstances leads to a determination that it is more likely than not (~~1,090,328~~a likelihood of more than 50%), ~~respectively.~~that ~~The~~the ~~change~~fair value of $1a reporting unit is less than its carrying amount. If an entity believes,~~112,312~~ oras ~~102%~~a ~~was~~result ~~due~~of ~~primarily~~its toqualitative assessment that the ~~change~~fair value of ~~fair~~a ~~values~~reporting ~~related~~unit tois ~~derivative~~greater ~~liability~~than ~~and~~its ~~loss~~carrying onamount, ~~extinguishment~~performing ofthe ~~debt~~current two-step impairment test is not required. ~~Total~~The ~~other~~guidance ~~income~~also ~~(expense)~~includes ~~for~~a ~~the~~number ~~three~~of ~~month~~events ~~periods~~and ~~ended~~circumstances ~~September~~that ~~30,~~an entity to consider in conducting the qualitative assessment. ASU 2011-08 ~~and~~is ~~2010~~effective ~~was~~for ~~$(66,076)~~annual and ~~$(23~~interim goodwill impairment tests performed for fiscal years beginning after December 15,~~081),~~ ~~respectively~~2011. ~~The~~Early ~~change~~adoption ofis ~~$43~~permitted,~~995~~ if an entity has not yet issued financial statements for the most recent annual or ~~199~~interim period, provided the entity has not yet performed its annual impairment test.2% ~~was~~We ~~due~~do ~~primarily~~not toexpect ~~the~~this ~~increased~~guidance ~~change~~to inhave ~~fair~~a ~~value~~material ofimpact ~~derivative~~on ~~liability~~our financial statements.

~~There~~16. isSUBSEQUENT no income tax benefit recorded for either period because any potential benefit of the income tax net operating loss carryforwards has been equally offset by an increase in the valuation allowance on the deferred income tax asset.EVENTS

AsOn ~~previously~~April ~~disclosed~~9, in2012 ~~Subsequent~~the ~~Events~~Company completed the sale its non-operating subsidiary Nutritional Specialties, onInc. ~~November~~(NSI) 22to Deep South Capital, ~~2011~~LLC (DSCL). The terms of the ~~Company~~divestiture was ~~unable~~for toa ~~raise~~consideration of $1.00 plus the ~~necessary~~assumption ~~capital~~of certain liabilities by DSCL. In addition, the Company issued 6,000,000 shares of the Company’s stock valued at approximately $180,000 to ~~continue~~DSCL ~~normal~~as ~~daily~~a ~~operations~~reserve ~~and~~against ~~therefore~~possible ~~dismissed~~offsets. ~~all~~The ~~its~~Company ~~employees~~estimated a charge of approximately $180,000 in connection with this transaction.

On ~~October~~May 1831, ~~2011,~~2012 the Company ~~borrowed~~granted ~~$50,000 from two lenders in exchange for 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock, one of whom was~~ a ~~principal~~financial ~~shareholder~~advisor ~~for $25~~700,000. ~~Each~~restricted ~~Secured~~shares ~~Note is collateralized by all~~ of ~~the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into~~ common stock, atper athe ~~conversion~~agreement ~~price~~dated ofMay ~~$0.05 per share. Additionally~~31, ~~such lenders were granted an additional 5 shares of our common stock for each $1~~2012.~~00 of interest and principal due them.~~

On ~~November~~May 14, ~~2011,~~2012 the Company ~~borrowed~~commenced ~~$50,000 from~~ a ~~director~~warrant inreset ~~exchange~~and ~~for~~exercise ~~10%~~offer ~~Secured~~to ~~Convertible~~eligible ~~Subordinated~~holders ~~Note~~of ~~which~~its ~~Note~~outstanding ~~was~~warrants, ~~coupled~~pursuant ~~with~~to ~~common~~which ~~stock.~~all ~~Each~~issued ~~Secured~~and ~~Note~~outstanding iswarrants ~~collateralized~~to bypurchase ~~all~~common stock of the ~~Company’s~~Corporation ~~assets~~issued, ~~and~~irrespective ~~an assignment~~ of ~~the~~current ~~Company’s~~exercise ~~trademark~~price ~~with~~or ~~the~~expiration USdate, ~~Patent~~may, ~~and~~in ~~Trademark~~each ~~Office~~holder’s ~~and~~sole isdiscretion, ~~convertible~~be ~~into~~exercised ~~common stock~~ at ~~a conversion price of~~ $0.0503 per share. ~~Additionally,~~during ~~such~~the ~~lenders~~offer ~~were~~period. ~~granted~~Approximately an7 ~~additional~~investors 5elected ~~shares~~to ofexercise ~~our~~their ~~common~~warrants ~~stock~~ for ~~each~~which ~~$1.00~~the ofCompany ~~interest~~received $117,459 and ~~principal~~issued ~~due~~3,915,295 ~~them~~shares of common stock.

On ~~November~~May 1416, ~~2011~~2012, wethe Company borrowed ~~aggregate gross proceeds of~~ $6020,000 from ~~two~~CS ~~investor~~Healthcare, a related party, in exchange for 10an 8% ~~Secured~~18 ~~Convertible~~month ~~Subordinated~~Unsecured Promissory Notes (“~~Secured~~Unsecured ~~Notes~~Note”) ~~which Notes were coupled with common stock, one of whom was a principal shareholder for $30,000~~. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

Between August 24, 2011 and December 22, 2011 we borrowed an aggregate of $ 1,346,381 from eight investors, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lender was granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. Subsequent to the year ended 2011, between May 10 and May 17, 2012 six of the eight lenders agreed to waive and release its first priority and perfected security interest in and lien on the Company’s assets, and consents to the filing of a form UCC3 for the above UCC1 financing statements. In consideration for this waiver, we issued each lender 200,000 shares of common stock in New Leaf Brands, Inc.

The Company issued 1,200,000 shares of common stock to these six parties.

On ~~December~~June 126, ~~2011~~2012, wethe ~~borrowed~~Company ~~$175,000~~reached ~~from~~an ~~one~~agreement ~~investor~~with inrelated ~~exchange~~party ~~for~~Fuselier ~~10%~~Bridge ~~Secured~~Capital, ~~Convertible~~LLC ~~Subordinated Notes~~ (“~~Secured Notes~~FBC”) ~~which~~to ~~Notes~~provide ~~were~~a ~~coupled~~secured ~~with~~working ~~common~~capital ~~stock~~loan facility up to $300,000. ~~Each~~ ~~Secured~~The ~~Note~~loan facility is ~~collateralized~~secured by all ~~of the~~ Company’s assets ~~and~~including angeneral ~~assignment~~intangibles of(including ~~the~~trademarks, ~~Company’s~~formulations, ~~trademark~~customer ~~with~~lists) ~~the~~and USaccounts ~~Patent~~receivables, ~~and~~fixed ~~Trademark~~assets, ~~Office~~inventory ~~and~~(all israw, iswork ~~convertible~~in ~~into~~progress ~~common~~and ~~stock~~finished atgoods aincluding ~~conversion~~labels) ~~price~~present ofand $0hereafter acquired.01 ~~per~~Each ~~share.~~advance ~~Additionally,~~under ~~such~~the ~~lenders~~loan ~~were~~facility ~~granted~~bears an ~~additional~~interest 5rate ~~shares~~ of ~~our common stock for each $~~1.005% ofper ~~interest~~month and ~~principal~~is due ~~them.~~in ~~Additionally,~~full ~~for~~ten ~~arranging~~months ~~this~~after ~~facility which will total $330,000 an assignee of~~ the ~~Lender~~issuance ~~was~~date. ~~granted~~The ainvestors ~~Revenue~~also ~~Participation~~received ~~Agreement.~~up ~~This~~to ~~agreement~~10,000,000 ~~grants~~5 ~~the~~year ~~lender~~warrants at a ~~revenue~~strike ~~participation~~price of 2%$0.03 ofper ~~the~~share ~~Company’s~~and ~~annual~~up ~~net~~to ~~sales~~10,000,000 ofshares ~~the first $2 million and 3%~~ of ~~any~~common ~~net~~stock ~~sales~~at ina ~~excess~~price of ~~the first~~ $20.03 ~~million~~per inshare. ~~annual~~On ~~net~~June ~~sales.~~26, We2012, ~~have~~the ~~also~~Company ~~re-engaged~~borrowed ~~certain~~$50,000 ~~former~~under ~~employees~~this asloan ~~consultants~~facility and~~/or~~ ~~employees~~subsequently ~~and~~borrowed ~~are~~an ~~working~~additional to$ ~~secure long term financing with the purpose of resuming normal daily operations~~170,613.

On ~~December~~July 2210, ~~2011~~2012, Terry ~~we borrowed $155,000 from one investor in exchange for 10% Secured Convertible Subordinated Note (“Secured Note”) which Note were coupled with common stock~~L. ~~This Secured~~ ~~Note~~Kinder ishas ~~collateralized~~been byappointed ~~all~~to ofits ~~the~~Board ~~Company’s assets and an assignment~~ of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. This loan triggered the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.Directors

~~Going~~On ~~forward,~~July the Company will continue to seek to raise additional debt and equity financings and may continue with the Purchase Order Financing agreement with our secured vendors or seek strategic alternatives. Alternatives could include17, ~~but may not be limited to~~2012, aformer ~~sale,~~CEO ~~merger~~Eric orSkae ~~other~~served ~~business combination involving the Company,~~ a ~~joint~~notice ~~venture arrangement, the sale or spinoff~~ of ~~Company~~default ~~assets,~~on or the ~~continued~~Settlement ~~execution~~and ofMutual ~~the~~Release ~~Company's~~Agreement ~~business~~and ~~plan. There can be no assurance that~~ the ~~exploration~~Consulting ofAgreement ~~strategic~~signed ~~alternatives~~on ~~will~~February ~~result in any transaction~~15, ~~or that, if completed, any transaction will be on attractive terms~~2012.

~~Liquidity~~On August 2, 2012 David Fuselier was elected as a director and ~~Capital~~chairman ~~Resources~~and appointed the position of chief executive officer of Integrated Freight Corp (Ticker: IFCR.OTCBB), a related party.

~~As of September 30, 2011, we had $709,286 in current assets of which $94,039, or 13%, was cash and receivables.~~ On ~~average,~~August ~~our receivables are collected after 14 days outstanding. Inventories were $573~~23,~~017~~ ~~at September 30~~2012, ~~2011,~~Edward an(Ted) ~~increase of $137,603 over the December 31, 2010 balance of $435,414~~H. ~~The~~Eppel ~~increase in inventories~~ was ~~primarily~~appointed ~~due~~ to ~~the~~our ~~purchase~~Board of ~~product and limited production~~Directors. Total current liabilities at September 30, 2011 totaled $5,744,602, of which $3,166,176, or 57%, represented trade and operating payables. This represents a ratio of current assets to current liabilities of 1 to 8.10 at September 30, 2011.

AtOn September 3020, ~~2011,~~2012 wethe ~~had~~Company aborrowed ~~net~~$ ~~working~~60,000 ~~capital~~from ~~deficiency~~an ofoutside ~~$5,035,316.~~lender ~~Our~~in ~~need~~exchange for ~~cash~~an ~~during~~11% ~~the~~7 ~~nine~~month ~~months~~Secured ~~ended~~Promissory ~~September~~Note. The ~~30,~~Company’s ~~2011~~Chief ~~was~~Executive ~~primarily~~Officer ~~funded~~and ~~through~~Fuselier ~~the~~and ~~issuance~~Co, ~~of Series K Preferred stock~~Inc., ~~exercise~~personally ~~of warrants~~ and ~~borrowings~~corporately, ~~(including~~guaranteed ~~borrowings~~this ~~from related parties) totaling $3,168,000~~Note.

