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EX-10.12 - EXHIBIT 10.12 PDF REFERENCE - Energy Telecom, Inc.ex1012.pdf
EX-23.01 - EXHIBIT 23.1 - Energy Telecom, Inc.ex231.htm
EX-10.13 - EXHIBIT 10.13 - Energy Telecom, Inc.ex1013.htm
EX-10.11 - EXHIBIT 10.11 - Energy Telecom, Inc.ex1011.htm
EX-10.14 - EXHIBIT 10.14 - Energy Telecom, Inc.ex1014.htm
EX-10.12 - EXHIBIT 10.12 - Energy Telecom, Inc.ex1012.htm
As filed with the Securities and Exchange Commission on August 9, 2010
An Exhibit List can be found on page II-6.
Registration No. 333-167380
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
____________________________
 
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________________________
 
ENERGY TELECOM, INC.
(Exact name of registrant as specified in its charter)
 
 
Florida
 
3669
 
65-0434332   
 
 
(State or other Jurisdiction
of Incorporation or Organization)
  
(Primary Standard Industrial
Classification Code Number)  
 
(I.R.S. Employer
Identification No.)
 
  
3501-B N. Ponce de Leon Blvd., #393
St. Augustine, Florida 32084
(904) 819-8995
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Thomas Rickards, Chief Executive Officer
ENERGY TELECOM, INC.
3501-B N. Ponce de Leon Blvd., #393
St. Augustine, Florida 32084
(904) 819-8995
 (Name and address, including zip code, and telephone number, including area code, of agent for service)

Copies to:
Marc J. Ross, Esq.
James M. Turner, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32nd Flr.
New York, New York 10006
(212) 930-9700
(212) 930-9725 (fax)

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
From time to time after this Registration Statement becomes effective.

If any securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ________

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. _________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. _________

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.  See definitions of “large accelerated filer,” “accelerated filed,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
 Large accelerated filer o
 Accelerated filer o
 Non-accelerated filer o
 Smaller reporting company x
(Do not check if a smaller reporting company)
 
   
 
 
 

 
                                                                                
CALCULATION OF REGISTRATION FEE
 
Title of Each Class Of Securities To Be Registered
 
Amount To Be
Registered
 
Proposed Maximum
Offering Price
Per Security (1)
 
Proposed Maximum
Aggregate
Offering Price
 
Amount Of
Registration Fee
 
Class A Common Stock, par value $.0001 per share
   
2,386,802
 
$
0.90
 
$
2,148,121.80
 
$
153.16
 
Total
   
2,386,802
       
$
2,148,121.80
 
$
153.16
 (2)
 
(1)
Estimated in accordance with Rule 457(c) of the Securities Act, based on the average of the high and low prices as reported on June 4, 2010.
   
(2)
Previously paid.
   

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 
 

 
The information in this prospectus is not complete and may be changed. The securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.


SUBJECT TO COMPLETION, DATED AUGUST 9, 2010

PROSPECTUS

ENERGY TELECOM, INC.

2,386,802 Shares of Common Stock

This prospectus relates to the resale by the selling stockholders of up to 2,386,802 shares of our common stock.  This is the initial registration of shares of our common stock.  We have set an offering price for these shares of common stock at $0.85 per share. The selling stockholders may be deemed underwriters of the shares of common stock which they are offering.  We will pay the expenses of registering these shares.

We are a non-reporting company whose stock is considered a grey market stock that trades from time to time under the symbol “ENRG”.  A stock that is considered a grey market stock means there are no market makers in the stock and that it is not listed, traded or quoted on any stock exchange, the OTCBB or the Pink Sheets. Trades in grey market stocks are reported by broker-dealers to their Self Regulatory Organization (SRO) and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume. The last reported sales price per share of our common stock as reported on August 2, 2010, was $0.98. We intend to begin discussions with various market makers in order to arrange for an application to be made with respect to our common stock, to be approved for quotation on the Over-The-Counter Bulletin Board upon the effectiveness of this prospectus.   There is no assurance that a market maker will make an application and be approved for quotation of our stock on the Over-The-Counter Bulletin Board.  We currently intend to continue with this offering even if our common stock is not approved for quotation on the Over-The-Counter Bulletin Board. Upon effectiveness of the registration statement that this prospectus is a part of, we will become a reporting company pursuant to Section 15(d) of the Securities Exchange Act of 1934, or the Exchange Act.  Our reporting obligations under the Exchange Act will be required, even if our common stock is not approved for quotation on the Over-The-Counter Bulletin Board.

The selling stockholders are offering these shares of common stock. The sales price to the public is fixed at $0.85 per share until such time as the shares of our common stock are approved for quotation on the Over-The-Counter Bulletin Board.  If our stock is approved for quotation on the Over-The-Counter Bulletin Board, the selling stockholders may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices directly or through a broker or brokers, who may act as agent or as principal or by a combination of such methods of sale. The selling stockholders will receive all proceeds from the sale of the common stock. For additional information on the methods of sale, you should refer to the section entitled "Plan of Distribution."

The securities offered in this prospectus involve a high degree of risk. See "Risk Factors" beginning on page 2 of this prospectus to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined whether this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this Prospectus is ____, 2010
 
 
 
 

 
 
TABLE OF CONTENTS

 
  
Page
 
Prospectus Summary
  
1
Risk Factors
  
2
Use of Proceeds
  
10
Market For Common Stock and Related Stockholder Matters
 
10
Determination of Offering Price
 
10
Management’s Discussion and Analysis and Plan of Operations
 
11
Business
 
18
Description of Property
  
26
Legal Proceedings
 
26
Management
 
27
Executive Compensation
  
28
Certain Relationships and Related Transactions
 
29
Security Ownership of Certain Beneficial Owners and Management
  
30
Description of Securities
  
31
Indemnification for Securities Act Liabilities
  
32
Plan of Distribution
  
32
Selling Stockholders
 
34
Legal Matters
 
36
Experts
  
36
Additional Information
  
36
Index to Financial Statements
  
37

You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information that is different. This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any jurisdiction where the offer or sale of these securities is not permitted. You should assume that the information contained in this prospectus is accurate as of the date on the front of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date.  This prospectus will be updated as required by law.

All information contained herein relating to shares and per share data has been adjusted to reflect a 1:6 reverse stock split effected on January 11, 2008.

All information contained herein relating to shares and per share data has been adjusted to reflect a 1:5 reverse stock split effected on June 28, 2010, except for the financial statements and notes thereto, which were already issued and available for use prior to the reverse stock split.
 
 
 
 

 

PROSPECTUS SUMMARY

The following summary highlights selected information contained in this prospectus. This summary does not contain all the information you should consider before investing in the securities. Before making an investment decision, you should read the entire prospectus carefully, including the “risk factors” section, the financial statements and the notes to the financial statements.

ENERGY TELECOM, INC.

We were incorporated on September 7, 1993 under the laws of the State of Florida as The Energy Corp. On April 24, 2004, we changed our name to Energy Telecom, Inc.

We are a development stage company that holds U.S. and foreign patents allowing for the manufacture, marketing and distribution of a hands-free, wireless communication eyewear providing quality sound and noise attenuation. In June 2010, we established a merchant account on Amazon.com, and on June 25, 2010 we began offering our eyewear for sale directly to the public.  Sales have been minimal to date, with approximately 30 units sold. We intend to market the eyewear to police, fire, rescue, military and security personnel, as well as companies in bio-hazardous, mining, construction and heavy manufacturing that utilize VHF and UHF radio communication. We believe our eyewear will also be in demand by those using cellular and smart phones for voice communication, and for listening to high-fidelity streaming stereo.

