10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Mark One) 

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

For the quarterly period ended: September 30, 2011

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

For the transition period from N/A to N/A 

Commission file number: 000-23446 

SUGARMADE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	94-3008888
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2280 Lincoln Avenue, Suite 200, San Jose CA	95125
(Address and of principal executive offices)	(Zip Code)

888-747-6233

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Exchange Act:

Common Stock, par value $0.001 per share

(Title of class)

Securities registered pursuant to Section 12 (g) of the Exchange Act:

None

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

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

Indicate by check mark whether 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 (Do not check if a smaller reporting company)

Smaller reporting company x

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

At November 14, 2011 there were 10,256,000 shares outstanding of the issuer’s common stock (registered shares trading under the symbol SGMD), the only class of common equity.

Transitional Small Business Disclosure Format (Check one):  Yes  o   No  x

This amended filing of our Company’s Quarterly Report for the three months ended September 30, 2011 is made for the sole purpose of including the newly required (with this Quarterly Report’s) Interactive Data that was previously omitted from the Quarterly Report for the same period filed on November 14, 2011.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Sugarmade, Inc., a Delaware corporation

By: /s/ SCOTT LANTZ

Scott Lantz, President, Chief Executive Officer, Chief Financial Officer and Director

November 30, 2011

EX-31

Exhibit 31 CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A)

SUGARMADE, INC.

CERTIFICATION PURSUANT TO RULE 13A-14(a) OR 15D-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Scott Lantz, certify that:

1.

I have reviewed this report on Form 10-Q of Sugarmade, Inc.;

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

i)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

ii)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

iii)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

iv)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to affect, the registrant’s internal control over financial reporting; and

5.

I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the registrant’s board of directors (or persons performing the equivalent functions):

i)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

ii)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 30, 2011

/s/ Scott Lantz

Scott Lantz

Chief Executive Officer and principal financial officer

EX-32

Exhibit 32

SUGARMADE, INC.

In connection with this Quarterly Report of Sugarmade, Inc. (the “Company”) on Form 10-Q for the period ending September 30, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Lantz, Chief Executive Officer and principal financial officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 30, 2011	/s/ Scott Lantz
	Scott Lantz
	Chief Executive Officer and principal financial officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Income taxes

3 Months Ended

Sep. 30, 2011

Income taxes [Abstract]

Income taxes

4.

Income taxes

Our provisions for income taxes for the three months ended September 30, 2011 and 2010, respectively, were as follows (using our blended effective Federal and State income tax rate of 40.3%):

	2011		2010
Current Tax Provision:
Federal and state
Taxable income	$	-	$	-
Total current tax provision	$	-	$	-
Deferred Tax Provision:
Federal and state
Net loss carryforwards	$	(730,000)	$	(100,000)
Change in valuation allowance		730,000		100,000
Total deferred tax provision	$	-	$	-

We had deferred income tax assets as of September 30, 2011 as follows:

Loss carryforwards	$	1,600,000
Less - valuation allowance		(1,600,000)
Total net deferred tax assets	$	-

As of September 30, 2011, we had net operating loss carryforwards for income tax reporting purposes of approximately $4,000,000 for federal and California state income tax that may be offset against future taxable income.  The net operating loss carryforwards begin to expire in 2024 but because current tax laws limit the amount of loss available to be offset against future taxable income when a substantial change in ownership occurs.  We estimate that our reverse merger in combination with other equity transactions will cause our net operating loss carryforwards to be severely or nearly entirely eliminated.  Accordingly, the potential tax benefits of the loss carryforwards for financial reporting purposes are offset entirely by a valuation allowance of an equivalent amount.  The items accounting for the difference between income taxes computed at the federal statutory rate and the provision for income taxes were as follows:

	2011	2010
Federal statutory rate	34.0%	34.0%
State tax, net of federal benefits	6.3%	6.3%
Less valuation allowance	(40.3%)	(40.3%)
Effective income tax rate	- %	- %

We performed an analysis of our previous tax filings and determined that there were no positions taken that we consider uncertain and therefore, there were no unrecognized tax benefits as of September 30, 2011.  Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance.  We estimate that the unrecognized tax benefit will not change within the next twelve months.  We will classify income tax penalties and interest, if any, as part of interest and other expenses in our statements of operations (we have incurred no interest or penalties through September 30, 2011).  Our wholly owned subsidiary Sugarmade-CA has a tax year-end ending December 31^st.  We have open tax years for federal and state income tax returns from 2008 through 2011.  Due to our significant net operating loss carryforwards, even if certain of our tax positions were disallowed, we do not believe we will be liable for the payment of taxes in the near future.  Consequently, we did not calculate the impact of interest or penalties on amounts that might be disallowed.