WeOn ~~have~~September ~~traditionally~~24 ~~funded~~and ~~working~~25, ~~capital needs through product sales~~2012, ~~management~~the ofCompany ~~working~~borrowed ~~capital~~an ~~components~~aggregate of ~~our business~~$250,000 ~~and by cash received~~ from ~~private~~two ~~offerings~~investors ofin ~~our~~exchange ~~common~~for ~~stock,~~an ~~preferred~~8% ~~stock,~~18 ~~warrants~~month toUnsecured ~~purchase~~Promissory ~~shares~~Notes of(“Unsecured ~~our common stock and convertible notes~~Note”). WeA ~~believe~~substantial ~~that~~portion ~~our~~of ~~existing~~these ~~cash~~proceeds ~~resources,~~were ~~combined~~loaned ~~with projected cash flows from operations will not be sufficient~~ to ~~execute~~a ~~our~~potential ~~business~~acquisition ~~plan~~candidate ~~and~~of ~~continue operations for~~ the ~~next twelve months~~Company. ~~We have taken steps to reduce our operating expense.~~

~~Additionally,~~On weDecember ~~are~~7,, ~~evaluating~~2012 ~~our~~the ~~strategic~~Company’s ~~direction~~Chief ~~aimed~~Executive atOfficer ~~achieving~~executed ~~profitability and positive cash flow. We intend to continue to initiate~~ a ~~private~~promissory ~~placement~~note offor ~~debt~~$ or105,000 ~~equity~~with ~~securities~~the inCompany’s ~~order to raise additional capital. We have also engaged an investment banking firm to assist management in raising additional capital. However~~auditor, wethe ~~may~~Company’s ~~not~~Chief beExecutive ~~successful~~Officer inand ~~obtaining~~Fuselier ~~additional~~and ~~financing on acceptable terms~~Co, ~~on a timely basis~~Inc., orpersonally atand ~~all~~corporately, inguaranteed ~~which~~the ~~case,~~Note ~~we may be forced to make further cutbacks or cease operations~~.

On December 14, 2012 the Company borrowed $ 50,000 from an investor in exchange for a 12% 14 month Unsecured Promissory Notes (“Unsecured Note”). The Company’s Chief Executive Officer and Fuselier and Co, Inc., personally and corporately, guaranteed the Note.

Between January 8 and 30, 2013, the Company borrowed an aggregate of $150,000 from three investors in exchange for an 8% 18 month Unsecured Promissory Notes (“Unsecured Note”).

OnITEM ~~December~~2 ~~23rd~~- ,MANAGEMENT'S ~~2011~~DISCUSSION ~~the~~AND ~~Companyreceived~~ANALYSIS ~~majority~~OF ~~consent~~FINANCIAL ~~to:~~CONDITION AND RESULTS OF OPERATIONS

~~• Amend~~This ~~the~~report ~~Certificate~~on ofForm ~~Designation~~10-Q ofcontains forward-looking statements that involve risk and uncertainties. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the ~~Corporation~~forward-looking statements for many reasons, including the ~~Series~~risks described in this report, our annual report on Form 10-K ~~Preferred~~and ~~Stock~~other (filings we make from time to time with the ~~“Certificate~~Securities and Exchange Commission. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of ~~Designation”)~~the date on which the statements are made. We do not intend to update any of the forward-looking statements after the date of this report to conform these statements to actual results or to changes in our expectations, except as required by law.

~~I. ● to~~This ~~eliminate~~“Management’s ~~paragraph~~Discussion ~~(f)~~and Analysis of ~~Section~~Financial 9,Condition ~~“Protective~~and ~~Provisions,~~Results of Operations” ~~which~~should ~~limits~~be ~~the~~read ~~Company’s~~in ~~ability~~conjunction towith ~~enter~~our ~~into,~~Financial ~~create~~Statements, ~~incur,~~including ~~assume~~the related Notes, ~~guarantee~~appearing orin ~~suffer~~our toannual ~~exist~~report ~~any~~on ~~indebtedness~~Form 10-K for ~~borrowed~~the ~~money~~year ofended ~~any~~December ~~kind~~31, ~~other than “Permitted Indebtedness”~~2011.

~~II. ●~~ The preparation of this quarterly report on Form 10-Q requires us to ~~eliminate~~make ~~paragraph~~estimates ~~(f)~~and assumptions that affect the reported amount of ~~Section~~assets 9and liabilities, ~~“Protective~~disclosure ~~Provisions,”~~of ~~which~~contingent ~~limits~~assets and liabilities at the ~~Company’s~~date ~~ability~~of toour ~~enter~~Financial ~~into~~Statements, ~~create,~~and ~~incur,~~the ~~assume,~~reported ~~guarantee~~amounts orof ~~suffer~~revenue toand ~~exist~~expenses ~~any~~during ~~indebtedness~~the ~~for~~reporting ~~borrowed~~period. ~~money~~Our actual results reported in the future may differ from those estimates and revisions of ~~any~~these ~~kind,~~estimates ~~other~~may ~~than~~become ~~Permitted~~necessary ~~Indebtedness~~in the future.

~~• Amend~~GENERAL ~~the Security Purchase Agreement of the Corporation for the Series K Preferred Stock (the “Security Purchase Agreement”)~~STRATEGY

iWe are a diversified beverage holding company acquiring brands, distributors and manufacturers within the beverage industry. To Our ~~eliminate~~strategy ~~paragraph~~follows 8the initial success of our award winning New Leaf Brands ready-to-drink teas and lemonades.2 We ~~“Subsequent~~intend ~~Equity~~to ~~Sales~~continue to market broadly our New Leaf branded products as well as acquire additional regional beverage brands in complementary categories. As part of our brand acquisition strategy,” we will acquire a portfolio of branded proprietary products, with distinctive packaging and deep regional appeal, in ~~its~~the ~~entirety;~~following categories:

~~ii. To~~● ~~eliminate~~Ready–to-drink ~~paragraph~~Lemonades ~~8.3~~and ~~“Participation in Future Financing ,” in its entirety;~~Teas

In● ~~Consideration~~Carbonated ~~for same, the Company agreed:~~Beverages

~~• To~~● ~~reduce~~Juice ~~the~~and ~~conversion~~Juice ~~price of its Series K Preferred to 3 cents per share.~~Blends

~~• To~~● ~~exchange every~~Weight 5Control ~~Warrants (of the X, Y and Z Series) into 1 share of common stock.~~drinks

~~Financings~~● Water and Enhanced Water

On● ~~January~~Functional/Health ~~21, 2011, the Company completed a unit offering of an aggregate of $1,215,000 of its Series K 10% Convertible Preferred Stock (“Series K Preferred Stock”)~~ and ~~three~~Wellness series (Series X, Y and Z) of common stock purchase warrants (“Warrants”) to eleven accredited investors. Each unit sold consisted of one share of $25,000 stated value (and liquidation preference) of Series K Preferred Stock and Warrants to purchase up to an aggregate of 333,333 shares of common stock at $0.15 per share, subject to adjustment. A total of 48.6 units were sold. The Series X Warrants are five-year warrants, exercisable immediately to purchase an aggregate of 4,049,999 shares of common stock. The Series Y Warrants are exercisable until 45 days after the effectiveness of a certain registration statement and are exercisable to purchase an aggregate of 4,049,999 shares of common stock. The Series Z Warrants are five-year warrants whose effectiveness are conditional upon the exercise of the holder’s Y warrants and are exercisable to purchase an aggregate of 8,100,001 shares of common stock. Pursuant to a Registration Rights Agreement described below, Investors also received the right to demand that the Company file one or more registration statements covering the securities into which the Series K Preferred Stock is convertible and as to which the Warrants are exercisable. As a condition to consummation of the offering, certain individuals converted outstanding debt in the original principal amount of $2,050,000 into 82 units of the Company’s Series K Preferred Stock and issued 6,833,334 Series Y Warrants. Additionally, all subscribers to the Company’s 12% Original Issue Discount Notes sold in September and October 2010, whose then current balances on such Notes aggregated $2,079,171, were automatically converted into 83.16 units of the Company’s Series K Preferred Stock and were issued X,Y and Z warrants pari passu to the current unit investors (an aggregate of 6,930,571 Series X warrants, 6,930,571 Series Y warrants and 13,861,139 Series Z warrants).drinks

OnThese ~~January~~categories ~~21,~~are ~~2011,~~tailored O.toward ~~Lee Tawes~~premium, agourmet ~~director~~and ofhealthy ~~the~~lifestyles ~~Company,~~for ~~lent~~ the ~~Company~~“quality-value” anexpectations ~~aggregate~~ of ~~$75,000~~our ~~for which he received a demand promissory note bearing interest at the rate of 12% per annum~~consumers. We ~~Mr.~~believe ~~Tawes~~that ~~lent~~each ~~the~~acquired ~~Company an additional $30~~brand,~~000~~ onin ~~February~~its 24category, ~~2011~~will ~~for~~provide ~~which~~established heregional ~~received~~distribution afor ~~promissory~~the ~~note~~Company’s ~~bearing~~full ~~interest~~array ~~at the rate~~ of 0%other ~~per~~beverage ~~annum.~~products ~~Mr.~~and, ~~Tawes~~ultimately, ~~converted~~lead ~~the~~to ~~second~~more ~~promissory~~channels ~~note into shares~~ of ~~common stock in the April 29, 2011 private placement~~distribution.

OnNew ~~January~~Leaf ~~12,~~is ~~2011,~~the ~~Eric~~company’s ~~Skae,~~flagship brand in the ~~Company's~~ready ~~CEO~~to drink Lemonade and aIced ~~director,~~Tea ~~lent~~category. We intend to acquire additional brands to enhance our flagship brand in the ~~Company~~coming anyears. ~~aggregate~~We ofbelieve ~~$20,000~~that ~~for~~our ~~which~~products heare ~~received~~well-positioned ato ~~demand~~continue ~~promissory~~to ~~note~~grow ~~bearing~~and ~~interest~~possess a ~~the~~competitive ~~rate~~advantage ofin 0%creativity, ~~per~~flavor, ~~annum~~ingredients and packaging. As Onof ~~January~~May 2830, ~~2011~~2012, ~~the~~New ~~Company~~Leaf ~~repaid~~Brands’ $7beverages are sold in seven states,~~500~~ through 30 distributors in over 8,000 outlets. We anticipate organic expansion of ~~this~~our ~~note~~business by targeting additional wholesale distributors, larger mainstream grocery stores, convenience and drug store channels.

On February 24, 2011, David Tsiang the Company's CFO, lent the Company an aggregate of $20,000 for which he received a demand promissory note bearing interest at a rate of 6% per annum.

On April 29, 2011, we closed a private placement of common stock with certain accredited investors. We agreed to issue and sell to the investors, and the investors agreed to purchase, an aggregate of 5,666,667 shares of our common stock. Gross proceeds from the private placement were approximately $425,000.

On February 24, 2011, we received proceeds of $60,000 and $30,000 of unsecured notes from investors and a director, respectively. On April 29, 2011, these unsecured notes were converted into 800,000 and 400,000 common shares, respectively.

On April 29, 2011 we and certain Series K Preferred shareholders agreed to convert 187.6 units of preferred shares for 52,531,893 shares of common stock, including an additional 21,262,909 shares of common stock as a deemed dividend to these Series K Preferred shareholders.

OnAt ~~April~~New ~~29,~~Leaf ~~2011~~Beverages we ~~made~~develop, anmarket ~~offer~~and todistribute ~~series~~healthy X,and Yfunctional ready-to-drink teas and Zlemonades ~~warrants~~under ~~holders~~the New Leaf® brand. We focus primarily on functional ready-to-drink ~~exercise~~beverages, ~~their~~which ~~warrants~~include atteas, alemonades ~~exercise~~and ~~price~~other offunctional $0drinks.~~075~~ ~~per~~New ~~warrant~~Leaf ~~share;~~offers ~~certain~~natural ~~warrant~~iced-tea ~~holders~~and ~~accepted~~lemonade ~~our~~beverage ~~offer~~which ~~and~~are ~~exercised~~sweetened ~~6,666,665~~with ~~warrants~~evaporated ~~for~~pure ~~$500,000.~~cane Insugar ~~addition~~and aspecifically ~~warrant~~formulated ~~holder~~to ~~series~~address Kan ~~Preferred~~unmet ~~shareholder~~consumer ~~forfeited~~demand ~~666,667~~in ~~series~~the Xvery ~~warrants~~competitive ~~and~~but ~~1,333,313~~rapidly ~~series~~growing Yready-to-drink ~~warrants~~beverage ~~and~~market. The pure cane sugar sweetening creates a ~~warrant~~premium ~~holder~~product with 20-30% fewer calories than competing brands who, asuse ~~previously~~high ~~described,~~fructose ~~received~~corn ~~warrants~~syrup. asNew ~~part~~Leaf ofis ~~the~~available ~~conversion~~in ~~certain~~17 ~~notes~~varieties ~~payable~~of ~~agreed~~teas to(including ~~forfeit~~white, 4black,~~066~~ green,~~667~~ ~~series~~and Xblue ~~warrants~~teas) and lemonades (including half tea/half lemonade beverages).