We have incurred losses since our inception. For the years ended December 31, 2009 and 2008, we generated no revenues and incurred net losses of $169,711 and $243,713, respectively.   At December 31, 2009, we had working capital of $18,096 and an accumulated deficit of $3,312,974.  These factors raise substantial doubt about our ability to continue as a going concern.  For the three months ended March 31, 2010, we generated no revenues and incurred a net loss of $70,304. To continue our operations and fully carry out our business plan for the next 12 months, we need to raise additional capital (up to $1,000,000, primarily for anticipated inventory purchasing in 2011) for which we currently do not have any contracts or commitments for additional funding. We can give no assurance that we will be able to raise such capital on terms acceptable to us, if at all. We have limited financial resources until such time that we are able to generate positive cash flow from operations.
 
We are a non-reporting company whose stock is listed on the Pink Sheets under the symbol “ENRG”.  We intend to begin discussions with various market makers in order to arrange for an application to be made with respect to our common stock, to be approved for quotation on the Over-The-Counter Bulletin Board upon the effectiveness of this prospectus.   We are registering shares of our common stock for resale pursuant to this prospectus in order to allow the selling stockholders to sell their holdings in the public market and to begin developing a more liquid public market for our securities to be able to seek public financing and business development opportunities in the future, although we currently do not have any contracts or commitments for any public financing or business development opportunities. Our management would like a more liquid public market for our common stock to develop from shares sold by the selling shareholders.  No assurances can be given that our common stock will be approved for quotation on the on the Over-The-Counter Bulletin Board or that a more liquid public market will develop.

Our principal offices are located at 3501-B N. Ponce de Leon Blvd., #393, St. Augustine, Florida 32084 and our telephone number is (904) 819-8995. We are a Florida corporation.

The Offering
 
Common stock offered by selling stockholders
 
2,386,802 shares.
     
Shares outstanding prior to and after the offering
 
5,636,206 shares as of August 5, 2010, of which 3,495,384 shares are held by non-affiliates.
     
Use of proceeds
 
We will not receive any proceeds from the sale of the common stock.
 
 
 
1

 
 

 
RISK FACTORS

This investment has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below and the other information in this prospectus. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down. This means you could lose all or a part of your investment.

Risks Relating to Our Business:

We have a short operating history and have not produced significant revenues.  This makes it difficult to evaluate our future prospects and increases the risk that we will not be successful.
 
We have a short operating history with our current business model, which involves the manufacture, marketing and distribution of a hands-free, wireless communication eyewear.  While we have been in existence since 1993, we have been in the development stage since 2000 and did not generate any revenues through May 2010.  In June 2010, we generated minimal revenues from the sale of our telecom eyewear, but no assurances can be given that we will generate any significant revenue, or any revenues at all, in the near term. As a result, we have a very limited operating history for you to evaluate in assessing our future prospects.   We are still considered a development stage company.  Our operations since we entered the development stage have not produced significant revenues, and may not produce significant revenues in the near term, or at all, which may harm our ability to obtain additional financing and may require us to reduce or discontinue our operations.  You must consider our business and prospects in light of the risks and difficulties we will encounter as an early-stage company in a new and rapidly evolving industry.  We may not be able to successfully address these risks and difficulties, which could significantly harm our business, operating results, and financial condition.
 
We have a history of losses which may continue, which may negatively impact our ability to achieve our business objectives.

We incurred net losses of $169,711 for the year ended December 31, 2009 and $243,713 for the year ended December 31, 2008.  For the three months ended March 31, 2010, we incurred a net loss of $70,304. In addition, at March 31, 2010, we had an accumulated deficit of $3,383,278. We cannot assure you that we can achieve or sustain profitability on a quarterly or annual basis in the future.  Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. Revenues and profits, if any, will depend upon various factors, including whether we will be able to continue expansion of our revenue. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.

We received a modified report from our independent registered public accounting firm with an emphasis of matter paragraph for the year ended December 31, 2009 with respect to our ability to continue as a going concern.  The existence of such a report may adversely affect our stock price and our ability to raise capital.  There is no assurance that we will not receive a similar emphasis of matter paragraph for our year ended December 31, 2010.

In their report dated August 9 , 2010, our independent registered public accounting firm expressed substantial doubt about our ability to continue as a going concern as we have incurred substantial losses since inception of development stage and have no revenues to date. Our ability to continue as a going concern is subject to our ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding from the sale of our securities, increasing sales or obtaining loans and grants from various financial institutions where possible. Our continued net operating losses increase the difficulty in meeting such goals and there can be no assurances that such methods will prove successful.

If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing shareholders may suffer substantial dilution.

We require additional funds to sustain our operations and institute our business plan.  We anticipate that we will require up to approximately $1,000,000 for our anticipated operations for the next twelve months, primarily for anticipated inventory purchasing in 2011. Additional capital will be required to effectively support the operations and to otherwise implement our overall business strategy.  Even if we do receive additional financing, it may not be sufficient to sustain or expand our development operations or continue our business operations.
 
 
 
2

 

 
We do not have any contracts or commitments for additional funding, and there can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. The inability to obtain additional capital will restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we will likely be required to curtail our development plans or cease our business operations. Any additional equity financing may involve substantial dilution to our then existing shareholders.

We face strong competition from other personal protection equipment companies.

The personal protection equipment market is highly competitive. Our competitors range in size from small companies focusing on single products to large multinational corporations that manufacture and supply many types of products. Our main competitors vary by region and product. We believe that participants in this industry compete primarily on the basis of product characteristics (such as design, style and functional performance), product quality, service, brand-name recognition and, to a lesser extent, price. Almost all of our competitors have greater financial and other resources than we do and may be able to grow more quickly through strategic acquisitions and may be able to better respond to changing business and economic conditions. Our net income could be adversely affected by competitors’ product innovations and increased pricing pressure. Individual competitors have advantages and strengths in different sectors of our markets, in different products and in different areas, including manufacturing and distribution systems, geographic market presence, customer service and support, breadth of product, delivery time and price. Some of our competitors also have greater access to capital and technological resources and we may not be able to compete successfully with them.

Our lack of diversification will increase the risk of an investment in us, and our financial condition and results of operations may deteriorate if we fail to diversify.
 
Our current business focuses on one product in the personal protection equipment market, our Telecommunication Eyewear. Larger companies have the ability to manage their risk by diversification. However, we currently lack diversification, in terms of both the nature and geographic scope of our business. As a result, we will likely be impacted more acutely by factors affecting our industry in which we operate, than we would if our business were more diversified, enhancing our risk profile.

If we fail to successfully introduce new products, we may lose market position.

New products, product improvements, line extensions or new packaging will be an important factor in our sales growth. If we fail to identify emerging consumer and technological trends, to maintain and improve the competitiveness of our existing products or to successfully introduce new products on a timely basis, we may lose market position. Continued product development and marketing efforts have all the risks inherent in the development of new products and line extensions, including development delays, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.

Our continued success depends on our ability to protect our intellectual property. The failure to do so could impact our profitability and stock price.

Our success depends, in part, on our ability to obtain and enforce patents, maintain trade-secret protection and operate without infringing on the proprietary rights of third parties. Litigation can be costly and time consuming. Litigation expenses could be significant. In addition, we may decide to settle legal claims, including certain pending claims, despite our beliefs on the probability of success on the merits, to avoid litigation expenses as well as the diversion of management resources. While we have been issued patents and have registered trademarks with respect to our product and technology, our competitors may infringe upon our patents or trademarks, independently develop similar or superior products or technologies, duplicate our designs, trademarks, processes or other intellectual property or design around any processes or designs on which we have or may obtain patents or trademark protection. In addition, it is possible that third parties may have or acquire other technology or designs that we may use or desire to use, so that we may need to acquire licenses to, or to contest the validity of, such third-party patents or trademarks. Such licenses may not be made available to us on acceptable terms, if at all, and we may not prevail in contesting the validity of such third-party rights.

In addition to patent and trademark protection, we also protect trade secrets, know-how and other confidential information against unauthorized use by others or disclosure by persons who have access to them, including our employees, through contractual arrangements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. If we are unable to maintain the proprietary nature of our technologies, we may lose market share to competing products using the same or similar technology.
 
 
 
3

 

Litigation brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property rights owned or used by us may be costly and time consuming.