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Stockholders' equity

3 Months Ended

Sep. 30, 2011

Stockholders' equity [Abstract]

Stockholders' equity

3.

Stockholders' equity

Issuance of common stock for services

In May 2011, we issued 500,000 shares of common stock to an individual as consideration for general consulting services.  We recorded a prepaid stock compensation in connection with this stock grant totaling $400,000 based on the estimated value of the underlying shares of stock at the time of issuance.  The grant vests evenly on a monthly basis over two years through May 2013.  The prepaid stock compensation from the grant is charged to operations over the vesting period on each vesting date through May 2013 at the fair market value of the vesting shares.  Prepaid stock compensation is amortized evenly over the vesting period of the grant with the difference being recorded as additional paid-in capital.  During the three months ended September 30, 2011, we recorded a noncash charge totaling $301,000 in connection with this stock issuance which is included in selling, general and administrative expense in the accompanying statement of operations.  

Stock options

On April 27, 2011, the Company's Board of Directors approved the adoption of the 2011 Stock Option/Stock Issuance Plan (the "2011 Plan") and reserved 1,500,000 shares of common stock for issuance under the 2011 Plan.  The 2011 Plan provides for the issuance of both non-qualified stock options and incentive stock options ("ISOs"), and permitted grants to employees, non-employee directors and

consultants of the Company.   Generally, stock option grants under this plan will vest over a period of four years and have a term not to exceed 10 years, although the Plan Administrator has the discretion to issue option grants with varying terms and vesting periods.   

Through September 30, 2011, we have a total of 920,000 incentive and nonqualified stock options granted and outstanding under the Plan. All of our outstanding options have terms of between five and ten years.  During the three months ended September 30, 2011, we recognized share based compensation expense totaling $6,784 related to stock options granted through that date.   

Consulting and advisory warrants

During the three months ended September 30, 2011, our Company issued warrants to purchase up to a total of 12,500 shares of our common stock to an individual providing consulting and advisory services.  During the three months ended September 30, 2011, we recognized share based compensation expense totaling $52,816 related to all warrants granted through that date.  

Other outstanding warrants

We have 2,185,600 outstanding warrants issued in connection with the sale of our common stock during the year ended June 30, 2011.  

Outstanding warrants from all sources have terms ranging from two to five years with certain of the warrants carrying registration rights.  The number of shares of common stock subject to exercise and the exercise price of all options and warrants outstanding at September 30, 2011 is as follows:  

Shares Outstanding	Weighted Average Exercise Price	Shares Vested	Expiration Fiscal Period
2,805,600	$1.45	2,805,600	4th Qtr, 2013
200,000	1.25	200,000	4th Qtr, 2014
12,500	2.00	12,500	1st Qtr, 2015
30,000	1.25	30,000	4th Qtr, 2016
1,079,000	1.25	406,430	4th Qtr, 2021
4,127,100		3,454,530

Stock based compensation

Results of operations for the three months ended September 30, 2011 include share based compensation costs totaling $59,600 charged to selling, general and administrative expenses.  For purposes of accounting for stock based compensation, the fair value of each option and warrant award is estimated on the date of grant using the Black-Scholes-Merton option pricing formula.  The following weighted average assumptions were utilized for the calculations during the three months ended September 30, 2011:

Expected life (in years)

3 years

Weighted average volatility

91.4%

Forfeiture rate

- %

Risk-free interest rate

0.38%

Expected dividend rate

- %

The weighted average expected option and warrant term for director and employee stock options granted reflects the application of the simplified method set out in SEC Staff Accounting Bulletin No. 107, Share-Based Payment (SAB 107). The simplified method defines the life as the average of the contractual term of the options and the weighted average vesting period for all options. We utilized this approach as our historical share option exercise experience does not provide a reasonable basis upon which to estimate an expected term. Expected volatilities are based on the historical volatility of our stock. We estimated the forfeiture rate based on our expectation for future forfeitures and we currently expect substantially all options and warrants to vest. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield in effect at or near the time of grant. We have never declared or paid dividends and have no plans to do so in the foreseeable future.