OnOur ~~May~~broader ~~25,~~strategy ~~2011,~~is ~~the~~to ~~Company~~acquire ~~entered~~established ~~into~~beverage adistributors ~~short-term~~and ~~Accounts~~manufacturers ~~Receivable~~who ~~Financing~~choose ~~Note~~to ~~with~~utilize aNew ~~lender~~Leaf’s infinancial ~~the~~structure ~~amount~~and ofaccess ~~$150,000~~to capital. We ~~The~~intend ~~note~~to ~~was~~pursue ~~subsequently~~moderate-sized ~~paid~~regional indistributors ~~full~~who ~~with~~will ~~accrued~~internalize ~~interest~~our byarray ~~June~~of 24beverage products through proprietary distribution channels. Similarly, ~~2011~~we intend to pursue beverage production, where appropriate, to reduce our internal cost of production and to increase our delivered margin per case.

OnNEAR ~~June~~TERM ~~30,~~BUSINESS 2011, we issued a $10,000 Demand 10% Promissory Note to O. Lee Tawes, a director of the Company. The note required a $5,000 repayment on July 7, 2011 which the holder waived on the same day at no additional cost to the Company.STRATEGY

OnThroughout ~~June 15~~2012, ~~2011,~~we ~~the~~experienced ~~Company~~significant ~~entered~~financial ~~into~~challenges. aWe ~~Secured~~reported ~~Factoring~~in ~~Loan~~our ~~with~~annual areport ~~principal~~for ~~amount~~the ofyear ~~$426~~ended December 31,~~680~~ ~~with~~2011 ~~four~~on ~~lenders~~Form 10-K, ~~The~~filed ~~total~~on ~~amount~~July ~~received~~30, on2012, ~~the~~that ~~Secured~~without ~~Factoring~~additional ~~Loans~~funding ~~was~~we ~~$400,000~~would ofbe ~~which~~forced ~~$125,000~~to ~~was~~cut ~~purchased~~back byor acease ~~director~~operations. ofWe ~~the~~sought ~~Company~~legal ~~and $200,000~~counsel ~~was~~to ~~purchased~~investigate byreorganization aand ~~principal~~bankruptcy ~~shareholder~~options ~~(See~~and, ~~Related~~upon ~~Party~~consideration ~~Note~~of ~~6).~~the ~~These~~opinion ~~notes~~of ~~matured~~our onadvisors ~~August~~and 20the Board, ~~2011~~retained Fuselier and ~~are~~Co. ~~secured~~to byevaluate ~~all~~turnaround alternatives. After consideration of the ~~Company~~alternatives, ~~assets~~on February 14, ~~subject~~2012, tothe ~~subordinations~~Board ofelected ~~certain~~David ~~assets~~Fuselier toas ~~present~~New Leaf’s Chairman, President, and ~~future~~Chief ~~factoring~~Executive ~~facilities~~Officer. Simultaneously, OnEric ~~August~~Skae 24stepped down as our Chairman, ~~2011~~President ~~these~~and ~~notes~~Chief ~~were~~Executive ~~converted~~Officer. Mr. ~~into~~Fuselier ~~the~~immediately ~~Secured~~began ~~Convertible~~implementing ~~Subordinated~~a ~~Notes~~restructuring ~~described~~and ~~below.~~turnarounds plan that:

OnRefocused ~~July~~New ~~14,~~Leaf ~~2011,~~Brands ~~July~~beverages 28, 2011 and July 29, 2011 we entered into Original Issue Discount Loans with three lenders receiving amounts of $75,000from a principal shareholder, $50,000 and $25,000 respectively from other investors. These notes mature on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to Lorraine DiPaolo A principal shareholder). On August 24, 2011 these notes were converted into the Secured Convertible Subordinated Notes described in (below:

On● ~~August~~Focus ~~24, 2011, we recast $606,381(principal plus accrued interest) in existing secured loans with six parties (entered into between June~~ and ~~July~~deliver ~~2011),~~growth one of whom is a director of the Company for $120,517, another who is an executive officer and director of the Company for $30,100 and another who is a principal shareholder for $298,227, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. We determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the ~~date~~core ofproduct ~~the conversion and recorded a loss on extinguishment of debt of $144,392 for the three and nine months ended September 30, 2011.~~markets

~~Between~~● ~~September~~Focus ~~13-16,~~on ~~2011,~~four wekey ~~borrowed~~geographic ~~$250,000~~markets: ~~from~~New ~~two~~York ~~investors~~Metro, ~~one of whom is a principal shareholder for $125~~Mid-Atlantic,~~000~~ ~~and refinanced an existing unsecured loan with one officer in the amount of $30~~Florida,~~100.~~ WeSouthern issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested. The shares were valued at $31,250 as discount debt and will be amortized over the term of notesCalifornia

On● ~~September~~Reduce ~~20,~~supply ~~2011~~chain the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement included repayment of $307,563 of existing accounts payable and $ 443,000 in additional trade credit.costs

~~The~~● ~~Company~~Focus ~~further~~on ~~agreed~~key todistributors ~~segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers~~ and anvalue ~~escrow~~added agent for the purpose of establishing a segregated account controlled by the Escrow Agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermined percentage.partnerships

●	Restructure corporate operations and product mix to significantly improve operating margins.

●	Achieve significant debt restructurings and interim financings to both strengthen the balance sheet and support sustainable growth.

●	Seek additional tactical and strategic financing to support anticipated growth, research and development and release of new product lines.

Our ability to acquire new products is limited by our access to capital. We intend to continue to explore various strategic alternatives, including business combinations and private placements of debt and or equity securities to raise capital to grow our Company. We also intend to expand our business through mergers and acquisitions of appropriate complementary brands, distributors and manufacturers companies in our industry. We can provide no assurance that we will be able to raise sufficient capital under appropriate terms to complete our strategic objectives.

InOUR connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place.PRODUCTS

AsTEAS New ofLeaf ~~September~~is ~~30,~~a ~~2011~~natural iced-tea beverage sweetened with organic cane sugar and specifically formulated to address what we believe is an unmet consumer demand in the ~~Company’s~~very ~~accounts~~competitive, ~~payable~~but rapidly growing, ready-to-drink ~~those~~beverage ~~Suppliers~~market. ~~was~~The ~~$621~~organic cane sugar sweetening creates a premium and healthier product with 20-30% fewer calories than high fructose corn syrup competitors. New Leaf is available in 17 varieties that are all-natural and organically-sweetened,~~905~~ of which ~~$460~~6 are lemonades varieties. Varieties include white,~~124~~ ~~represented~~black, ~~Purchase~~green ~~Order~~and ~~Financing~~blue teas, lemonades and half tea/half lemonade beverages. New Leaf products include:

~~Contractual~~Blue ~~Obligations~~Teas White Tea ● Blue Tea with Lemon ● White Tea with Honey Dew Melon ● Blue Tea with Peach ● White Tea with Strawberry ● Blue Tea with Raspberry ● Diet Blue Tea with Lemon Black Tea ● Diet Blue Tea with Peach Sweet Tea Green Teas ● Green Tea with Ginseng and Honey Lemonades ● Green Tea with Plum ● Strawberry ● Green Tea with Mango ● Homemade ● Black Cherry ● ● ● Tiger – Half and Half Lite Tiger – Half and Half Mango Lemonade

~~There~~We ~~has~~also ~~been~~distinguish nothe ~~material~~New ~~change~~Leaf tobrand ~~our~~by ~~contractual~~creating ~~obligations~~unique asflavors. ~~disclosed~~For inexample, ~~the~~New ~~fiscal~~Leaf ~~year 2010~~introduced ~~Form~~blue ~~10-K~~tea, ~~filed~~also ~~with~~known ~~the~~as ~~Securities~~Oolong ~~and~~tea, ~~Exchange~~to ~~Commission~~mainstream ~~(the~~consumers. Oolong tea is sometimes referred to as “~~SEC~~blue tea”) onbecause ~~May~~its ~~23,~~dried ~~2011,~~leaves ~~except~~have asa ~~follows:~~bluish hue. We believe that unique flavors will continue to attract the attention of consumers.

OnLEMONADES In ~~June~~April 152010, ~~2011,~~we ~~the~~introduced ~~Company entered into~~ a ~~Secured~~lemonade ~~Factoring~~brand ~~Loan~~available ~~with~~in athree ~~principal~~flavors ~~amount~~-- ~~of $426~~Homemade,~~680~~ ~~with~~Black ~~four~~Cherry ~~lenders,~~and ~~The~~Strawberry. ~~total amount received on the Secured Factoring Loans was $400~~Additionally,~~000~~ of"The ~~which $125~~Tiger,~~000~~" ~~was~~half ~~purchased~~tea by/ ahalf ~~director of the Company and $200~~lemonade,~~000~~ ~~was~~debuted ~~purchased~~as bypart aof ~~principal~~our ~~shareholder~~lemonade ~~(See Related Party Note 6)~~offerings. ~~These~~In ~~notes~~October ~~matured on August 20~~2011, ~~2011~~we ~~and~~introduced ~~are~~two ~~secured~~new byflavors, ~~all~~Mango ofLemonade ~~the~~and ~~Company~~Lite ~~assets,~~Tiger ~~subject~~– toHalf ~~subordinations~~and ofHalf ~~certain~~(sweetened ~~assets~~with toSucralose ~~present~~ and ~~future~~pure ~~factoring~~cane ~~facilities~~sugar). OnOur ~~August~~100% ~~24,~~natural ~~2011~~lemonades ~~these~~are ~~notes~~made ~~were~~with ~~converted~~pure ~~into~~cane ~~the~~juice ~~Secured~~and ~~Convertible~~contain ~~Subordinated~~10% ~~Notes~~real ~~described~~fruit ~~below~~juice.

OnOur ~~July~~products ~~14,~~are ~~2011,~~sold ~~July~~in ~~28,~~a ~~2011~~proprietary ~~and~~16.9 ~~July~~ounce ~~29,~~bottle ~~2011~~designed wespecifically ~~issued~~for ~~Original~~our ~~Issue~~New ~~Discount~~Leaf ~~Notes~~brand. ~~with~~The ~~three~~bottles ~~lenders~~are ~~receiving~~labeled ~~amounts~~with ofvibrant ~~$75,000from~~colors ~~a principal shareholder, $50,000~~ and ~~$25,000~~the ~~respectively~~New ~~from~~Leaf ~~other~~logo ~~investors.~~appeals ~~These notes mature on January 14~~to, ~~2012 at $170,458~~ and ~~are~~is ~~secured~~recognizable by ~~all of the Company assets~~, ~~subject~~consumers. toNew ~~subordinations~~Leaf ofproducts ~~certain~~emphasize ~~assets~~wellness ~~to present~~ and ~~future~~innovation. ~~factoring~~Our ~~facilities,~~non-diet varieties of ~~which~~New ~~$85,227~~Leaf ~~was~~Tea ~~due~~have to70-80 ~~Lorraine~~calories ~~DiPaolo,~~per a8 ~~principal~~ounce ~~shareholder.~~serving Onand ~~August~~are ~~24,~~sweetened ~~2011~~with ~~these~~pure ~~notes~~cane ~~were~~sugar ~~converted~~instead ~~into~~of ~~the~~high-fructose ~~recast~~corn ~~notes described in (H) below~~syrup.

OnResults ~~August 24, 2011, we recast $606,381(principal plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one~~ of ~~whom~~Operations ~~is a director of the Company~~ for ~~$120,517, another of whom is an executive officer and director of~~ the ~~Company~~three ~~for~~months ~~$30,100~~Ended ~~and~~March ~~another of whom is a principal shareholder for $298~~31,~~227,~~ in2012 ~~exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets~~ and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. We determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the three and nine months ended September 30, 2011.

~~Between~~As ~~September~~discussed ~~13-16,~~in ~~2011,~~the wesection ~~borrowed~~“NEAR ~~$250~~TERM BUSINESS STRATEGY”,~~000~~ ~~from~~on ~~two~~February ~~investors~~14, ~~one~~2012, ofthe ~~whom~~Board iselected aDavid ~~principal~~Fuselier ~~shareholder~~as ~~for~~New ~~$125~~Leaf’s Chairman,~~000~~ President, and ~~refinanced~~Chief anExecutive ~~existing~~Officer ~~unsecured~~and ~~loan~~simultaneously, ~~with~~Eric ~~one~~Skae ~~officer~~stepped indown ~~the~~as ~~amount~~our ~~of $30~~Chairman,~~100~~ President and Chief Executive Officer. Mr. WeFuselier ~~issued~~immediately implemented a turnaround plan to ~~these~~(a) ~~investors~~refocus ~~the~~our ~~same~~sales ~~10%~~and ~~Secured~~marketing ~~Convertible~~efforts ~~Subordinated~~to ~~Notes~~our wecore ~~had~~product ~~issued~~markets, to(b) ~~the~~restructure ~~lenders~~corporate ~~reported~~operations inand ~~the~~product ~~above~~mix ~~paragraph.~~to ~~Additionally,~~significantly ~~such~~improve ~~investors~~operating ~~received~~margins, an(c) ~~additional~~achieve 5significant ~~shares~~debt ofrestructurings ~~our~~and ~~common~~interim ~~stock~~financings ~~for~~to ~~each~~both ~~$1.00~~strengthen ~~invested.~~the ~~The~~balance ~~shares~~sheet ~~were~~and ~~valued~~support atsustainable ~~$31,250~~growth asand ~~discount~~(d) ~~debt~~achieve additional tactical and ~~will~~strategic befinancing ~~amortized~~to ~~over~~support ~~the~~anticipated ~~term~~growth, research and development and release of ~~notes~~new product lines.