We may face lawsuits from time to time alleging that our products infringe on third-party intellectual property, and/or seeking to invalidate or limit our ability to use our intellectual property. If we become involved in litigation, we may incur substantial expense defending these claims and the proceedings may divert the attention of management, even if we prevail. An adverse determination in proceedings of this type could subject us to significant liabilities, allow our competitors to market competitive products without a license from us, prohibit us from marketing our products or require us to seek licenses from third parties that may not be available on commercially reasonable terms, if at all.

Product liability claims could have a material adverse effect on our operating results and negatively impact our stock price.

We face an inherent business risk of exposure to product liability claims arising from the alleged failure of our products to prevent the types of personal injury or death against which they are designed to protect. Any material uninsured losses due to product liability claims that we experience could subject us to material losses.

We could be required to recall or redesign our products if they prove to be defective. We maintain insurance against product liability claims (with the exception of asbestosis and silicosis cases, for which coverage is not commercially available), but it is possible that our insurance coverage will not continue to be available on terms acceptable to us or that such coverage will not be adequate for liabilities actually incurred. A successful claim brought against us in excess of available insurance coverage, or any claim or product recall that results in significant expense or adverse publicity against us, could have a material adverse effect on our business, operating results and financial condition.

Environmental, health and safety requirements could expose us to material obligations and liabilities and affect our profitability.

We are subject to federal, state, local and foreign laws, regulations and ordinances relating to the protection of the environment, including those governing discharges to air and water, handling and disposal practices for solid and hazardous wastes, and occupational health and safety. The consequence for violating such requirements can be material. We have made and will continue to make capital and other expenditures to comply with environmental and health and safety requirements. In addition, if a release of hazardous substances occurs on or from our properties or any offsite disposal location where our wastes have been disposed, or if contamination from prior activities is discovered at any of our properties or third-party owned properties that we or our predecessors formerly owned or operated, we may be subject to liability arising out of such conditions and the amount of such liability could be material. Liability can include, for example, costs of investigation and cleanup of the contamination, natural resource damages, damage to properties and personal injuries.

A significant portion of our income will come from individual purchases not long-term contracts; as a result, our revenue will not be guaranteed from quarter-to-quarter and we cannot always operate efficiently.

A large percentage of our customer base will involve individual purchases who do not enter into long-term purchase orders or commitments.  Therefore, our customers may terminate their relationships with us at any time.   We make significant decisions regarding staffing and component procurement, personnel and resource requirements, and the level of business we seek and accept based upon long-term estimates of our number of customers.  The short-term nature of our customers’ commitments could result in large deviations from our estimates, resulting in severe excesses or shortages in staffing and resources.  This makes it difficult for us to maximize our potential efficiency.

Our results of operations and net sales are dependent on existing regulations and standards. If these regulations or standards are changed to our detriment, demand for our products could decrease.

Our products are and will continue to be subject to regulation by various federal, state, local and foreign regulatory authorities. Our net sales may be materially and adversely affected by changes in safety regulations and standards covering industrial workers in the United States, Canada and Europe, including those of the Occupational Safety and Health Administration, or OSHA, the National Institute for Occupational Safety and Health, or NIOSH, and the European Committee for Standardization, or CEN. Our net sales could also be adversely affected by a reduction in the level of enforcement of such regulations. Changes in regulations could reduce the demand for our products or require us to reengineer our products, thereby creating opportunities for our competitors. If demand for our products is reduced, our results of operations and net sales could be materially and adversely affected.
 

 
 
4

 
 
If we are unable to retain senior executives and other qualified professionals, including sales and marketing personnel, our growth may be hindered, which could negatively impact our results of operations.

Our success depends to a significant extent upon the continued services of Mr. Thomas Rickards, our Founder, Chief Executive Officer and sole director. Loss of the services of Mr. Rickards would have a material adverse effect on our growth, revenues, and prospective business. We have not obtained key-man insurance on the life of Mr. Rickards.  In order to successfully implement and manage our business plan, we will be dependent upon, among other things, our ability to attract, hire, train and retain qualified managerial, sales and marketing personnel. We rely on our sales and marketing teams to come up with innovative ways to generate demand for our products. Competition for these types of personnel is intense. We may be unsuccessful in attracting and retaining the personnel we require to conduct and expand our operations successfully. Our results of operations could be materially and adversely affected if we are unable to attract, hire, train and retain qualified personnel.  The loss of any member of the management team could have a material adverse effect on our business, results of operations and financial condition.

Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business.

We may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems.

If we are unable to manage growth effectively, such as if our sales and marketing efforts exceed our capacity to perform our services and maintain our products or if new employees are unable to achieve performance levels, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.

A manufacturer's inability to produce our goods on time and to our specifications could result in lost revenue and net losses.

We do not own or operate any manufacturing facilities and therefore depend upon independent third parties for the manufacture of all of our products. Our products are manufactured to our specifications by both domestic and international manufacturers. The inability of a manufacturer to ship orders of our products in a timely manner or to meet our quality standards could cause us to miss the delivery date requirements of our customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect as our revenues would decrease and we would incur net losses as a result of sales of the product, if any sales could be made. Because of the nature of our client’s business, the dates on which customers need and require shipments of products from us are critical, as personal protection equipment is required for our clients to conduct business, so they are unlikely to wait for replacement or late products. Further, because quality is a leading factor when customers accept or reject goods, any decline in quality by our third-party manufacturers could be detrimental not only to a particular order, but also to our future relationship with that particular customer.

We recently placed a purchase order for 1,000 units, which is our first significant order of inventory.  While our manufacturer has the capacity to produce orders for significantly more than 1,000 units, if there are problems with this initial order of inventory, it could result in cancelled orders and negative publicity just as we are trying to introduce our product to the market and the initial reactions will be critical to our future success.  In addition, we have committed to purchase significantly more units than we have previously sold or have orders to purchase.  If we are unable to sell those units, we will be responsible for the payment of the purchase order.
 

 
 
5

 
If We Need to Replace Manufacturers, Our Expenses Could Increase Resulting in Smaller Profit Margins

We compete with other companies for the production capacity of our manufacturers and import quota capacity. Some of these competitors have greater financial and other resources than we have, and thus may have an advantage in the competition for production and import quota capacity. If we experience a significant increase in demand, or if an existing manufacturer of ours must be replaced, we may have to expand our third-party manufacturing capacity. We cannot assure you that this additional capacity will be available when required on terms that are acceptable to us or similar to existing terms which we have with our manufacturers, either from a production standpoint or a financial standpoint. None of the manufacturers we use produces our products exclusively.

Should we be forced to replace one or more of our manufacturers, particularly a manufacturer that we may rely upon for a substantial portion of its production needs, then we may experience an adverse financial impact, or an adverse operational impact, such as being forced to pay increased costs for such replacement manufacturing or delays upon distribution and delivery of our products to our customers, which could cause us to lose customers or lose revenues because of late shipments.

Our financial performance would be harmed if we suffer disruptions in our ability to fulfill orders.

Our ability to provide effective customer service and efficiently fulfill orders depends, to a large degree, on the efficient and uninterrupted operation of the manufacturing and related distribution centers and management information systems run by third parties and on the timely performance of other third parties such as shipping companies. Any material disruption or slowdown in our manufacturing, order processing or fulfillment systems resulting from strikes or labor disputes, telephone down times, electrical outages, mechanical problems, human error or accidents, fire, natural disasters, adverse weather conditions or comparable events could cause delays in our ability to receive and distribute orders and may cause orders to be lost or to be shipped or delivered late. As a result, customers may cancel orders or refuse to receive goods on account of late shipments that would result in a reduction of net sales and could mean increased administrative and shipping costs. Our success depends in part on our maintaining high quality customer service and any failure to do so could adversely affect our business, financial condition or results of operations.

Our officers and director own a controlling interest in our voting stock and investors will not have any voice in our management.