As of September 30, 2011, $127,851 of total unrecognized compensation cost related to unvested stock based compensation arrangements is expected to be recognized over a weighted-average period of 11.94 months.  The following is required disclosure in connection with stock options and warrants (which resulted in share based compensation charges) as of September 30, 2011: 1) weighted average exercise price - $1.26; 2) weighted average remaining contractual term vested and outstanding options-56.8 and

79.3months, respectively; 3) aggregate intrinsic value of outstanding and exercisable options and warrants - $5,210,125 and $3,192,415, respectively; 4) weighted average grant date fair value of options and warrants granted $0.16 per share; and 5) weighted average fair value of options and warrants vested - $0.15.

The exercise prices for options and warrants granted and outstanding (which resulted in stock based compensation charges) was as follows at September 30, 2010:

Exercise Price	Number of Options or Warrants
$1.25	1,709,000
1.50	20,000
2.00	12,500
	1,741,500

A summary of the status of our non-vested options and warrants as of September 30, 2011, and changes during the three months then ended is as follows:

	Shares
Non-vested outstanding, June30, 2011	739,695
Granted	12,500
Vested	(79,625)
Non-vested outstanding, September 30, 2011	672,570

Common Shares Reserved for Future Issuance

The following table summarizes shares of our common stock reserved for future issuance at September 30, 2011:

Stock options outstanding	920,000
Stock options available for future grant under the 2011 Plan	580,000
Warrants	3,207,100
Total common shares reserved for future issuance	4,707,100

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Condensed Consolidated Balance Sheets (USD $)	Sep. 30, 2011	Jun. 30, 2011
Current assets:
Cash and cash equivalents	$ 942,173	$ 1,606,764
Accounts receivable		8,081
Inventory, net of reserves for obsolescence of $15,321 at June 30, 2011	62,782
Other current assets	167,143
Total current assets	1,172,098	1,614,845
Equipment, net	4,988
License and supply agreement with Sugar Cane Paper Co., Ltd., net of accumulated amortization of $35,271 ($30,671 at June 30, 2011)	332,786	337,386
Other assets	3,994	3,994
Total assets	1,513,866	1,956,225
Current liabilities:
Accounts payable and accrued liabilities, including amounts due to related parties of $15,335 ($7,668 at June 30, 2011)	115,811	143,070
Accrued compensation and personnel related payables	60,383	45,258
Total current liabilities	176,194	188,328
Commitments and contingencies
Stockholders' equity:
Preferred stock ($.001 par value, 10,000,000 shares authorized, none issued and outstanding)
Common stock (no par value, 300,000,000 shares authorized, 10,256,000 shares issued and outstanding at September 30, 2011 (10,256,000 at June 30, 2011))	10,256	10,256
Additional paid-in capital	6,257,472	5,944,872
Prepaid stock compensation	(320,000)	(368,000)
Accumulated deficit	(4,610,056)	(3,819,231)
Total stockholders' equity	1,337,672	1,767,897
Total liabilities and stockholders' deficit	$ 1,513,866	$ 1,956,225

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Summary of significant accounting policies

3 Months Ended

Sep. 30, 2011

Summary of significant accounting policies [Abstract]

Summary of significant accounting policies

1.

Summary of significant accounting policies

Nature of business

Sugarmade, Inc. (hereinafter referred to as "we" or "the/our Company") is a publicly traded company incorporated in the state of Delaware.  Our previous legal name was Diversified Opportunities, Inc.  On May 9, 2011 we completed the remaining conditions and closed an Exchange Agreement dated April 23, 2011 (the "Exchange Agreement") with Sugarmade, Inc., a California corporation ("Sugarmade-CA") and certain shareholders of Sugarmade-CA (the "Sugarmade Acquisition").  On June 24, 2011, we changed our legal name to Sugarmade, Inc. and on July 15, 2011 our ticker symbol changed and we began trading under the symbol "SGMD".  

On April 27, 2011, the Board of Directors of Sugarmade-CA declared a two-for-one stock dividend to the holders of its common stock, effective upon the successful completion of the Sugarmade acquisition.  All share amounts herein have been retroactively adjusted to reflect the effect of this stock dividend.  