On September 20, 2011 the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement included repayment of $307,563 of existing accounts payable and $ 443,000 in additional trade credit.

In connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place.

AsWhile ofthe ~~September~~Company ~~30,~~made ~~2011~~considerable progress towards the ~~Company’s~~turnaround ~~accounts~~plan ~~payable~~during tothe ~~those~~three ~~Suppliers~~months ~~was~~ended ~~$621~~March 31,~~905~~ of2012, ~~which~~a ~~$460~~delay in interim financing delayed production,~~124~~ ~~represented~~shipment ~~Purchase~~of ~~Order~~open ~~Financing~~customer orders and inventory purchases from distributors until after the period ended. Production and sales activity resumed during the first week of April, 2012.

OnNet ~~October~~sales ~~18,~~from ~~2011~~our operations, ~~the~~New ~~Company~~Leaf ~~borrowed $50~~Brands,~~000~~ ~~from two lenders in exchange~~ for ~~10%~~the ~~Secured~~three ~~Convertible~~months ~~Subordinated~~ended ~~Notes~~March ~~which~~31, ~~Notes~~2012 were ~~coupled~~$0 ~~with~~compared ~~common~~to ~~stock~~$687,586 ~~one of whom was a principal shareholder~~ for ~~$25,000. Each Secured Note is collateralized by all of~~ the ~~Company’s~~same ~~assets~~period ~~and~~last anyear. ~~assignment~~The ofdecrease ~~the~~in ~~Company’s~~net ~~trademark~~sales ~~with the US Patent and Trademark Office and~~ is ~~convertible~~primarily ~~into~~due ~~common~~to ~~stock~~the attemporary acessation ~~conversion price~~ of $0operations.~~05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.~~

OnCost ~~November~~of 1,sales ~~2011,~~decreased ~~the~~to ~~Company borrowed~~ $5020,~~000~~738 ~~from a director in exchange~~ for ~~10%~~the ~~Secured~~three ~~Convertible~~months ~~Subordinated~~period ~~Note~~ending ~~which~~March ~~Note~~31, ~~was~~2012 ~~coupled~~compared ~~with~~to ~~common~~$557,118 ~~stock.~~for ~~Each Secured Note is collateralized by all of~~ the ~~Company’s~~same ~~assets~~period ~~and~~in an2011. ~~assignment~~The ofoverall ~~the~~decrease ~~Company's~~in ~~trademark~~gross ~~with~~profit ~~the~~margin ~~US Patent and Trademark Office and~~ is ~~convertible~~primarily ~~into~~due ~~common~~to ~~stock~~the attemporary acessation ~~conversion price~~ of ~~$0.05~~operations ~~per~~discussed ~~share~~above. ~~Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.~~

OnShipping ~~November~~and 14handling expenses were $3,408 ~~2011~~for the three months period ending March 31, we2012, ~~borrowed~~and ~~aggregate~~$127,833 ~~gross~~for ~~proceeds~~the same period in the prior year. The decrease of $60124,~~000~~425 ~~from~~was ~~two~~due ~~investors,~~primarily ~~one~~to the temporary cessation of ~~whom~~activity ~~was~~during athe ~~principal~~three ~~shareholder~~months ~~($30~~ended March 31,~~000) in~~ ~~exchange~~2012. ~~for~~Marketing ~~10%~~expenses ~~Secured~~decreased ~~Convertible~~from ~~Subordinated~~$617,997 ~~Notes~~for ~~(“Secured~~the ~~Notes”)~~three ~~which~~months ~~Notes~~ended ~~were~~March ~~coupled~~31, ~~with~~2011 ~~common~~to ~~stock~~$102,~~. Each~~728 ~~Secured~~in ~~Note~~the issame ~~collateralized~~period byin ~~all~~2012. ofThe decrease was attributable to the ~~Company’s~~cessation ~~assets~~of ~~and~~operations anpending ~~assignment~~resolution of ~~the~~our ~~Company’s~~capital ~~trademark~~constraints ~~with~~and progress on the USturnaround ~~Patent~~plan. General and ~~Trademark~~administrative ~~Office~~costs ~~and~~were is$2,715,717 ~~convertible~~for ~~into~~the ~~common~~three ~~stock~~months atended aMarch ~~conversion~~31, ~~price~~2012 ofand $~~0.05~~569,829 ~~per~~for ~~share~~the same period in the prior year. ~~Additionally~~The increase is primarily due to compensation related to the issuance of 28,000,000 ~~such~~shares ~~lenders~~under ~~were~~the ~~granted~~Fuselier anagreement ~~additional~~for 5$173,600 and 54,500,000 shares of ~~our~~ common stock ~~for~~as ~~each~~compensation to consultants and employees for $12,137,558.00 ofDepreciation ~~interest~~and amortization expense was $50,651 for the three months ended March 31, 2012, and ~~principal~~$129,292 ~~due~~for ~~them~~the same period in the prior year.

OnThe ~~November~~Company ~~22,~~evaluates ~~2011~~intangible weassets ~~entered~~for ~~into~~potential impairment on an ~~investor~~annual ~~relations~~basis ~~maintenance~~or ~~agreement~~whenever events or circumstances indicate that impairment may have occurred using a two-step process. InThe ~~addition~~first step of the impairment test, used to identify potential impairment, compares the ~~cash~~estimated ~~compensation~~fair value of the intangible with the related carrying amount. If the estimated fair value of the intangibles exceeds its carrying amount, the intangible is not considered to be impaired and the second step is unnecessary. During the quarter ended September 30, 2011, the Company determined that a triggering event occurred and performed an interim impairment analysis. The interim impairment analysis resulted in an impairment of $501,100,000 for the third quarter of ~~which~~2011. ~~$25~~During the year ended December 31,~~000~~ ~~paid~~2011, the Company determined that the economic uncertainty surrounding the Company’s ability to remain in business triggered an impairment analysis. The Company’s interim and annual tests, using predominately a discounted cash flow model derived from internal budgets in assuming fair values for the ~~party~~impairment ~~was~~testing. ~~granted~~Factors 3that could change the result of our impairment test include,~~000~~ but are not limited to,~~000~~ ~~restricted~~different ~~shares~~assumptions ofused ~~common~~to ~~stock~~forecast future net sales, expenses, capital expenditures and ~~assigned~~resources, and liquidity and working capital requirements used in our cash flow models. In addition, selection of a risk-adjusted discount rate on the estimated undiscounted cash flow is susceptible to future changes in market conditions, and when unfavorable, can adversely affect our original estimates of fair value. The Company’s key assumptions used in its annual impairment analysis included the ~~principal~~following: ~~plus~~a discount rate of 18% based on the estimated weighted average cost of capital from the market participant point of view; royalty rate of 4.0%; an average perpetual growth rate of 66% for six years and a ~~warrant~~tax rate of 38%. An increase in the discount rate of 1% or a 1% deterioration of the perpetual revenue growth rate would increase the impairment loss by approximately $38,000 or $11,000, respectively. The Company bases its fair value estimates on assumptions it believes to ~~purchase~~be 5reasonable, ~~million~~but ~~shares~~which are unpredictable and inherently uncertain. For the year ended December 31, 2011, the impairment of ~~common~~the ~~stock~~Company’s brand value mainly resulted in the decline in its projected revenues and operating results and cash flows. The Company has concluded that impairment had existed at aDecember ~~strike~~31, ~~price~~2011 and has recorded an impairment charge, measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value, of $02,155,000 for the year ended December 31, 2011.25 ~~per~~In ~~share~~conjunction with preparing the revised forecasts, the Company reevaluated the remaining estimated useful lives of the long-lived intangibles and concluded there is no change in its estimated remaining useful lives.

OnTotal ~~November~~other 22income (expense) for the three month periods ended March 31, 2012 and 2011 ~~the~~was ~~Company~~$ (133,159) and $(301,666), respectively. The decrease of $ 168,507 was ~~unable~~due primarily to ~~raise~~ the ~~necessary~~change ~~capital~~of fair values related to ~~continue~~derivative ~~normal~~liability ~~daily~~of ~~operations~~$(256,956) and ~~dismissed~~ ~~all~~gain ~~its~~on ~~employees~~extinguishment of debt of $562,893.

OnThere ~~November~~is ~~30,~~no ~~2011,~~income ~~the~~tax ~~Company~~benefit ~~reached~~recorded afor ~~tentative~~either ~~agreement~~period ~~with~~because anany ~~investor~~potential tobenefit ~~provide~~of ~~interim funding to resume~~ the ~~Company’s normal~~income ~~daily~~tax ~~operations~~net ~~with the intention of re-engaging certain key former employees as consultants and/ or employees as it evaluates its~~ operating ~~plans.~~loss ~~There~~carry ~~can~~forwards behas nobeen ~~assurances~~equally ~~that~~offset ~~same~~by ~~will~~an ~~result~~increase in ~~any~~the ~~transaction,~~valuation orallowance ~~that,~~on ifthe ~~completed,~~deferred ~~any~~income ~~transaction~~tax ~~will be on attractive terms~~asset.

On December 1, 2011, we borrowed $175,000 from one investor in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. Additionally, for arranging this facility which will total $330,000 an assignee of the Lender was granted a Revenue Participation Agreement. This agreement grants the lender a revenue participation of 2% of the Company’s annual net sales of the first $2 million and 3% of any net sales in excess of the first $2 million in annual net sales. We have also re-engaged certain former employees as consultants and/or employees and are working to secure long term financing with the purpose of resuming normal daily operations.

On December 14, 2011, the Company reached an agreement with a former employee to grant common stock and warrants to in exchange for satisfaction of deferred salary of $7,516 and an outstanding note to his wife in the amount of $4,800, we intend to grant 400,000 restricted shares of common to them.

On December 22, 2011, we borrowed $155,000 from one investor in exchange for 10% Secured Convertible Subordinated Note (“Secured Note”) which Note were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. This loan triggered the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.

~~Going~~Liquidity ~~forward,~~and ~~the~~Capital Company will continue to concentrate on seeking strategic alternatives. Alternatives could include, but may not be limited to, a sale, merger or other business combination involving the Company, a sale of shares or other recapitalization of the Company, a joint venture arrangement, the sale or spinoff of Company assets, or the continued execution of the Company's business plan. There can be no assurance that the exploration of strategic alternatives will result in any transaction, or that, if completed, any transaction will be on attractive termsResources

As of March 31, 2012, we had $ 685,433 in current assets of which $194,128, or 28.32%, was cash and receivables. On average, our receivables are collected after 34 days outstanding. Inventories were $202,472 at March 31, 2012, an increase of $38,763 over the December 31, 2011 balance of $163,709. The increase in inventories was primarily due to the slowdown in sales and purchases of raw materials. Total current liabilities at March 31, 2012 totaled $ 4,477,834, of which $1,220,436 or 27.26%, represented trade and operating payables. This represents a ratio of current assets to current liabilities of 0.15:1 at March 31, 2012.

At March 31, 2012, we had a net working capital deficiency of $ 3,792,401. Our need for cash during the three months ended March 31, 2012 was primarily funded through exercise of warrants and borrowings (including borrowings from related parties) totaling $1,261,927.

We have traditionally funded working capital needs through product sales, management of working capital components of our business, and by cash received from private offerings of our common stock, preferred stock, warrants to purchase shares of our common stock and convertible notes.

We believe that our needs for capital over the next 12 to 24 months could be minimized if we are able to increase our sales via the introduction of new products, support our inventory needs and promote our products in the marketplace. Since our existing operations are capable of absorbing growth without any significant operational expense, any increases in sales will allow us to lessen our needs for long-term capital. However, we intend to aggressively expand our distribution channel more rapidly than in the past and implement more aggressive advertising programs. These programs require further significant investments of capital. The amount and nature of how we would raise any necessary funds cannot be determined at this time. It is possible we may not be able to find capital on acceptable terms.