Our officers and director, in the aggregate, beneficially own or control the votes of approximately 56.52% of our outstanding common stock. As a result, these stockholders, acting together, will have the ability to control substantially all matters submitted to our stockholders for approval, including:

 
election of our board of directors;
 
removal of any of our directors;
 
amendment of our certificate of incorporation or bylaws; and
 
adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.

As a result of their ownership and positions, our director and executive officers collectively are able to influence all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, sales of significant amounts of shares held by our director or executive officers, or the prospect of these sales, could adversely affect the market price of our common stock. Our officers and director’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
 

 
 
6

 

Risks Relating to Our Common Stock:

Should our stock become available for quotation on the OTC Bulletin Board, if we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.

Companies trading on the Over-The-Counter Bulletin Board, which we are seeking to become, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board. The lack of resources to prepare and file our reports, including the inability to pay our auditor, could result in our failure to remain current on our reporting requirements, which could result in our being removed from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.   In addition, we may be unable to get re-approved for quotation on the OTC Bulletin Board, which may have an adverse material effect on our company.

You may have difficulty trading and obtaining quotations for our common stock.

Our common stock may not be actively traded, and the bid and asked prices for our Common Stock on the Pink Sheets (and the NASD Over-the-Counter Bulletin Board if a market maker successfully applies thereto) may fluctuate widely. As a result, investors may find it difficult to dispose of, or to obtain accurate quotations of the price of, our securities. This severely limits the liquidity of our common stock, and would likely reduce the market price of our common stock and hamper our ability to raise additional capital.

The market price of our common stock may, and is likely to continue to be, highly volatile and subject to wide fluctuations.

The market price of our common stock is likely to be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

·  
dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies;

·  
quarterly variations in our revenues and operating expenses;

·  
changes in the valuation of similarly situated companies, both in our industry and in other industries;

·  
changes in analysts’ estimates affecting our company, our competitors and/or our industry;

·  
changes in the accounting methods used in or otherwise affecting our industry;

·  
additions and departures of key personnel;

·  
announcements of technological innovations or new products available to the personal protective equipment industry;

·  
fluctuations in interest rates and the availability of capital in the capital markets; and

·  
significant sales of our common stock, including sales by the selling stockholders in this prospectus and/or future investors in future offerings we expect to make to raise additional capital.

These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operations and financial condition.
 

 
 
7

 

We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
 
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the Board of Directors may consider relevant.
 
Efforts to comply with recently enacted changes in securities laws and regulations will increase our costs and require additional management resources, and we still may fail to comply.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring public companies to include a report of management on their internal controls over financial reporting in their annual reports on Form 10-K. In addition, in the event we become a non-accelerated filer, the independent registered public accounting firm auditing our financial statements would be required to attest to the effectiveness of our internal controls over financial reporting. Such attestation requirement by our independent registered public accounting firm would not be applicable to us until the report for the year ended December 31, 2011 at the earliest, if at all.  If we are unable to conclude that we have effective internal controls over financial reporting or if our independent registered public accounting firm is required to, but is unable to provide us with a report as to the effectiveness of our internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, which could result in a decrease in the value of our securities. To date, we do not believe that we have obtained the necessary expertise to comply with Section 404(a) of the Sarbanes-Oxley Act of 2002 and we may not have the resources to obtain expertise or to ensure compliance.

Our common stock is not currently traded at high volume, and you may be unable to sell at or near ask prices or at all if you need to sell or liquidate a substantial number of shares at one time.

Our common stock is currently traded, but with very low, if any, volume, based on quotations on the “Pink Sheets”, meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent.  This situation is attributable to a number of factors, including the fact that we are a small company which is still relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable.  As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price.  We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that trading levels will be sustained.

Shareholders should be aware that, according to Commission Release No. 34-29093, the market for “penny stocks” has suffered in recent years from patterns of fraud and abuse.  Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.  Our management is aware of the abuses that have occurred historically in the penny stock market.  Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities. The occurrence of these patterns or practices could increase the future volatility of our share price.
 

 
 
8

 
Our common stock is subject to the "penny stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

·  
that a broker or dealer approve a person's account for transactions in penny stocks; and
·  
the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

·  
obtain financial information and investment experience objectives of the person; and
·  
make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

·  
sets forth the basis on which the broker or dealer made the suitability determination; and
·  
that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

FINRA sales practice requirements may also limit a shareholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
 
 
 
9

 

USE OF PROCEEDS

We will not receive any proceeds from the sale of the common stock.

MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market for Securities

Our common stock is considered a grey market stock that trades from time to time under the symbol “ENRG”.  A stock that is considered a grey market stock means there are no market makers in the stock and that it is not listed, traded or quoted on any stock exchange, the OTCBB or the Pink Sheets. Trades in grey market stocks are reported by broker-dealers to their SRO and the SRO distributes the trade data to market data vendors and financial websites so investors can track price and volume.

For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

   
Fiscal Year 2008
 
   
High
   
Low
 
First Quarter
  $ 0.90     $ 0.05  
Second Quarter
  $ 0.90     $ 0.05  
Third Quarter
  $ 1.15     $ 0.05  
Fourth Quarter
  $ 1.25     $ 0.25  

   
Fiscal Year 2009
 
   
High
   
Low
 
First Quarter
  $ 1.25     $ 0.50  
Second Quarter
  $ 1.05     $ 0.10  
Third Quarter
  $ 1.20     $ 0.05  
Fourth Quarter
  $ 1.15     $ 0.05  

   
Fiscal Year 2010
 
   
High
   
Low
 
First Quarter
  $ 1.10     $ 0.35  
Second Quarter
  $ 0.95     $ 0.10  
Third Quarter (1)
  $ 0.98     $ 0.95  

(1)   
As of August 5, 2010.

Holders

As of August 5, 2010, we had approximately 128 holders of our common stock.  The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent for our common stock is Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034.

Dividend Policy

The payment by us of dividends, if any, in the future rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, capital requirements and financial condition, as well as other relevant factors.   We do not intend to pay any cash dividends in the foreseeable future, but intend to retain all earnings, if any, for use in our business.

Equity Compensation Plan Information
 
None.

DETERMINATION OF OFFERING PRICE

The $0.85 per share offering price of our common stock was arbitrarily chosen. There is no relationship between this price and our assets, earnings, book value or any other objective criteria of value.  The price is similar with private placement sales we made in May 2010, although it is higher than the price of more recent private placements.  In addition, the offering price is less than that which our common stock, which is considered a grey market stock, last traded, which was $0.98 on August 2, 2010. It is a fixed price at which the selling stockholders identified herein may sell their shares until our common stock is quoted on the OTC Bulletin Board, at which time the shares may be sold at prevailing market prices or privately negotiated prices. There is no relationship between this price and our assets, earnings, book value or any other objective criteria of value.

We intend to request the assistance of a market maker to apply to the OTC Bulletin Board for the quotation of the common stock. If the common stock becomes so traded and a market for the stock develops, the actual price of stock will be determined by prevailing market prices at the time of sale or by private transactions negotiated by the selling shareholders. The offering price would thus be determined by market factors and the independent decisions of the selling shareholders.
 
 
 
10

 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

Some of the information in this Form S-1 contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate” and “continue,” or similar words. You should read statements that contain these words carefully because they:

 
discuss our future expectations;
 
contain projections of our future results of operations or of our financial condition; and
 
state other “forward-looking” information.

We believe it is important to communicate our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under “Risk Factors,” “Business” and elsewhere in this prospectus. See “Risk Factors.”

Overview

We were incorporated on September 7, 1993 under the laws of the State of Florida as The Energy Corp. On April 24, 2004, we changed our name to Energy Telecom, Inc.

We are a development stage company that holds U.S. and foreign patents allowing for the manufacture, marketing and distribution of a hands-free, wireless communication eyewear providing quality sound and noise attenuation.