On October 26, 2009, Sugarmade-CA acquired all of the outstanding common stock of Sugarmade, Inc. ("SMI") and during 2010 it began doing business as Sugarmade, Inc.  On February 1, 2011, Sugarmade-CA changed its legal name to Sugarmade, Inc. and dissolved the SMI legal entity.  

Our Company is principally engaged in the business of selling and distributing environmentally friendly non-tree-based paper products.  

Basis of presentation

The accompanying condensed unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the full year.

The unaudited interim financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended June 30, 2011, which contains the audited financial statements and notes thereto, together with the Management's Discussion  and Analysis of Financial Condition and Results of Operation, for the period ended June 30, 2011. The interim results for the period ended September 30, 2011 are not necessarily indicative of results for the full fiscal year.

Principles of consolidation

The condensed consolidated unaudited financial statements include the accounts of our Company and its wholly-owned subsidiaries, Sugarmade-CA and SMI.  All significant intercompany transactions and balances have been eliminated in consolidation.

Going concern

Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern.  Such assumption contemplates the realization of assets and satisfaction of liabilities in the normal course of business.   However, we have incurred significant net losses through September 30, 2011.  This factor and others raise a substantial doubt about our ability to continue as a going concern.  We are dependent upon achieving sufficient future profitable operations and/or procuring additional sales of debt or equity securities in order to meet our operating cash requirements.  Barring our generation of revenues in excess of our costs and expenses or our obtaining additional funds from equity or debt financing, we will not have sufficient cash to continue to fund the operations of our Company through June 30, 2012.  These condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Use of estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires our management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Revenue recognition

We recognize revenue in accordance with Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") No. 605, Revenue Recognition.  Revenue is recognized when we have evidence of an arrangement, a determinable fee, and when collection is considered to be probable and products are delivered.  This generally occurs upon shipment of the merchandise, which is when legal transfer of title occurs.  In the event that final acceptance of our product by the customer is uncertain, revenue is deferred until all acceptance criteria have been met.  Cash deposits received in connection with the sales of our products prior to their being delivered is recorded as deferred revenue.  During fiscal 2011, the Company changed the product packaging of its copy and printing paper, rendering the then existing inventory as obsolete and resulting in the write-off of the remaining inventory as of March 31, 2011.  During the quarter ended September 30, 2011 the Company sold its remaining inventory as a one-time sale to a retailer specializing in the liquidation of excess inventory.  As a result for the three months ended September 30, 2011, the Company recognized revenue with no corresponding cost of goods sold.

Cash and cash equivalents

We consider all investments with a remaining maturity of three months or less at purchase to be cash equivalents.  Cash equivalents primarily represent funds invested in money market funds, bank certificates of deposit and U.S. government debt securities whose cost equals fair market value.  At September 30, 2011, the company had $250,000 in certificates of Deposit and none at June 30, 2011.

From time to time, we may maintain bank balances in interest bearing accounts in excess of the $250,000 currently insured by the Federal Deposit Insurance Corporation for interest bearing accounts (there is no insurance limit for deposits in noninterest bearing accounts).  We have not experienced any losses with respect to cash.  Management believes our Company is not exposed to any significant credit risk with respect to its cash and cash equivalents.

Accounts receivable

Accounts receivable are carried at their estimated collectible amounts, net of any estimated allowances for doubtful accounts.  We grant unsecured credit to our customers deemed credit worthy.  Ongoing credit evaluations are performed and potential credit losses estimated by management are charged to operations on a regular basis.  At the time any particular account receivable is deemed uncollectible, the balance is charged to the allowance for doubtful accounts.  Since we cannot necessarily predict future changes in the financial stability of our customers, we cannot guarantee that our allowance for doubtful accounts will be adequate.

From time to time, we may have a limited number of customers with individually large amounts due.  Any unanticipated change in a customer's creditworthiness could have a material effect on our results of operations in the period in which such changes or events occurred.  We had no accounts receivable at September 30, 2011 and only insignificant amounts of accounts receivable at June 30, 2011and no allowance for doubtful accounts as of September 30, 2011 and June 30, 2011.

Inventory

Inventory consists of finished goods paper and paper-based products ready for sale and is stated at the lower of cost or market.  We value inventories using the weighted average costing method.  We regularly review inventory and consider forecasts of future demand, market conditions and product obsolescence. If the estimated realizable value or our inventory is less than cost, we make provisions in order to reduce its carrying value to its estimated market value.  We had no valuation reserves against inventory of at September 30, 2011 and $15,321 at June 30, 2011 (for the entire remaining balance of inventory at June 30, 2011).  