The following table presents future maturities of debt owed through the end of fiscal year 2014:

Year	Amount
2012	$	1,578,000
2013	$	464,338

Contractual obligations and commitments

The Company’s various equity financings are detailed under Item 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES – Recent Sales of Unregistered Securities. The Company’s various borrowings are set forth below.

On June 15, 2011, the Company entered into a Secured Factoring Loan with a principal amount of $426,680 with four lenders, the total amount received on the Secured Factoring Loans was $400,000 of which $125,000 was purchased by a then-director of the Company and $200,000 was purchased by a principal shareholder. These notes matured on August 20, 2011 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities. On August 24, 2011 these notes were converted into the Secured Convertible Subordinated Notes described below.

On July 14, 2011, July 28, 2011 and July 29, 2011 we issued Original Issue Discount Notes to three lenders receiving amounts of $75,000 from a principal shareholder, $50,000 and $25,000 respectively from other investors. These notes matured on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities, of which $85,227 was due to Lorraine DiPaolo, a principal shareholder. On August 24, 2011 these notes were converted into the recast notes as described below.

On August 24, 2011, we recast $606,381 (principal plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one of whom was then a director of the Company, for $120,517, another of whom is an executive officer and director of the Company for $30,100 and another of whom is a principal shareholder for $298,227, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. We determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the year ended December 31, 2011.

Between September 13 and 16, 2011, we borrowed $250,000 from two investors, one of whom is a principal shareholder, for $125,000 and refinanced an existing unsecured loan with one officer in the amount of $30,100. We issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested totaling 1,450,000 common shares (625,000 included in shares issuable). The shares were valued at $31,250 as discount debt and will be amortized over the term of notes.

On September 20, 2011 the Company entered into Secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements were secured by certain future sales and inventory provided by the suppliers. The agreement included repayment of $307,563 of existing accounts payable and $ 443,000 in additional trade credit. The Company further agreed to segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers and an escrow agent for the purpose of establishing a segregated account controlled by an independent escrow agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermine percentage. In connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into an escrow agreement with the escrow agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the escrow account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the escrow account so long as the escrow agreement and the escrow account remained in place. As of December 31, 2011 the Company’s accounts payable to those Suppliers was $460,490 of which $306,037 represented Purchase Order Financing. The escrow agent received aggregate proceeds of $444,526, all of which have been disbursed to the Suppliers.

On October 18, 2011, the Company borrowed $50,000 from two lenders in exchange for 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock. One of the purchasers was a principal shareholder who subscribed for $25,000. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 1, 2011, the Company borrowed $50,000 from a then-director in exchange for 10% Secured Convertible Subordinated Note which Note was coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company's trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 14, 2011, we borrowed aggregate gross proceeds of $60,000 from two investors, one of whom was a principal shareholder ($30,000) in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock,. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 22, 2011 we entered into an investor relations maintenance agreement. In addition to the cash compensation of $50,000 (of which $25,000 was) paid, the party was granted 3,000,000 restricted shares of common stock and we assigned to the principal plus a warrant to purchase 5 million shares of common stock at a strike price of $0.25 per share.

On December 1, 2011, we borrowed $175,000 from one investor in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. Additionally, for arranging this facility which will total $330,000 assignee of the Lender was granted a Revenue Participation Agreement. This agreement grants the lender a revenue participation of 2% of the Company’s annual net sales of the first $2 million and 3% of any net sales in excess of the first $2 million in annual net sales.

On December 14, 2011, the Company reached an agreement with a former employee to grant common stock and warrants to in exchange for satisfaction of deferred salary of $7,516 and an outstanding note to his wife in the amount of $4,800. We intend to grant 400,000 restricted shares of common to them.

On December 22, 2011, we borrowed $155,000 from one investor in exchange for 10% Secured Convertible Subordinated Note (“Secured Note”) which Note was coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.01 per share. This loan triggered the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.

On December 23rd, 2011 the Company received the required consent to:

● Amend the Certificate of Designation of the Corporation for the Series K Preferred Stock (the “Certificate of Designation”)

● to eliminate paragraph (f) of Section 9 of the Certificate of Designation, “Protective Provisions,” which limits the Company’s ability to enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, other than “Permitted Indebtedness”

● Amend the Security Purchase Agreement for the Series K Preferred Stock (the “Security Purchase Agreement”)

i. To eliminate paragraph 8.2 “Subsequent Equity Sales,” in its entirety;

ii. To eliminate paragraph 8.3 “Participation in Future Financing,” in its entirety;

In consideration of same, the Company agreed:

● To reduce the conversion price of its Series K Preferred to 3 cents per share.

● To exchange every 5 Warrants (of the X, Y and Z Series) into 1 share of common stock.

Between February 15, 2012 and March 2, 2012, the Company received proceeds of $250,000 from four investors in exchange for 8% 18 month Unsecured Convertible Notes (“Unsecured Note”), which Notes were coupled with warrants. Each Unsecured Note is convertible thirteen months after their respective issuance dates into common stock at a conversion price equal to the greater of (i) the Variable Conversion Price of 50% of the Market Price and (ii) the Fixed Conversion Price of $0.01. The investors also received 25,000,000 5 year warrants at a strike price of $0.03 per share. In addition the investors received the right to invest in new notes on the same basis as provided.

We believe that our existing cash resources, combined with projected cash flows from operations will not be sufficient to execute our business plan and continue operations for the next twelve months. We continue to explore various longer term capital options which we believe will be necessary to provide for the growth of our business. Additionally, we are evaluating our strategic direction aimed at achieving profitability and positive cash flow. We intend to continue to issue debt or equity securities in order to raise additional capital. If we issue additional common stock or securities that could convert into our common stock, our current stockholders will be diluted and the trading price of our common stock may decrease. Additionally, we may not be successful in obtaining additional financing on acceptable terms, on a timely basis, or at all, in which case, we may be forced to make further cutbacks or ultimately cease operations.

Off Balance Sheet Arrangements

We do not have off-balance sheet arrangements, financing, or other relationships with unconsolidated entities or other persons, also known as “variable interest entities”.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

~~4 - CONTROLS AND PROCEDURES~~34

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our management concluded that our disclosure controls and procedures, including internal control over financial reporting, were not effective as of ~~September~~March 3031, ~~2011~~2012 to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our disclosure controls and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management. Our disclosure controls and procedures include components of our internal control over financial reporting. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls, no matter how well designed and operated, can provide only reasonable, but not absolute, assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, with our Company have been detected.

Our management identified control deficiencies during 2009 that continued to exist in the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 because we lacked adequate controls in place to properly evaluate and account for all the complex characteristics of the debt and equity transactions executed by our Company in accordance with U.S. generally accepted accounting principles. In addition, management concluded that there were not adequate controls in place to properly evaluate and account for stock-based awards issued by our Company in accordance with U.S. generally accepted accounting principles. These deficiencies are the result of the complexity of the individual debt and equity transactions entered into by our Company and the limited amount of personnel available to provide for the proper level of oversight needed in accounting for these transactions. Management has determined that these control deficiencies represent material weaknesses. In addition, we lacked sufficient staff to segregate accounting duties. Based on our review of our accounting controls and procedures, we believe this control deficiency resulted primarily because we have one person performing all accounting-related duties. As a result, we did not maintain adequate segregation of duties within our critical financial reporting applications. Management believes these are “material weaknesses.”

A material weakness is defined as a deficiency, or combination of deficiencies in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance.

In preparing our financial statements and in reviewing the effectiveness of the design and operation of our internal accounting controls and procedures and our disclosure controls and procedures for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, we performed transaction reviews and control activities in connection with reconciling and compiling our consolidated financial records for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012. These reviews and procedures were undertaken in order to confirm that our financial statements for the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 were prepared in accordance with generally accepted accounting principles, fairly presented and free of material errors.

Our management is in the process of actively addressing and remediating the material weaknesses in internal control over financial reporting described above. ~~During~~We ~~2009,~~intend weto ~~undertook~~continue ~~actions~~ to remediate ~~the~~ material weaknesses ~~identified~~and enhance our internal controls, ~~including~~but ~~installation~~cannot ofguarantee athat ~~new~~our ~~ERP~~efforts ~~software~~will ~~system~~result toin ~~allow~~remediation ~~for~~of ~~appropriate~~our ~~checks~~material ~~and~~weakness ~~reviews~~or ofthat ~~internal~~new ~~control~~issues ~~record-keeping~~will ~~and~~not ~~reporting~~be exposed in this process.

We believe that the step outlined above will strengthen our internal control over financial reporting and addresses the material weaknesses described above. However, we continue to have only one person who performs our accounting and reporting functions. Our management will test and evaluate these additional controls to be implemented in 2011 to assess whether they will be operating effectively.

We intend to continue to remediate material weaknesses and enhance our internal controls, but cannot guarantee that our efforts will result in remediation of our material weakness or that new issues will not be exposed in this process.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during our last 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 involved in the following legal proceedings:

On January 29, 2009, we were notified that we were named as a defendant, along with 54 other defendants, in a class action lawsuit under California Proposition 65 for allegedly failing to disclose the amount of lead in one of its products. We have responded to discovery requests from the Attorney General of California. To date, no trial date has been set. We are currently investigating the merits of the allegation and is unable to determine the likelihood of an unfavorable outcome or a range of possible loss. This matter remains pending.

On December 7, 2009, we received a demand notice for payment for $822,920 from the estate of a former owner of Nutritional Specialties, Inc. Without acknowledging liability, we offered to settle any claims against us in this matter for cash and restricted common stock. Our offer lapsed before it was accepted. We intend to continue to attempt to negotiate a settlement for this debt. We have accrued for this payment of $822,920 as of December 31, 2010 as a short term note payable. On July 7, 2010, we were served with a Complaint demanding payment of the remaining balance of a $1,200,000 note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc. The parties have attended mediation and we are hopeful that this may be amicably resolved. This matter remains pending.

On March 12, 2010, we were notified that we were named as a defendant in lawsuit in the United States District Court, Eastern District of Texas, brought by Vitro Packaging de Mexico, SA de CV, the assignee of a former supplier. On March 23, 2011, Vitro Packaging alleges we owed unpaid accounts payable and is seeking payment of approximately $345,000. We have entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreeing not to execute on an Agreed Final Judgment for $245,275 until after May 16, 2011. This matter remains pending. There is a Judgment against the Company held by Vitro Packaging De Mexico. S.A.DE C.V. Vitro has taken steps to domesticate and execute upon the Company’s assets in New Jersey.

In December 2010, our Chief Operating Officer, William Sipper, resigned following an alleged incident involving a prospective employee of the Company. We have turned the matter over to its insurance carrier. Management believes its insurance is adequate to cover any liability in connection with the claim and takes the position that any acts by Mr. Sipper were done outside the scope of his employment. This matter remains pending.

On July 11, 2011, we were served with a complaint from Bett-A-Way Traffic Systems, Inc. demanding payment of $90,928 in a debt collection matter. We have accrued for this payment of $90,928 as of September 30, 2011 as part of accounts payable. The parties have been involved in settlement negotiations and we remain hopeful that we will be able to amicably resolve this matter.

We are not a party to any other legal proceeding that we believe would have a material adverse effect on our business, results of operations or financial condition.

On May 19, 2011 the OTC Bulletin Board (“OTCBB”) delisted our common stock from trading thereon due to lateness in filing our Annual Report on Form 10-K. That Annual Report was subsequently filed. Since May 19, 2011 our common stock has been listed for quotation on the “Pink Sheets” under the symbol "NLEF.PK".

ITEM 1A. RISK FACTORS

There have been no material changes from the risk factors as previously disclosed under 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2010.

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

On January 21, 2011, we completed a unit offering of an aggregate of $1,215,000 of its Series K 10% Convertible Preferred Stock (“Series K Preferred Stock”) and three series (Series X, Y and Z) of common stock purchase warrants (“Warrants”) to 11 accredited investors. Each unit sold consisted of one share of $25,000 stated value (and liquidation preference) of Series K Preferred Stock and Warrants to purchase up to an aggregate of 333,333 shares of common stock at $0.15 per share, subject to adjustment. A total of 48.6 units were sold. The Series X Warrants are five-year warrants, exercisable immediately to purchase an aggregate of 4,049,999 shares of common stock. The Series Y Warrants are exercisable until 45 days after the effectiveness of a certain registration statement and are exercisable to purchase an aggregate of 4,049,999 shares of common stock. The Series Z Warrants are ‘five-year’ warrants whose effectiveness are conditional upon the exercise of the holder’s Y warrants and are exercisable to purchase an aggregate of 8,100,001 shares of common stock. Pursuant to a Registration Rights Agreement described below, Investors also received the right to demand that the Company file one or more registration statements covering the securities into which the Series K Preferred Stock is convertible and as to which the Warrants are exercisable. As a condition to consummation of the offering, certain individuals’ converted outstanding debt in the original principal amount of $2,050,000 into 82 units of the Company’s Series K Preferred Stock and issued 6,833,334 Series Y warrants. Additionally, all subscribers to the Company’s 12% Original Issue Discount Notes sold in September and October 2010, whose then current balances on such Notes aggregated $2,079,171, were automatically converted into 83.16 units of the Company’s Series K Preferred Stock and were issued X, Y and Z warrants pari passu to the current unit investors (an aggregate of 6,930,571 Series X warrants, 6,930,571 Series Y warrants and 13,861,139 Series Z warrants).