We are a development stage entity under ASC 915.  ASC 915 defines a development stage entity as an entity devoting substantially all of its efforts to establishing a new business and for which either of the following conditions exists: a. planned principal operations have not commenced, or b. planned principal operations have commenced, but there has been no significant revenue there from.  ASC 915 further states, a development stage entity will typically be devoting most of its efforts to activities such as the following: a. financial planning, b. raising capital, c. exploring for natural resources, d. developing natural resources, e. research and development, f. establishing sources of supply, g. acquiring property, plant, equipment, or other operating assets, h. recruiting and training personnel, i. developing markets, j. starting up production.  Although certain aspects of the Company’s planned principal operations have commenced, they have been limited to the activities specified by ASC 915 as those typical of development stage entities.  Further, these activities have generated no revenues since inception of the development stage.

Development took an extraordinary time, as we found that the integrated circuits (Bluetooth chips in particular), and the energy density of batteries in the early 2000's, did not permit construction of an eyewear small enough, and light enough to be found acceptable in the marketplace.  When those components proved small and light enough (about 2006-2007), development of the eyewear itself began.  The period from the early 2000's to that time were spent in broadening our patent portfolio by adding five European countries in which our claims are protected (Great Britain, France, Italy, Spain, and Germany), and, developing the protocols that could be used in each new version of the Bluetooth specification.  During the time from 2000 to 2010, the design was continually evolved by extensive testing and field trials on various iterations of prototypes, as they became smaller, lighter, and more comfortable.  Those findings were incorporated in the design used in our eyewear at this time.

We are hoping to exit the development stage after producing an eyewear that can be sold.  We have produced the world's first hands-free two-way, sound attenuating wireless telecommunication eyewear, intended for use by police, fire, rescue, military and security personnel as well as bio-hazard, construction and heavy-manufacturing workers.  In conjunction with our manufacturing partner, Samsin USA, we have obtained safety lenses made by Sperian and ear plugs produced by Howard Leight, to create our telecom eyewear.  In June 2010, we started generating revenues from the sales of our eyewear.

After further testing and feedback from our initial purchasers, we intend to market the eyewear to police, fire, rescue, military and security personnel, as well as companies in bio-hazardous, mining, construction and heavy manufacturing that utilize VHF and UHF radio communication. We believe our eyewear will also be in demand by those using cellular and smart phones for voice communication, and for listening to high-fidelity streaming stereo.
 

 
 
11

 
Current Operating Trends and Financial Highlights

Management currently considers the following events, trends and uncertainties to be important in understanding our results of operations and financial condition during the current fiscal year:

 
·
We have recently completed the second run of production on our telecommunication eyewear. The total working eyewear produced to date is 99 eyewear, consisting of several "runs" or batches, with each run providing improvements and corrections to the design as the process evolved.  The first run, which was comprised of 50 eyewear, were given out as trial eyewear for actual use/testing in the field, normally under very difficult conditions, as marketing samples (i.e., samples sent to Dolby, Sperian Protection, VisionSource, etc.) or were destroyed in the normal course of development and testing. Of the ones given out for testing in the field, about 10 are in constant daily use in the United States, Israel, Afghanistan, and Iraq.  The second "run" of eyewear was 49 units, of which 23 were placed for sale on Amazon.com on June 25, 2010, and were all sold by July 1, 2010.  As of August 5, 2010, 43 eyewear units have been sold.  In addition, we will begin to market to large personal protective equipment, or PPE, manufacturers with the goal of obtaining broader distribution methods;
 
 
·
We recently issued a purchase order for 1,000 eyewear to Samsin, our manufacturing partner, so as to insure steady supply of eyewear to potential distributors and re-sellers, through the second half of 2010. The order also provides sufficient certainly to Samsin so it felt comfortable enough to order the sophisticated integrated circuits used in the eyewear, in volume.  As there is about a four to six week delivery time of those components, they must be ordered prior to the eyewear being needed to fulfill current orders. We will not be charged for the entire order initially, as the 1,000 units will be released in phases, to insure a sufficient, but not an extensive and unnecessary inventory.  We will pay for each release, when the specific number of eyewear are received, tested, and considered acceptable.  We are obligated to purchase the entire 1,000 sets of eyewear, even if we are unable to sell them. In the event we are unable to sell them, the required payment for them would drain our limited financial resources.
 
The first release for 75 of the ST-3000 model eyewear and 75 ST-1000 model eyewear was issued on July 2, 2010 and is expected to be shipped by Samsin around the middle of August 2010.  We do not believe the sales of these units will have a material impact on our results of operations or financial condition.  The revenue from the sales will help offset our expenses, but we will still need additional financing to continue operations.  We will order additional eyewear to be released under the purchase order on an as-needed basis, based on management’s determination, with each release paid for upon testing and acceptance of the eyewear.  If management orders too many units before sales have been made, it could deplete our cash resources and if management waits to order units until all or substantially all of the prior inventory is depleted, we may be unable to deliver products to customers on a timely basis, which could result in canceled sales;
 
 
·
During the next six months, we will continue to expand our potential markets through patent filings, including a filing that will protect our product for potential sales in Japan and South Korea;
 
 
·
Recent research has indicated that there may be long-term health hazards from radiation relating to the use of cellular telephones.  We intend to aggressively market our product as an alternative to cell phone usage as our product produces between 1/100th and 1/200th of the radiation of typical cell phones; and
 
 
·
Escalating tensions between North Korea and South Korea could disrupt our operations.  The telecommunication eyewear frames are manufactured by Samsin Innotec, which has plants in South Korea.  In addition, all the components are shipped to South Korea, where they are assembled and tested, and then shipped out as a product ready for sale.

Results of Operations

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.
 
Year ended December 31, 2009 compared to the year ended December 31, 2008

Revenue

No revenue was generated for the years ended December 31, 2009 or 2008. During this time, we were mainly focused on research and development of our products.
 
 
 
12

 

 
Expenses

For the years ended December 31, 2009 and 2008, general and administrative expenses totaled $164,244 and $228,640, respectively.

Included in general and administrative expenses for the years ended December 31, 2009 and 2008 were professional fees totaling $65,514 and $91,494, respectively.  The decrease in professional fees of $25,980 resulted from reductions in accounting and legal costs. 

Also included in general and administrative expenses for the years ended December 31, 2009 and 2008 were office expenses totaling $28,711 and $23,998, respectively.  The increase in office expense of $4,713 resulted primarily from an increase in base rent from $1,150 to $1,750 per month.

Also included in general and administrative expenses for the years ended December 31, 2009 and 2008 were salaries, payroll taxes and other employee benefits totaling $38,999 in each year. 

Also included in general and administrative expenses for the years ended December 31, 2009 and 2008 were travel expenses totaling $7,261 and $11,712, respectively. 

Also included in general and administrative expenses for the years ended December 31, 2009 and 2008 were product development and promotion expenses totaling $32,899 and $5,452, respectively.  The increase in product development and promotion expenses of $27,477 was due primarily to the development of a working prototype of the Company’s protective eyewear. 

Stock compensation charged (credited) to general and administrative expenses for the years ended December 31, 2009 and 2008 totaled $(23,088) and $30,538, respectively.  The $23,088 credited to general and administrative expense during 2009 represents the reversal of previously recognized stock compensation expense for stock options containing market conditions that expired prior to being achieved.

Other Income and Expenses

For the year ended December 31, 2009, we incurred $18,660 in interest expense, which was offset by $1,043 in interest income compared to $17,528 in interest expense, which was offset by $2,455 in interest income for the year ended December 31, 2008.  The increase in interest expense was a result  a higher outstanding balance of principle and accrued interest upon which interest is compounded .
 
For the year ended December 31, 2009, we incurred $1,898 in derivative instrument expense, compared to $-0- during the year ended December 31, 2008. The increase in derivative instrument expense during 2009 was a result of the adoption of new guidance in FASB ASC 815 on January 1, 2009, which required us to recognize certain shareholder  anti-dilution agreements as derivative instruments.
 
Net Loss

For the year ended December 31, 2009, we incurred a net loss of $183,759 ($0.0 4 per share of common stock) as a result of the foregoing, compared to a net loss of $243,713 ($0. 06 per share of common stock) for the year ended December 31, 2008.