Equipment

Property and equipment is stated at cost, less accumulated depreciation.  Expenditures for maintenance and repairs are charged to expense as incurred. Items of property and equipment with costs greater than $1,500 are capitalized and depreciated on a straight-line basis over their estimated useful lives ranging from 3-5 years.

Valuation of long-lived assets

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate their net book value may not be recoverable. When such factors and circumstances exist, we compare the projected undiscounted future cash flows associated with the related asset or group of assets over their estimated useful lives against their respective carrying amount. Impairment, if any, is based on the excess of the carrying amount over the fair value, based on market value when available, or discounted expected cash flows, of those assets and is recorded in the period in which the determination is made. Our management currently believes there is no

impairment of our long-lived assets. There can be no assurance, however, that market conditions will not change or demand for our products under development will continue. Either of these could result in future impairment of long-lived assets.  

Income taxes

We provide for federal and state income taxes currently payable, as well as for those deferred due to timing differences between reporting income and expenses for financial statement purposes versus tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in income tax rates is recognized as income or expense in the period that includes the enactment date.

Stock based compensation

Stock based compensation cost is measured at the date of grant, based on the calculated fair value of the stock-based award, and will be recognized as expense over the employee's requisite service period (generally the vesting period of the award).  We will estimate the fair value of employee stock options granted using the Black-Scholes Option Pricing Model. Key assumptions used to estimate the fair value of stock options will include the exercise price of the award, the fair value of our common stock on the date of grant, the expected option term, the risk free interest rate at the date of grant, the expected volatility and the expected annual dividend yield on our common stock.  We will use comparable public company data among other information to estimate the expected price volatility and the expected forfeiture rate.  

Net loss per share

We calculate basic earnings per share ("EPS") by dividing our net loss by the weighted average number of common shares outstanding for the period, without considering common stock equivalents.  Diluted EPS is computed by dividing net income or net loss by the weighted average number of common shares outstanding for the period and the weighted average number of dilutive common stock equivalents, such as options and warrants.  Options and warrants are only included in the calculation of diluted EPS when their effect is dilutive.  

Fair value of financial instruments

The fair value accounting guidance defines fair value as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."  The definition is based on an exit price rather than an entry price, regardless of whether the entity plans to hold or sell the asset.  This guidance also establishes a fair value hierarchy to prioritize inputs used in measuring fair value as follows:

•

Level 1:  Observable inputs such as quoted prices in active markets;  

•

Level 2:  Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and

•

Level 3:  Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.  

Intangible assets

We have intangible assets related to the exclusive license and supply agreement with Sugar Cane Paper Company.  The Company recorded the exclusivity agreement at fair value.  The exclusivity agreement will be amortized on a straight line basis over the life of the agreement, or twenty years.  Amortization expense recorded for each of the three months ended September 30, 2011 and 2010 was $4,600.

Advertising

To the extent present in the future, we will expense advertising costs as incurred.  We have no existing arrangements under which we provide or receive advertising services from others for any consideration other than cash.  

Litigation

From time to time, we may become involved in disputes, litigation and other legal actions.  We estimate the range of liability related to any pending litigation where the amount and range of loss can be estimated.  We record our best estimate of a loss when the loss is considered probable.  Where a liability is probable and there is a range of estimated loss with no best estimate in the range, we record a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.  

Recently issued and adopted accounting pronouncements

Accounting standards promulgated by the Financial Accounting Standards Board ("FASB") are subject to change.  Changes in such standards may have an impact on the Company's future financial statements.  The following are a summary of recent accounting developments.  

In January 2010, the FASB issued revised authoritative guidance that requires more robust disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2 and 3.  A portion of this guidance (excepting disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements) was effective for interim and annual reporting periods beginning after December 15, 2009.  Those disclosures about purchases, sales, issuances and settlements in the roll forward activity in Level 3 fair value measurements are were effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early application is encouraged. The revised guidance was adopted as of January 1, 2010 and did not have a material impact to our condensed consolidated financial statements.

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Acquisition of Sugarmade-CA and related financing activities

3 Months Ended

Sep. 30, 2011

Acquisition of Sugarmade-CA and related financing activities [Abstract]

Acquisition of Sugarmade-CA and related financing activities

2.