On July 14, 2011, July 28, 2011 and July 29, 2011 we entered into Original Issue Discount Notes with lenders receiving amounts of $75,000, $50,000 and $25,000 respectively. These notes mature on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities.

On August 24, 2011, we recasted $606,381(principal plus accrued interest) in existing secured loans with 6 parties (entered into between June and July 2011) in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them. We determined that the conversion of the secured notes into the secured recast notes was more than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the three and nine months ended September 30, 2011.

On September 13-16, 2011, we borrowed aggregate gross proceeds of $250,000 from two investors and recast an existing unsecured loan from one investor. We issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested.

OnPART ~~September~~II ~~20,~~- ~~2011~~OTHER the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement included repayment of $307,563 of existing accounts payable and $ 443,000 in additional trade credit.INFORMATION

~~The~~ITEM ~~Company~~1 ~~further~~– ~~agreed~~LEGAL to segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers and an escrow agent for the purpose of establishing a segregated account controlled by the Escrow Agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermine percentage.PROCEEDINGS

InOn ~~connection~~December ~~with~~7, ~~this facility~~2009, ~~the~~we ~~Company also~~ received ~~consent~~a ~~from~~demand ~~Secured~~notice ~~Note~~for ~~holders~~payment tofor ~~consent~~$822,920 to (a)see ~~the~~Footnote ~~Company~~7, ~~entering~~Long ~~into~~Term ~~the~~Debt) ~~Escrow~~from ~~Agreement with~~ the ~~Escrow~~estate ~~Agent~~of ~~and~~a ~~the~~former ~~Suppliers~~owner ~~for the benefit~~ of ~~each~~Nutritional ~~Supplier~~Specialties, ~~and~~Inc. ~~(b)~~As ~~consent~~discussed toin ~~the~~Note ~~Company’s~~14 ~~segregation~~“Subsequent ofEvents” ~~proceeds~~on ~~from~~April ~~Customer~~9, ~~accounts~~2012 ~~receivable to~~ the ~~Escrow~~Company ~~Account~~completed ~~and~~the ~~waive~~sale ~~each~~its ~~such~~non-operating ~~Secured~~subsidiary ~~Note~~Nutritional ~~holder’s~~Specialties, ~~security~~Inc. ~~interest~~(NSI) into ~~and~~Deep ~~lien~~South onCapital, ~~all~~LLC ~~cash~~(DSCL). ~~proceeds~~As inpart ~~the~~of ~~Escrow~~a ~~Account~~security sopurchase ~~long~~agreement, asDSCL ~~the~~assumed ~~Escrow~~this ~~Agreement~~obligation and indemnified the ~~Escrow Account remains in place~~Company.

AsOn March 12, 2010, the Company was notified that it was named as a defendant in a lawsuit in the United States District Court, Eastern District of ~~September~~Texas, 30brought by Vitro Packaging de Mexico, ~~2011~~SA de CV, the assignee of a former supplier. Vitro Packaging alleged the Company’s owed unpaid accounts payable and sought approximately $345,000. The Company entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreed not to ~~those~~execute ~~Suppliers~~on ~~was~~an Agreed Final Judgment for $~~621~~245,~~905~~275 ofuntil after May 16, 2011, which the Company has not paid and is recorded as a current liability. On August 17, 2011, the judgment was recorded in the State of New Jersey. In October 2012, Management negotiated an agreement with Vitro whereby the Company would pay $~~460~~125,~~124~~000 ~~represented~~in ~~Purchase~~three ~~Order~~installments ~~Financing~~to settle all claims relating to the litigation. To date, no payments have been made under the agreement, however, Vitro and Company continue to discuss a beginning date for the installment payments.

OnIn ~~October~~December 182010, ~~2011,~~ the Company ~~borrowed $50,000 in exchange for 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company~~’s ~~assets~~Chief ~~and~~Operating anOfficer, ~~assignment~~William ofSipper, ~~the~~resigned ~~Company’s~~following ~~trademark~~an ~~with~~alleged ~~the~~incident USinvolving ~~Patent and Trademark Office and is convertible into common stock at~~ a ~~conversion~~prospective ~~price~~employee of ~~$0.05~~the ~~per share~~Company. ~~Additionally,~~The ~~such~~Company ~~lenders~~insurance ~~were~~carrier ~~granted~~settled anthis ~~additional~~matter 5in ~~shares~~March ~~of our common stock for each $1~~2012.~~00 of interest and principal due them.~~

On ~~November~~July 111, 2011, ~~the~~we ~~Company~~were ~~borrowed~~served ~~$50,000~~with ~~from~~ a ~~director~~complaint infrom ~~exchange~~Bett-A-Way ~~for~~Traffic ~~10%~~Systems, ~~Secured~~Inc. ~~Convertible~~demanding ~~Subordinated~~payment ~~Note~~of ~~which~~$90,928 ~~Notes~~in ~~were~~a ~~coupled~~accounts ~~with~~payable ~~common~~collection ~~stock~~matter.. ~~Each~~The ~~Secured~~parties ~~Note~~settled isthis ~~collateralized~~matter byon ~~all~~April of15, ~~the~~2012 ~~Company’s~~for ~~assets~~a ~~and~~combination ~~an assignment~~ of ~~the~~stock ~~Company’s~~and ~~trademark~~cash. ~~with~~The ~~the~~stock UScomponent ~~Patent~~has ~~and~~been ~~Trademark~~paid ~~Office~~ and isthe ~~convertible~~cash ~~into~~component ~~common~~remains ~~stock at a conversion price of $0~~open.05 At ~~per~~February ~~share. Additionally~~2012, ~~such~~the ~~lenders~~parties ~~were~~continue ~~granted~~to andiscuss ~~additional~~payment ~~5 shares~~ of ~~our~~the ~~common~~cash ~~stock for each $1~~component.~~00 of interest and principal due them.~~

On ~~November~~January 1412, ~~2011,~~2012 weKey ~~borrowed~~Equipment ~~aggregate~~filed ~~gross~~a ~~proceeds~~complaint demanding payment of $6081,~~000~~943 ~~from~~and ~~two~~on ~~existing~~August ~~investor~~29, in2012 ~~exchange~~a ~~for~~Final ~~10%~~Judgment ~~Secured~~was ~~Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock~~attained. ~~Each~~ In ~~Secured~~November ~~Note~~2012, ~~is collateralized by all of~~ the ~~Company’s~~parties ~~assets~~agreed ~~and~~to ana ~~assignment~~Stipulation of ~~the~~Settlement ~~Company’s~~for ~~trademark~~$65,000 ~~with~~requiring ~~the~~an USinitial ~~Patent~~payment ~~and~~of ~~Trademark~~$5,000 ~~Office~~ and issubsequent ~~convertible~~monthly ~~into~~payments ~~common stock at a conversion price~~ of $~~0.05~~1,666 ~~per~~until ~~share~~fully retired. To ~~Additionally~~date, ~~such~~the ~~lenders~~Company ~~were~~has ~~granted~~not anbegun ~~additional~~the 5payments ~~shares~~as ofrequired ~~our~~under ~~common~~the ~~stock for each $1~~Stipulation.~~00 of interest and principal due them.~~

On ~~December~~February 14, ~~2011~~2012, we ~~borrowed~~ ~~$175,000 from one investor in exchange for a 10% Secured Convertible Subordinated Note (“Secured Note”) which Note~~ were ~~coupled~~served with ~~common~~a ~~stock. Each~~complaint ~~Secured Note is collateralized~~ by ~~all~~Hartford ofMeir, ~~the~~Inc ~~Company’s~~demanding ~~assets~~payment ~~and an assignment~~ of ~~the~~$160,009 ~~Company’s~~in ~~trademark~~a ~~with~~collection ~~the~~matter USregarding ~~Patent and Trademark Office and is convertible into common stock at~~ a ~~conversion~~trade ~~price~~receivable ofconveyed ~~$0.05~~to ~~per~~them ~~share.~~by ~~Additionally,~~Mode ~~such~~Transportation ~~lender~~(with ~~was~~whom ~~granted~~the anCompany ~~additional~~originally 5incurred ~~shares~~the ~~of our common stock for each $1~~debt).00 ofWe ~~interest~~have ~~and~~accrued ~~principal due them. Additionally,~~ for ~~arranging~~ this ~~facility~~payment ~~which~~of ~~will total~~ $~~330~~136,~~000~~920 anas ~~assignee~~ of ~~the~~December ~~Lender~~31, ~~was~~2011 ~~granted~~as apart ~~Revenue~~of ~~Participation~~accounts ~~Agreement~~payable. ~~This~~The ~~agreement~~Company ~~grants~~reached ~~the lender~~ a ~~revenue~~settlement ~~participation~~agreement ofwith 2%this ofcreditor ~~the~~which ~~Company’s~~was ~~annual~~completed ~~net~~upon ~~sales~~on ofJuly ~~the~~18, ~~first~~2012. The $2case ~~million~~has ~~and~~been ~~3% of any net sales in excess of the first $2 million in annual net sales~~dismissed.

On July 17, 2012, former CEO Eric Skae served a notice of default on the Settlement and Mutual Release Agreement and the Consulting Agreement signed on February 15, 2012.

Except as described above, we are not a party to any other legal proceeding that we believe would have a material adverse effect on our business, results of operations or financial condition. We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will or will not have a material effect on our operations or liquidity. Other than as set forth above, we are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or liquidity.

ITEM 1A – RISK FACTORS

There have been no material changes from the risk factors as previously disclosed under 1A of our annual report on Form 10-K for the fiscal year ended December 31, 2011.

OnITEM ~~December~~2 ~~22,~~– ~~2011,~~UNREGISTERED weSALES ~~borrowed~~OF ~~aggregate~~EQUITY ~~gross~~SECURITIES ~~proceeds~~AND ofUSE ~~$155,000~~OF from one investor in exchange for a 10% Secured Convertible Subordinated Note (“Secured Note”) which Note were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. This loan triggered the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.PROCEEDS

~~With~~On ~~respect~~January to28, ~~the issuance of our securities and notes as described above~~2010, we ~~relied~~agreed onwith ~~the~~certain ~~Section~~vendors ~~4(2)~~and ~~exemption~~converted ~~from~~their ~~securities~~trade ~~registration~~payable ~~under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed~~ in ~~offering~~ the ~~securities.~~amount ~~The securities were sold to accredited investors. The securities were offered for investment purposes only and not for the purpose~~ of ~~resale~~$85,000 orinto ~~distribution~~170,000 ~~and~~shares ~~the~~of ~~transfer~~our ~~thereof~~common ~~were appropriately restricted by us~~stock.

~~ITEM~~On 3February -22, ~~DEFAULTS~~2010, ~~UPON~~we ~~SENIOR~~closed ~~SECURITIES~~a private placement of common stock and warrants with certain accredited investors. Pursuant to the private placement, we sold an aggregate of 1,988,889 (1,222,219 shares was issued in 2009) shares of our common stock, plus warrants to purchase 1,057,727 (649,999 warrants was issued in 2009) shares of our common stock at an exercise price of $0.55 per share, subject to adjustment. Gross proceeds from the private placement were approximately $895,000 ($550,000 was received in 2009).

WeIn ~~are~~February 2010, we issued a side letter to investors in ~~negotiation~~the ~~with~~private ~~certain~~placements ~~former~~which ~~shareholders~~had closed in December 2009 and February 2010 effectively amending the terms of ~~Nutritional~~the ~~Specialties~~private placements to grant a price protection clause through April 30, ~~Inc~~2010. The ~~value~~price ofprotection ~~these~~clause ~~notes~~required asus ofto ~~September~~issue 30additional common stock and warrants to these investors, ~~2011~~based upon a formula contained in the ~~aggregate~~side ~~amount~~letter, ofin ~~$822,920.~~the Asevent ofthat ~~September~~common ~~30,~~stock ~~2011,~~was weissued ~~are~~during inthe ~~default~~price ~~and~~protection ~~therefore~~period ~~this~~at ~~amount~~an iseffective ~~reflected~~price asless ~~currently~~than ~~due~~the purchase price paid by such investors, subject to certain exceptions.