Three months ended March 31, 2010 compared to the three months ended March 31, 2009

Revenue

No revenue was generated for the three months ended March 31, 2010 or 2009. During this time, we were mainly focused on research and development of our products.

 
13

 
 
Expenses

For the three months ended March 31, 2010 and 2009, general and administrative expenses totaled $68,963 and $21,734, respectively.

Included in general and administrative expenses for the three months ended March 31, 2010 and 2009 were professional fees totaling $31,519 and $7,219, respectively.  The increase in professional fees of $24,300 resulted primarily from legal costs incurred to obtain patents and trademarks.

Also included in general and administrative expenses for the three months ended March 31, 2010 and 2009 were office expenses totaling $14,251 and $5,599, respectively.  The increase in office expense of $8,652 resulted primarily from an increase in base rent from $1,150 to $1,750 per month and $5,900 in moving expenses incurred during 2010.

Also included in general and administrative expenses for the three months ended March 31, 2010 and 2009 were salaries, payroll taxes and other employee benefits totaling $9,974 in each year. 

Included in general and administrative expenses during the three months ended March 31, 2009 is a credit for stock compensation totaling $5,322, which represents the mark-to-market adjustment of stock options containing market conditions.

Other Income and Expenses

For the three months ended March 31, 2010, we incurred $4,977 in interest expense, which was offset by $188 in interest income compared to $4,983 in interest expense, which was offset by $152 in interest income for the three months ended March 31, 2009.  
 
For the three months ended March 31, 2010 we incurred $4,568 in derivative instrument expense, compared to $-0- for the three months ended March 31, 2009. The Company adopted new guidance in FASB  ASC  815 on January 1, 2009, which required us to recognize certain shareholder anti-dilution agreements as derivative instruments. The derivative instruments expense reflected in the financial statements is a result of market -to-market adjustments for changes in the fair value of the Company’s common stock.
 
Net Loss

For the three months ended March 31, 2010, we incurred a net loss of  $78,320 ( $0.02 per share of common stock) as a result of the foregoing, compared to a net loss of $26,565 ( $0.01 per share of common stock) for the three months ended March 31, 2009.

Liquidity and Capital Resources

As of March 31, 2010, we had a working capital deficit  of $28,017 . For the three months ended March 31, 2010, we used $65,587 in cash in operating activities. Cash provided by financing activities totaled $106,600 primarily from the issuance of common stock.  From time to time since our formation in 1993, we have sold shares to investors in private placement transactions.  For the three months ended March 31, 2010, we sold an aggregate of 209,971 shares of our common stock for $109,600 in seven different transactions.  Except for anti-dilution protection provided to one shareholder in connection with investments made in 2007 and 2008, our financing transactions have not contained additional equity components (such as warrants) nor provide the investors with rights (such as piggyback or demand registration rights).

We expect capital expenditures during the next 12 months, contingent upon raising capital.  These anticipated expenditures are for marketing, advertising, inventory, equipment and overhead. We have sufficient funds to conduct our proposed operations for approximately three months, depending on revenues, but not for 12 months or more.  There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all. If we are unable to raise any additional funds, we have sufficient capital for about 3 months of operation.  However, based on years of experience of financing operations through the sale of securities, we believe we will generate sufficient capital, including purchasing inventory, to meet our needs in the next 12 months.

Although there are no assurances that we will be able to raise additional funds through the sale of securities, in the first six months of 2010 we raised almost the same amount of funds from the sale of securities that we achieved for the year ended December 31, 2009.  In addition, as we are moving from development to actual operations, we believe it is more likely that investors will be willing to fund operations in the short-term.  The private placements that occurred since January 2010 were with accredited investors that contacted as, either because they previously invested with us or were referred to us by word of mouth from existing investors, with approximately 66% of the investors in that period representing investors who had previously invested in our company.  For each private placement, we negotiate the price per share with such potential investor, based upon the amount of money the potential investor desires to invest and recent trading activity and price of our common stock.  Other than one significant investor who received anti-dilution protection and the purchase price per share, we have not granted any investors any sort of different terms in our private placements.

 
14

 
 
  Other than possible family relationships between the existing and new investors, we are not aware of any material relationships between new and existing investors. We have not engaged in any sort of solicitation of potential investors.  None of our advisors or consultants have been involved in any sort of fundraising activities on our behalf.  Also, we do not believe that having our stock available for quotation on the OTC Bulletin Board is necessary for us to raise the additional funds necessary to continue operations through the sale of our securities going forward, although we believe it would be helpful.

In June 2010, we established a merchant account on Amazon.com, and on June 25, 2010 we began offering our eyewear for sale directly to the public.  Although sales have been minimal to date (approximately 30 units sold), we anticipate that there will be some revenue to offset expenses during the next six months, although no assurances can be given that we will receive and signature revenue.  In addition, we are not relying upon future revenues to provide us the liquidity necessary to continue operations.

We do not currently have a sufficient amount of cash to cover our proposed operating and development costs.  Our fixed operating expenses have been and are expected to continue to outpace revenue resulting in additional losses in the near term.  By adjusting our operations to our current level of capitalization, we believe we have sufficient capital resources to meet projected cash flow deficits for at least 12 months. However, if during that period, or thereafter, we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

As of July 1, 2010, we had a working deficit capital of approximately $4,332 .  At our current rate, we use about $20,000 per month for continuing operations, which includes general operating expenses (office lease, utilities, salary and insurance), promotion and marketing (travel, entertainment, meals and website development), prototype development (parts, engineering and testing), and professional services (accounting, legal, professional and state fees and intellectual property fees).  In addition, we will need to purchase larger quantities of product, as sales grow.  We anticipate those inventory purchases will total about $46,000 during the next six months, which is the purchase order we recently placed with Samsin as previously disclosed.  We will also have new legal and accounting costs in the six months, totaling about $20,000, for combined expenditures of approximately $186,000 through December 31, 2010.  However, we anticipate that we will have to substantially increase our inventory in the first quarter of 2011 that we intend to sell to industrial and commercial clients, who we anticipate would place large bulk orders, in contrast to the retail clients we are currently selling to through Amazon, which are primarily on a single order basis.

If we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

We presently do not have any available credit, bank financing or other external sources of liquidity. Due to our brief history and historical operating losses, our operations have not been a source of liquidity. We will need to obtain additional capital in order to develop operations and become profitable. In order to obtain capital, we may need to sell additional shares of common stock or borrow funds from private lenders pursuant to instruments which are junior to our outstanding secured debt instruments. There can be no assurance that we will be successful in obtaining additional funding.

We will still need additional financing in order to continue operations. Additional financings are being sought, but we cannot guarantee that we will be able to obtain such financings.  Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, the low trading price of our common stock and a downturn in the U.S. stock and debt markets is likely to make it more difficult to obtain financing through the issuance of equity or debt securities. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses, fail to collect significant amounts owed to us, or experience unexpected cash requirements that would force us to seek alternative financing. Further, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of common stock. If additional financing is not available or is not available on acceptable terms, we will have to curtail or cease our operations.

 
15

 

Loans Payable to Related Party

From time to time, we have received financing from Thomas Rickards, our Chief Executive Officer and sole Director. The stockholder loans bear interest of 10% per annum, compounding annually and are due on demand.

The following table summarizes stockholder loans payable as of March 31, 2010 (unaudited) and December 31, 2009:

   
March 31,
2010
   
December 31,
2009
 
Loans payable, due on demand, interest at 10%
  $ 38,486     $ 41,486  
Accrued interest
    24,302       22,773  
    $ 62,788     $ 64,259  

Critical Accounting Policies

Financial Reporting Release No. 60, published by the SEC, recommends that all companies include a discussion of critical accounting policies used in the preparation of their financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our consolidated financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates.