Acquisition of Sugarmade-CA and related financing activities

On April 23, 2011, we entered into an exchange agreement (the "Exchange Agreement") with Sugarmade-CA. Under the terms of the Exchange Agreement, we acquired all of the outstanding stock of Sugarmade-CA (the "Exchange"). Upon the closing of the Exchange on May 9, 2011, Sugarmade-CA became a wholly-owned subsidiary.

Under the terms of the Exchange Agreement, Sugarmade-CA's shareholders exchanged all of their shares of stock on a one-for-one basis for an aggregate of 8,864,108 shares of our common stock.  In connection with the Exchange Agreement and effective at the closing of the Exchange transaction, our previous three principal shareholders agreed to enter into a Share Cancellation Agreement pursuant to which 8,762,500 shares held by them were canceled or redeemed in exchange for the Company's payment of $210,000, the issuance of 200,000 warrants to purchase our common stock at $1.25 per share, and certain registration rights.  

Prior to the closing of the Exchange, our Company had no operations and was a "shell" company.  Accordingly, the transaction was accounted as a reverse-merger and our financial statements reflect the financial position and operations of Sugarmade-CA for all periods presented as if it was the acquiring entity in the Exchange.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2011	Jun. 30, 2011
Consolidated Balance Sheets [Abstract]
Inventory, reserves for obsolescence		$ 15,321
License and supply agreement with Sugar Cane Paper Co., Ltd., accumulated amortization	35,271	30,671
Accounts payable and accrued liabilities, amounts due to related parties	$ 15,335	$ 7,668
Preferred stock, par value per share	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value per share
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	10,256,000	10,256,000
Common stock, shares outstanding	10,256,000	10,256,000

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Document and Entity Information	3 Months Ended
	Sep. 30, 2011	Nov. 14, 2011
Document And Entity Information Abstract
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Entity Registrant Name	Sugarmade, Inc.
Entity Central Index Key	0000919175
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2012
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		10,256,000

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Condensed Consolidated Statements of Operations (USD $)	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Consolidated Statements of Operations [Abstract]
Sales revenues	$ 26,546	$ 24,783
Cost of goods sold:
Materials and freight costs		24,608
Provision for inventory obsolescence		17,643
Total cost of goods sold		42,251
Gross margin	26,546	(17,468)
Operating expenses:
Selling, general and administrative expenses	813,463	61,820
Amortization of license and supply agreement	4,600	4,600
Total operating expenses	818,063	66,420
Loss from operations	(791,517)	(83,888)
Interest expense:
Related parties		(10,569)
Other		(16,275)
Total interest expense		(26,844)
Interest income:
Interest income from shareholder note receivable		5,711
Other	692
Total nonoperating income (expense)	692	(21,133)
Net loss	$ (790,825)	$ (105,021)
Basic and diluted net loss per share	$ (0.08)	$ (0.07)
Basic and diluted weighted average common shares outstanding used in computed net loss per share	10,256,000	1,576,214

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Condensed Consolidated Statements of Cash Flows (USD $)	3 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net loss	$ (790,825)	$ (105,021)
Adjustments to reconcile net loss to cash flows from operating activities:
Amortization of license and supply agreement	4,600	4,600
Depreciation expense	143
Share based compensation	59,600
Issuance of common stock for services	301,000
Interest income from note receivable from stockholder		(5,711)
Changes in operating assets and liabilities:
Accounts receivable	8,081	6,032
Inventory	(62,782)	43,290
Other assets	(167,143)	(909)
Accounts payable and accrued liabilities	(27,259)	(4,653)
Accrued interest		8,976
Accrued compensation and personnel related payables	15,125	12,253
Cash flows from operating activities	(659,460)	(41,143)
Cash flows from investing activities:
Additions to property and equipment	5,131
Change in cash during period	(664,591)	(41,143)
Cash, beginning of period	1,606,764	41,610
Cash, end of period	942,173	467
Cash paid during the period for:
Interest		$ 17,868

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Subsequent events

3 Months Ended

Sep. 30, 2011

Subsequent events [Abstract]

Subsequent events

5.

Subsequent events

In preparing these financial statements, our Company has evaluated events and transactions for potential recognition or disclosure through November 14, 2011, the date the financial statements were issued.