~~ITEM~~The 5commencement of the private placement in April 6, 2010 triggered the price protection clause contained in the side letter which we issued to certain investors on February 16, 2010. Accordingly, we issued such investors 568,253 shares of common stock and warrants to purchase 1,499,410 shares of common stock at an exercise price of $0.45 per share. The warrants are fully vested, with a five year term and provide their holders with certain anti-dilution ~~OTHER~~and ~~INFORMATION~~cashless exercise provisions.

~~Item~~On February 22, 2010, we agreed to issue for services rendered (fair value of $1,106,225), 3,000,000 shares of common stock, which consist of 2,557,500 shares issued on February 24, 2010 and the remaining 422,500 shares were to be issued on May 22, 2010.01 ~~Entry~~Prior ~~into~~to aissuance ~~Material~~of ~~Definitive~~the ~~Agreement~~remaining shares on May 22, 2010 the contract was rescinded.

~~ITEM~~In 6January -and ~~EXHIBITS~~February 2010, we agreed with certain vendors to convert their trade payables in the amount of $78,781 into 270,923 shares of our common stock. Also on February 24, 2010, we agreed to issue for services rendered (fair value of $54,830), a warrant for 150,000 shares of our common stock with a exercise price of $0.49 per share and an expiration date of March 2015.

3.1	Articles of Incorporation, as amended (included as Exhibit 3.1 to the Form 10-KSB filed April 18, 1996, and incorporated herein by reference).
3.2	By-Laws, dated February 14, 1988 (included as Exhibit 3 to the Form S-1 filed January 27, 1987, and incorporated herein by reference).

On April 6, 2010, we commenced a private placement of common stock and warrants with certain accredited investors. Pursuant to the private placement, we agreed to issue an aggregate of 1,821,414 shares of common stock and warrants to purchase 1,821,414 shares of common stock at an exercise price of $0.45 per share for net proceeds of $637,500. The warrants issued in connection with the private placement are fully vested, have a five year term and provide their holders with certain anti-dilution and cashless exercise provisions.

3.3	Amendment to Articles of Incorporation, dated December 6, 2007, and effective on December 18, 2007 (included as Exhibit 3.1 to the Form 8-K filed December 26, 2007, and incorporated herein by reference).
3.4	Amendment to Articles of Incorporation, effective October 16, 2009 (included as Exhibit 3.1 to the Form 8-K filed October 14, 2009, and incorporated herein by reference).

On May 28, 2010, we issued a side letter to investors in the private placement which commenced in April 2010 which effectively amended the terms of the private placement to contain a price protection clause through August 31, 2010. The price protection clause requires us to issue additional common stock to these investors, based upon a formula contained in the side letter, in the event that common stock is issued during the price protection period at an effective price less than the purchase price paid by such investors, subject to certain exceptions.

4.1	Specimen Common Stock Certificate, dated July 9, 1993 (included as Exhibit 1 to the Form 8-A filed July 2, 1993, and incorporated herein by reference).
4.2	Certificates of Designation for Class A, Class B and Class C Preferred Shares (included as Exhibit 4.3 to the Form 10-QSB filed August 11, 1997, and incorporated herein by reference).

In August 2010, we issued a side letter to investors in the private placement which commenced on April 6, 2010 which effectively amended the terms of the private placement to extend the price protection clause provided to such investors in a side letter issued to them in May 2010 through September 25, 2010. The price protection clause required us to issue additional common stock to these investors, based upon a formula contained in the side letter, in the event that common stock or common stock equivalents were issued during the price protection period at an effective price less than the purchase price paid by such investors, subject to certain exceptions.

4.3	Certificate of Designation of Preferences and Rights of Series H Preferred Stock, dated December 21, 2005 (included as Exhibit 4.1 to the Form 8-K filed January 3, 2006, and incorporated herein by reference).
4.4	Certificate of Designation of Series I 8% Cumulative Convertible Preferred Stock, dated March 30, 2007 (included as Exhibit 4.X to the Form 8-K filed April 11, 2007, and incorporated herein by reference).

The commencement of the October 8, 2010 promissory note issuance (see below) triggered the price protection clause contained in the side letter which we issued to certain investors on August 26, 2010. Accordingly we issued such investors 728,586 shares of common stock.

4.5	Form of Common Stock Purchase Warrant between the Company and investors in the 2007 Private Placement, dated March 30, 2007 (included as Exhibit 4.iii to the Form 8-K filed on April 11, 2007, and incorporated herein by reference).
4.6	Common Stock Purchase Warrants between the Company and O. Lee Tawes and John Talty, dated March 30, 2007 (included as Exhibit 4.v to the Form 8-K filed on April 11, 2007, and incorporated herein by reference).

In April 2010, the holders of $212,500 of notes agreed to convert the outstanding note balance into 531,250 shares of common stock in exchange for us agreeing to pay all unpaid interest which had accrued on the notes.

4.7	Common Stock Purchase Warrant between the Company and JSH Partners, dated March 30, 2007 (included as Exhibit 4.vii to the Form 8-K filed on April 11, 2007, and incorporated herein by reference).
4.8	Common Stock Purchase Warrants between the Company and Thomas Pinkowski, Charles Ung and M. Amirul Karim, dated March 30, 2007 (included as Exhibit 4.ix to the Form 8-K filed on April 11, 2007, and incorporated herein by reference).

4.9	Form of Common Stock Purchase Warrant between the Company and Northeast Securities, Inc., dated March 30, 2007 (included as Exhibit 4.23 to the Form SB-2/A filed on October 12, 2007, and incorporated herein by reference).
4.10	Common Stock Purchase Warrant between the Company and Ira. J. Gaines, dated June 28, 2006 (included as Exhibit 4.25 to the Form SB-2/A filed on October 12, 2007, and incorporated herein by reference).

4.11	Letter Agreement by and between the Company and Northeast Securities, Inc., dated September 7, 2006 (included as Exhibit 4.26 to the Form SB-2/A filed on October 12, 2007, and incorporated herein by reference).
4.12	Letter Agreement by and between the Company and Northeast Securities, Inc., dated March 12, 2007 (included as Exhibit 4.27 to the Form SB-2/A filed on October 12, 2007, and incorporated herein by reference).
4.13	Letter Agreement by and between the Company and Northeast Securities, Inc., dated August 21, 2006 (included as Exhibit 4.28 to the Form SB-2/A filed on October 12, 2007, and incorporated herein by reference).
4.14	Common Stock Purchase Warrant between the Company and Ira J. Gaines, dated April 5, 2005 (included as Exhibit 4.30 to the Form SB-2/A filed October 12, 2007, and incorporated herein by reference).
4.15	Certificate of Designation of Series J 6% Redeemable Convertible Preferred Stock, dated December 22, 2008 (included as Exhibit 4.1 to the Form 8-K filed December 23, 2008, and incorporated herein by reference).
4.16	Baywood International, Inc. 2008 Stock Option and Incentive Plan, dated May 14, 2008 (included as Exhibit 4.1 to the Registration Statement on Form S-8 filed June 27, 2008, and incorporated herein by reference).
4.17	Common Stock Purchase Warrant between the Company and Eric Skae, dated March 20, 2009 (included as Exhibit 4.1 to the Form 8-K filed March 24, 2009, and incorporated herein by reference).

In May 2010, we issued 360,000 shares of common stock to the holders of $1,500,000 of notes in exchange for extending the maturity date to June 2010. In June 2010, we issued 4,500,000 shares of common stock to the same holders in exchange for further extending the maturity date to September 2010. In August 2010, the holders agreed to extend the term of these notes to December 24, 2010. In October 2010, the holders agreed to extend the maturity date to January 12, 2011. On January 21, 2011 theses notes were converted into 60 shares of our Preferred Series K shares and Series Y warrants to purchase 5,000,000 shares of common stock at a strike price of $0.15.

4.18	Form of Common Stock Purchase Warrant, dated September 5, 2008 (included as Exhibit 10.2 to the Form 8-K filed September 11, 2008, and incorporated herein by reference).
4.19	Common Stock Purchase Warrant between the Company and O. Lee Tawes, III, dated February 4, 2008 (included as Exhibit 4.29 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).

In September 2010, we consummated a private placement of promissory notes with a face value of $1,782,955 and detachable warrants to purchase 2,139,546 shares of common stock to accredited investors, excluding related parties which are described later in Note 6, pursuant to a private placement memorandum. The promissory notes were issued at an original issuance discount of $213,955, did not have a stated interest rate and matured on the three month anniversary of their issuance date in December 2010 or January 2011. In addition, the notes are automatically convertible upon the consummation of a qualified offering, as defined, into the type of securities issued in such offering at a conversion price equivalent to the price of the securities sold. The warrants are fully vested and provide its holder with the right to purchase the specified number of shares of common stock at an exercise price of $0.25 per share during its five year term. The warrants also provide its holders with certain anti-dilution and cashless exercise provisions. The terms of the offering also provide investors with a reset feature which gives them the right, for as long as the notes are outstanding, to exchange the promissory notes for securities issued in a subsequent offering in the event that the Company enters into any subsequent transaction other than the qualified offering, as defined, on terms more favorable than those governing the current offering.

4.20	Common Stock Purchase Warrant between the Company and O. Lee Tawes, III, dated February 19, 2008 (included as Exhibit 4.30 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).
4.21	Form of Subscription Agreement (included as Exhibit 4.31 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).

As a result of the private placement of promissory notes and warrants we issued to the placement agent 266,760 warrants that are fully vested and provide its holder with the right to purchase the specified number of shares of common stock at an exercise price of $0.25 per share during its five year term. The warrants also provide its holder with certain anti-dilution and cashless exercise provisions.

4.22	Form of Warrant (included as Exhibit 4.32 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).
4.23	Common Stock Purchase Warrant between the Company and O. Lee Tawes, dated July 14, 2008 (included as Exhibit 4.33 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).

On January 12, 2011 our note holders agreed to extend the maturity date of such notes to January 17, 2011.

4.24	Common Stock Purchase Warrant between the Company and Eric Skae, dated October 23, 2008 (included as Exhibit 4.34 to the Form 10-Q filed May 20, 2009, and incorporated herein by reference).
4.25	Certificate of Designation of Series K 10% Cumulative Convertible Preferred Stock, dated January 21, 2011 (included as Exhibit 4.5 to the Form 8-K filed January 26, 2011, and incorporated herein by reference).

On January 14, 2011 the Company received consent from all its September OID note holders to:

10.17	Asset Purchase Agreement by and among the Company, Nutritional Specialties, Inc., and Nutra, Inc., dated July 24, 2009 (included as Exhibit 10.1 to the Form 8-K filed July 30, 2009, and incorporated herein by reference).
1.	Lower the amount of a “Qualified Offering” to $1,200,000.”
10.18	Settlement Agreement and Mutual Release between Farmatek IC VE DIS TIC, LTD. STI and Oskiyan Hamdemir on the one hand and the Company and Nutritional Specialties, Inc. on the other hand, dated June 12, 2009 (included as Exhibit 10.45 to the Form 10-Q filed August 19, 2009, and incorporated herein by reference).
2.	Extend the “Maturity Date” to “January 21, 2011.”

10.19	Assignment of Lease between Nutritional Specialties, Inc. and Boyd Business Center of Orange, dated October 9, 2009 (included as Exhibit 10.1 to the Form 8-K filed October 14, 2009, and incorporated herein by reference).
10.20	Non-interest bearing subordinated note issued by the Company to Eric Skae, dated April 1, 2010 ( included as Exhibit 10.20 to the Form 10-Q filed May 17, 2010, and incorporated herein by reference ).