We believe that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause a material effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

The accounting policies identified as critical are as follows:

Development Stage Company

Effective August 22, 2000, we are considered a development stage company as defined by ASC 915 “Development Stage Entities,” as we have no principal operations and have only generated minimal revenue starting in June 2010.  Operations from the inception of the development stage have been devoted primarily to strategic planning, raising capital and developing revenue-generating opportunities through the acquisition and development of our patents.  Prior to entering the development stage on August 22, 2000, we sold manufacturing equipment in an unrelated business venture.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements.  Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider financial instruments with an original maturity date of three months or less to be cash equivalents.

Patents

Our patents (U.S. 5,717,479, U.S. 6,012,812, U.S. 6,950,531, U.S. 7,133,532 and other international patents) which describe the general means for delivering sound through disposable sound attenuating components, are capitalized at the original cost, if purchased, or at the carrying basis of the transferor if contributed by an entity under common control.  Patent costs are amortized using the straight-line method over their estimated period of benefit remaining.  We evaluate the recoverability of patents annually taking into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists.  Costs of developing patents that are not specifically identifiable, that have indeterminate lives, or that are inherent in the continuation of our business are recognized as an expense when incurred.


 
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Share-Based Compensation

Share-based compensation issued to employees is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period.  We measure the fair value of the share-based compensation issued to non-employees using the stock price observed in the arms-length private placement transaction nearest the measurement date (for stock transactions) or the fair value of the award (for non-stock transactions), which were considered to be more reliably determinable measures of fair value than the value of the services being rendered.  The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

We measure the fair value of shares issued as share-based compensation to employees using the stock price observed in the arms-length private placement transaction nearest the measurement date, which was considered to be a more reliably determinable measure of fair value than the value of the services being rendered.  The measurement date is the earlier of (1) the date at which commitment for performance by the counterparty to earn the equity instruments is reached, or (2) the date at which the counterparty’s performance is complete.

Income Taxes

We recognize deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statements or tax returns. Deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.  Deferred tax assets are recognized, net of a valuation allowance, for the estimated future tax effects of deductible temporary differences and tax credit carry-forwards.  A valuation allowance against deferred tax assets is recorded when, and if, based upon available evidence, it is more likely than not that some or all deferred tax assets will not be realized.

There are no unrecognized tax benefits at December 31, 2009 and 2008. Our policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense.  There are no accrued interest or penalties associated with any unrecognized tax benefits, nor was any interest expense recognized during the year.  We have determined we have no uncertain tax positions at March 31, 2010, December 31, 2009 and December 31, 2008.

Net Loss per Common Share

Basic loss per share (“EPS”) is computed by dividing the net loss attributable to the common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the reporting periods.  Diluted loss per share is computed by increasing the denominator by the weighted average number of additional shares that could have been outstanding from securities convertible into common stock, such as stock options and warrants (using the “treasury stock” method), unless their effect on net loss per share is antidilutive.  The effect of computing diluted loss per share is antidilutive and, as such, basic and diluted loss per share is the same.

Recently Issued Accounting Pronouncements

In April 2009, the FASB issued FASB Staff Position No. FAS 107-1 and APB 28-1, “Interim Disclosure about Fair Value of Financial Instruments” (“FSP No. 107-1”), which is now codified within ASC 825 “Financial Instruments”. FSP No. 107-1 requires summarized disclosures in interim periods of the fair value of all financial instruments for which it is practicable to estimate that value, whether recognized or not recognized in the financial statements. Previous to FSP No. 107-1, such disclosures were required only for annual periods. The adoption of FSP No. 107-1 did not have an impact on our financial statements.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events” (“SFAS No. 165”), which is now codified within ASC 855 “Subsequent Events” and amended by FASB Accounting Standards Update (“ASU”) 2010-09 “Amendments to Certain Recognition and Disclosure Requirements.” SFAS No. 165, as amended by ASU 2010-09, establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The adoption of SFAS No. 165 and ASU 2010-09 did not have an impact on our financial statements.

In April 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 142-3, “Determination of the Useful Life of Intangible Assets”, which is now codified into ASC 350 “Intangibles – Goodwill and Other”. This FSP amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under U.S. GAAP. The objective of this FSP is to improve the consistency between the useful life used to amortize a recognized intangible asset to expense and the period of expected cash flows used to measure the fair value of the asset. This FSP applies to all recognized intangible assets, whether acquired in a business combination or otherwise. The adoption of this FSP did not have an impact on our financial statements.

Management does not believe that any other recently issued but not yet effective accounting pronouncements, if adopted, would have an effect on the accompanying consolidated financial statements.
 
 
 
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BUSINESS

Overview

We were incorporated on September 7, 1993 under the laws of the State of Florida as The Energy Corp. On April 24, 2004, we changed our name to Energy Telecom, Inc.  From inception through 1998, our founder designed, manufactured and sold products for heavy industrial markets to multi-national firms in six countries and the United States. While working in this market, he saw an opportunity to create a new type of personal communication systems and filed his first patent in September 1996. Once that first patent was awarded, the founder re-directed our focus and centered his activities on expanding our patent portfolio of personal communication systems which support the needs of the emergency, security and industrial work environment, and the broader cellular and recreational eyewear markets.

Our patent portfolio has since grown to consist of multiple issued United States and international Patent Cooperation Treaty (PCT) patents, and multiple pending U.S. and PCT applications. We intend to continue building our existing patent portfolio by filing additional patent claims. While many manufacturers of wireless headsets, novelty eyewear, industrial headwear and optical projection technology offer products with one or more of the features, we believe we offer the only next-generation solution protected by patent claims in all these areas.

We are a development stage company that holds U.S. and foreign patents allowing for the manufacture, marketing and distribution of a hands-free, wireless communication eyewear providing quality sound and noise attenuation. We intend to market the eyewear to police, fire, rescue, military and security personnel, as well as companies in bio-hazardous, mining, construction and heavy manufacturing that utilize VHF and UHF radio communication. We believe our eyewear will also be in demand by those using cellular and smart phones for voice communication, and for listening to high-fidelity streaming stereo.

Personal Protection Equipment Market

Overview

The PPE market includes equipment and clothing worn for protection against bodily injury. Products include earmuffs and earplugs, communication headsets for noisy environments, safety eyewear and goggles, respirators, fall protection equipment, head protection equipment, protective clothing, gloves, footwear and other products. The global PPE market is approximately $15 billion in annual sales. Within this market, we aim to compete primarily in the segment of the market represented by hearing, eye and face protection products.

In many emergency rescue, industrial, mining, manufacturing or construction related applications, employees are generally required to wear and carry various types of PPE gear, such as boots, hard hats, or gloves, as well as vision and hearing safety equipment in the form of protective glasses and disposable ear plugs.

The ability to communicate easily is another important consideration in equipping workers. Generally, they carry a radio, or have some form of communication such as a computer or a telephone near their workstation. Unfortunately, however, workers can become quite isolated in many of these working environments, because their hearing protection blocks out all exterior noise including the phone or radio. In emergency situations, it is very important that all of the workers communicate with one another so as to properly alert one another of dangers, evacuations or other safety related events.

Types of Products

In addition to safety, businesses also need communicability to increase worker efficiency and productivity. For those reasons it is vital that a worker be in communication with other workers at all times.  Presently, businesses address the various safety and communicability considerations by issuing employees individual radios, protective glasses and earplugs. Alternatively, some facilities attempt to use a computer workstation monitor to provide workers with a visual signal. Still, communication can be a great inconvenience because workers must often remove their hearing protection to properly communicate. Furthermore, even though some external headphone-type ear covers, which provide for some communicability, are available, due to the previously described expense, inconveniences and un-hygienic conditions associated with their use, those types of devices are not favored and businesses must look to many available alternatives.