3.	Waive the full ratchet anti-dilution protection on their Warrant

On January 21, 2011, the Company completed a unit offering of an aggregate of $1,215,000 of its Series K 10% Convertible Preferred Stock (“Series K Preferred Stock”) and three series (Series X, Y and Z) of common stock purchase warrants (“Warrants”) to 11 accredited investors. Each unit sold consisted of one share of $25,000 stated value (and liquidation preference) of Series K Preferred Stock and Warrants to purchase up to an aggregate of 333,333 shares of common stock at $0.15 per share, subject to adjustment. A total of 48.6 units were sold. The Series X Warrants are 5 year warrants, exercisable immediately to purchase an aggregate of 4,049,999 shares of common stock. The Series Y Warrants are exercisable until 45 days after the effectiveness of a certain registration statement that the Company is obliged to file (see below) and are exercisable to purchase an aggregate of 4,049,999 shares of common stock. The Series Z Warrants are five year warrants whose effectiveness is conditional upon the exercise of the holder’s Y warrants and are exercisable to purchase an aggregate of 8,100,001 shares of common stock. Pursuant to a Registration Rights Agreement described below, investors also received the right to demand that the Company file one or more registration statements covering the securities into which the Series K Preferred Stock is convertible and as to which the Warrants are exercisable as further described below. The offering was made under Rule 506 under the Securities Act of 1933, as amended, and was made exclusively to “accredited investors”. As a condition to consummation of the offering, certain individuals converted outstanding debt in the original principal amount of $2,050,000 into the Company’s Series K Preferred Stock. Additionally, all subscribers to the Company’s 12% Original Issue Discount Notes sold in September and October 2010, whose then current balances on such Notes aggregated $2,081,176, were automatically converted into 83.16 shares of the Company’s Series K Preferred Stock and were issued X, Y and Z warrants pari passu to the current unit investors (an aggregate of 6,930,571 Series X warrants, 6,930,571 Series Y warrants and 13,861,139 Series Z warrants).

Additionally, in conjunction with the closing of the Preferred K Offering on January 21, 2011:

1.	Lorraine DiPaolo agreed to convert her $1,500,000 in secured debt into 60 Series Preferred shares plus 5,000,000 Series Y common stock Warrants.
2.	O. Lee Tawes agreed to convert his $500,000 in unsecured debt into 20 Series K Preferred Shares plus 1,666,667 Series Y common stock Warrants

3.	Eric Skae agreed to convert his $50,000 in unsecured debt into 2 Series K Preferred Shares plus 166,667 of Series Y common stock Warrants
4.	Eric Skae agreed to amend his current Earn Out Agreement, by waiving the earn-out of $325,000 earned in 2010 and extending the earn-out for through 2012 to waive certain sums due him and extend the term of the earn-out.

10.21	10% Subordinated note issued by the Company to O. Lee Tawes, dated April 30, 2010 (included as Exhibit 10.21 to the Form 10-Q filed May 17, 2010, and incorporated herein by reference ).
10.22	Employment agreement between the Company and David Tsiang, dated May 11, 2010 (included as Exhibit 10.22 to the Form 10-Q filed May 17, 2010, and incorporated herein by reference ).

On February 8, 2011, we agreed to issue for investor relation services rendered 1,000,000 common shares. The initial aggregate value of these shares was valued at the closing market price on February 8, 2011 of $0.14 per share.

10.23	Purchase Order and Working Capital Financing Agreement, by and among the Company, John Tally, O. Lee Tawes, Lorraine DiPaolo and Jack Harris (incorporated herein by reference).
10.24	Form Of Secured Convertible Subordinated Note
10.25	Form Of Purchase Money Security Interest Note
10.26	Form of Revenue Participation Agreement
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).

On April 29, 2011:

31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).
32.1		Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).

We received majority consent to:

Amend the Certificate of Designation for the Company’s Series K Preferred Stock (the “Certificate of Designation”)

●	to eliminate the full ratchet anti-dilution provision contained in Section 6(a)(ii) thereof, “Subsequent Equity Sales,”
●	to add a clause to paragraph (f) of Section 9 thereof permitting an asset-based credit line or factoring agreement pursuant to which the Company may obtain loans in an amount of up to $1.5 million, under certain conditions; and

Amend the Registration Rights Agreement, dated as of January 21, 2011, between the Company and each of the parties thereto to eliminate Section 2(b) to remove the liquidated damages provisions from the agreement.

On April 29, 2011, we closed a private placement of common stock with certain accredited investors. We sold an aggregate of 6,866,667 shares of our common stock. Gross proceeds from the private placement were approximately $515,000.

Also on April 29, 2011, we closed an offer to existing Series K Preferred stockholders to convert their Series K Preferred shares into common stock at a lowered price based upon a formula of 112% of original investment/ $0.10. Of the original 217.77 Series K Preferred Shares, investors owning 187.61 Series K Preferred Shares converted them into 52,531,893 shares of common stock.

Also on April 29, 2011, we closed an offer to existing X, Y and Z Warrant holders to exercise their warrants into common stock at a reduced price of 0.075 per share. 6,666,665 X, Y and Z Warrants were exercised in the process and one warrant holder also voluntarily surrendered 6,400,000 Warrants on the same date.

On July 14, 2011, July 28, 2011 and July 29, 2011 we issued Original Issue Discount Notes with lenders who lent $75,000, $50,000 and $25,000 respectively. These notes mature on January 14, 2012 at $170,458 and are secured by all of the Company assets, subject to subordinations of certain assets to present and future factoring facilities.

On August 24, 2011, the Company recast $570,281 (principal plus accrued interest) in existing secured loans with six parties (entered into between June and July 2011), one of whom is a director of the Company for $120,517, and another who is a principal shareholder for $298,227, in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them totaling 2,881,405 common shares. The Company determined that the conversion of the secured notes into the secured recast notes was greater than the carrying value of the obligation on the date of the conversion and recorded a loss on extinguishment of debt of $144,392 for the year ended December 31, 2011

Between September 13-16, 2011, we borrowed aggregate gross proceeds of $250,000 from two investors and recast an existing unsecured loan from one investor. We issued to these investors the same 10% Secured Convertible Subordinated Notes we had issued to the lenders reported in the above paragraph. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such investors received an additional 5 shares of our common stock for each $1.00 invested totaling 1,400,500 common shares (625,000 included in shares issuable).

On September 20, 2011 the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade credit to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement included repayment of $307,563 of existing accounts payable and $443,000 in additional trade credit.

The Company further agreed to segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers and an escrow agent for the purpose of establishing a segregated account controlled by the Escrow Agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermined percentage. In connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place. As of December 31, 2011 the Company’s accounts payable to those Suppliers was $460,490 of which $306,037 represented Purchase Order Financing.

On October 18, 2011, the Company borrowed $50,000 in exchange for 10% Secured Convertible Subordinated Notes which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 1, 2011, the Company borrowed $50,000 from a director in exchange for 10% Secured Convertible Subordinated Note which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On November 14, 2011, we borrowed aggregate gross proceeds of $60,000 from two existing investor in exchange for 10% Secured Convertible Subordinated Notes (“Secured Notes”) which Notes were coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into common stock at a conversion price of $0.05 per share. Additionally, such lenders were granted an additional 5 shares of our common stock for each $1.00 of interest and principal due them.

On December 1, 2011, we borrowed $175,000 from one investor in exchange for a 10% Secured Convertible Subordinated Note (“Secured Note”) which Note was coupled with common stock. The Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into 875,000 restricted common shares at a conversion price of $0.01 per share. Additionally, such lender was granted an additional 5 shares of our common stock for each $1.00 of interest and principal due him. Additionally, for arranging this facility total $330,000 an assignee of the Lender was granted a Revenue Participation Agreement. This agreement grants the lender a revenue participation of 2% of the Company’s annual net sales of the first $2 million and 3% of any net sales in excess of the first $2 million in annual net sales.

On December 23rd, 2011 the Company received the required consent to:

● Amend the Certificate of Designation of the Corporation for the Series K Preferred Stock (the “Certificate of Designation”) to eliminate paragraph (f) of Section 9 of the Certificate of Designation, “Protective Provisions,” which limits the Company’s ability to enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, other than “Permitted Indebtedness”

● Amend the Security Purchase Agreement for the Series K Preferred Stock (the “Security Purchase Agreement”) to eliminate paragraph 8.2 “Subsequent Equity Sales,” in its entirety and eliminate paragraph 8.3 “Participation in Future Financing,” in its entirety;

In consideration for same, the Company agreed to reduce the conversion price of its Series K Preferred to 3 cents per share and to exchange every 5 Warrants (of the X, Y and Z Series) into 1 share of common stock.

On December 22, 2011, we borrowed aggregate gross proceeds of $155,000 from one investor in exchange for a 10% Secured Convertible Subordinated Note (“Secured Note”) which Note was coupled with common stock. Each Secured Note is collateralized by all of the Company’s assets and an assignment of the Company’s trademark with the US Patent and Trademark Office and is convertible into 775,000 restricted common shares at a conversion price of $0.01 per share. This loan triggered the Revenue Participation Agreement that was referenced in the discussion of the December 1, 2011 Secured Note.

Between February 15, 2012 and March 2, 2012, the Company received proceeds of $250,000 from four investors in exchange for 8% 18 month Unsecured Convertible Notes (“Unsecured Note”), which Notes were coupled with warrants. Each Unsecured Note is convertible thirteen months after their respective issuance dates into common stock at a conversion price equal to the greater of (i) the Variable Conversion Price of 50% of the Market Price and (ii) the Fixed Conversion Price of $0.01. The investors also received 25,000,000 5 year warrants at a strike price of $0.03 per share. In addition the investors received the right to invest in new notes on the same basis as provided.

On March 2, 2012 the Company entered into a public relations agreement with a consultant. In addition to the cash compensation of $7,000 paid, the party was also granted 1,000,000 restricted shares of common stock.

On March 7, 2012 the Company commenced a warrant reset and exercise offer to eligible holders of its outstanding warrants, pursuant to which all issued and outstanding warrants to purchase common stock of the Company issued, irrespective of current exercise price or expiration date, may, in each holder’s sole discretion, be exercised at $0.03 per share during the offer period. Approximately 15 investors elected to exercise their warrants for which the Company received proceeds of $400,147 and issued 13,338,225 shares of common stock.

Additionally, for arranging this facility which totaled $330,000 the assignee of the Lender was granted a Revenue Participation Agreement. This agreement granted the lender a revenue participation of 2% of the Company’s annual net sales of the first $2 million and 3% of any net sales in excess of the first $2 million in annual net sales. On March 22, 2012 the Company and the assignee of the lender agreed to terminate the Revenue Participation Agreement.

Between February 14, 2012 and March 30, 2012 the Company settled approximately $1.7 million in 105 vendor claims against the Company for approximately $333,454 in cash and $467,567 in common stock to be issued at a later date.

On March 30, 2012 the Company granted approximately 7,000,000 shares of common stock to six key distribution partners as inducement for their continued support and 17,606,556 shares of common stock to 35 vendors to settle certain outstanding claims.

On March 30, 2012 the Company granted certain contract employees and consultants 9,000,000 shares of common stock in New Leaf Brands, Inc and warrants to purchase 3,750,000 shares of common stock at $0.03 per share

On May 4, 2012 the Company commenced a warrant reset and exercise offer to eligible holders of its outstanding warrants, pursuant to which all issued and outstanding warrants to purchase common stock of the Corporation issued, irrespective of current exercise price or expiration date, may, in each holder’s sole discretion, be exercised at $0.03 per share during the offer period. Approximately 7 investors elected to exercise their warrants for which the Company received $117,471 and issued 3,915,687 shares of common stock

With respect to the issuance of our securities as described above, we relied on Section 4(2) exemption from securities registration under the federal securities laws for transactions not involving any public offering. No advertising or general solicitation was employed in offering the securities and the securities were sold to accredited investors. The securities were offered for investment purposes only and not for the purpose of resale or distribution and the transfer thereof was restricted by us.

ITEM 3 – DEFAULTS UPON SENIOR SECURITIES

We are in negotiation with certain former shareholders of Nutritional Specialties, Inc. The value of these notes as of March 31, 2012 in the aggregate amount of $822,920. As of March 31, 2012, we are in default and therefore this amount is reflected as currently due.

On April 9, 2012, the Company completed the sale of its non-operating subsidiary of Nutritional Specialties, Inc. (NSI) to Deep South Capital, LLC (DSCL). The accompanying consolidated financial statements have been reclassified for all prior periods presented to report the net assets and liabilities of this subsidiary.

ITEM 5 – OTHER INFORMATION

Item 1.01 Entry into a Material Definitive Agreement.

ITEM 6 – EXHIBITS

None

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.

	NEW LEAF BRANDS, INC.
Date: January 3, 2012	By:	/s/ Eric Skae
Date: February 5, 2013	By:	/s/ David Fuselier
		Eric Skae
		David N. Fuselier
		Chairman of the Board, President, and
		Chief Executive Officer
		(Principal Executive Officer)
Date: February 5, 2013	By:	/s/ David Fuselier
Date: January 3, 2012	By:	/s/ Eric Skae
		David N. Fuselier
		Eric Skae
		Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

4043

Filing Compare · New Leaf Brands, Inc.