 
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Accordingly, safety glasses, hearing protection and communication devices are still commonly provided to workers separately, and the worker is called upon to manage all of the separate, and often incompatible, devices as well as possible. Unfortunately, users who are able to simultaneously wear two or three separate devices find their combined use very inconvenient, bulky and awkward on a day-to-day basis. Further, to ensure that a worker does not forget or misplace the often expensive equipment, in many instances some or all of the safety equipment, and especially the more expensive equipment such as the communication equipment and exterior head phone type covers, must be turned in each day and reissued the following morning. This practice frequently results in safety glasses, cell phones, microphones, transmitters and ear covers being lost, misplaced, or damaged during storage, as the use of several separate devices does not allow for easy convenient storage in one central location. As such, it is very difficult to keep track of all of the various types of safety equipment and a user still has no assurance that they are using all of their own equipment from day to day, a circumstance that is not only un-sanitary, but also can be quite inconvenient to a user who may have to re-size or otherwise adapt their equipment to their comfort requirements.

This is the state of the current market for providing the estimated 75 million police, fire, rescue, military, security, bio-hazard, mining, construction and heavy manufacturing workers worldwide, with various levels of protection and communication products.

The following are the types of products being used in today‘s marketplace. They include:

     
 
• 
Protective eyewear: generally a lightweight, wraparound frame that has durable, hard-coated, often wrap-around, polycarbonate lenses;
     
 
• 
Industrial wireless all-in-one communication headgear radios: two-way, portable radios built into headsets with noise-reducing earmuffs; generally requiring a base station for multiple user environments;
     
 
• 
Industrial headsets: industrial strength headsets with portable radios that can be connected to belt worn or handheld transceivers;
     
 
• 
Two-way handheld radios: a full range of products that use short-range wireless communication technologies;
     
 
• 
RF wireless ear worn Bluetooth radios: adoption of the Bluetooth RF protocol which now makes production of the eyewear radio both practical and economical; and
     
 
• 
Inductance wireless earpieces (buds): a component of the product offering a pathway to superior foam technologies.
     

Future of the PPE Market

The convergence of voice, data and video communication technologies has produced a growing market for personal protection and telecommunication products. With the exponential growth in computational capabilities, intelligence and miniaturization, new technologies are being applied to old communications methodologies. The next generation of broad spectrum, small, intelligent digital audio and video communication devices can now be created based on the availability of advanced digital signal processing (DSP) technology (allowing for the conversion of analog information such as sound and pictures into digital information), single-chip radio construction and the miniaturization and commercialization of optical projection technology. Convergence was inevitable, as the perceived need for “smaller, lighter, cheaper, smarter and hands-free” devices is now deep-seated in the modern consumer‘s buying habits.

We believe that our telecommunication eyewear is the type of convergence where the PPE market is heading. We consider telecommunication eyewear as a product delivering hands-free access to the full range of voice, stereo music, data and video (optical display) information, including text, multi-media and full screen and full color web-site views.

 
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Key industry trends

The industry is experiencing significant advancements in various forms of technological advances, and thus evolving user requirements, including:

     
 
• 
Increasing interest and demand for small, hands-free, wireless and digital communication products;
     
 
• 
Increasing need and demand for real-time information delivery of text messages, and eventually full page, multi-media, full color displays;
     
 
• 
evolving capability to deliver smaller, full screen, full color, interactive displays;
     
 
• 
rapid advances in digital signal processing (DSP) chip technology providing for the conversion of analog signals to digital signals, allowing for smaller systems utilizing software controlled learning-capable operations;
     
 
• 
development of voice-recognition software for hands-free information appliances;
     
 
• 
development of speakers and microphones-on-a-chip allow for miniaturized sound systems within the ear;
     
 
• 
increasing need to organize and manage employee group and individual connectivity; and
     
 
• 
increasing need to increase productivity through use of individual safety glasses, hardhats, microphones, transmitters, ear covers, computer terminals, cell and smart phones.
     

Limitations of current industry practices

Although various solutions are being offered to attempt to fill the void in the marketplace, they all have inherent limitations, including:

     
 
• 
combining communications with personal safety requires two or three separate products;
     
 
• 
current headsets normally require a wired connection from the headset to a radio worn elsewhere on the body;
     
 
• 
some current information appliances are hands-free, but because they are almost exclusively ear-muff type in design, do not find favor from those working in high-heat and humid work environments;
     
 
• 
current work-related radio products are finger-push activated – as they do not yet employ voice-recognition - thus are difficult for gloved fire and emergency personnel to use;
     
 
• 
current short-range walkie-talkie radio technology uses analog transmissions, therefore cannot provide digital data;
     
 
• 
current state of bulky hardwired radios, versus printed-circuit-board mounted single chip radios; and
     
 
• 
no ability to project text or multi-media images onto eyewear lenses to provide full page text, or instructions to remote workers.
 
 

 
 
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Product

We have produced the world's first hands-free two-way, sound attenuating wireless telecommunication eyewear, intended for use by police, fire, rescue, military and security personnel as well as bio-hazard, construction and heavy-manufacturing workers.  In addition, we are designing our product to deliver comfortable, safe, economic, and aesthetic access to entertainment and cellular-phone networks through consumer-level recreational eyewear/accessory for use in various everyday situations including beach wear, casual shopping, sporting events, or other casual wear.

We recently completed the initial testing stages of our production eyewear. During these stages, our telecom eyewear was distributed to potential marketing and distribution partners for consideration, evaluation and display in various trade shows. Additionally, through the services of an industry-leading testing laboratory, we completed all of the necessary physical certification tests of the eyewear, including ANSI, FCC and Bluetooth to begin selling our eyewear in the United States.  In June 2010, we established a merchant account on Amazon.com, and on June 25, 2010 we began offering our eyewear for sale directly to the public.  Sales have been minimal to date, with approximately 30 units sold.  The manufacturer’s standard retail prices for our eyewear are currently between $179 and $279, with the higher priced models containing the hearing protection and high-fidelity stereo sound. We continue to seek the necessary certifications for the sale of our product in Canada and the European Union.
 

Image

 
Safety Lenses

The lenses in our eyewear are manufactured and designed by Uvex, a division of Sperian Protection, a leading manufacturer of safety eyewear products.  The Genesis wraparound lenses provide vision impact protection to industry safety standards and block 99.9% of UVA and UVB radiation light.  In order to provide for maximum usage and durability, the lenses are easily replaceable and come is different colors/shades.  A snap-in prescription lenses holder and specifications for prescription lenses are also available.  We are also working to provide safety lenses that will provide a heads-up optical display, although no release date is currently available.

Noise Attenuation Earplugs
 
 
The eyewear contains soft ear plugs designed and manufactured by Howard Leight/Sperian Hearing Protection, a leading global hearing protection device company. The earplugs are corded to the eyewear and are replaceable.   Through the use of dual microphones and noise attenuating software designed by Samsin, the earplugs reduce environmental noise by at least 20 decibel (dB).  An increase of 20 dB is the equivalent of a sound appearing four times as loud.  OSHA regulations require that, when engineering controls and/or administrative controls cannot reduce noise levels in industry to an eight-hour time-weighted average level of less than 85 dB, a hearing protection (or conservation) program must be established.  OSHA requirements prohibit a worker from working more than eight hours per day with exposure to a sustained sound level of 90 dB, which decreases significantly to two hours per day at 100dB.  Most industrial and construction noise is in the range of 90 – 110 dB.

Voice Communication

Our eyewear is equipped with wireless two-way Bluetooth v2.1 voice communication that is compatible with a cellular telephone that is Bluetooth enabled. In addition, our eyewear works with handheld Bluetooth- enabled VHF and UHF walkie-talkies and Bluetooth adaptors. This provides a user with hands-free use of their cell phones.  Large push buttons are built into the frame to allow easy use even by users with gloved hands.  The eyewear works at least 15 feet from the cell phone or other Bluetooth enabled device.

 
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Music Playback

Our eyewear is capable of streaming stereo music from any Bluetooth enabled music device.

Industrial Certifications

We have submitted our telecommunications eyewear for testing and certification by numerous standards.  Many of these certifications are required in order to sell our product as personal protective equipment.  We have contracted with Colts Laboratories, an independent testing facility that is accredited by the Safety Equipment Institute to complete and verify standard tests.

American National Standards Institute

The American National Standards Institute, or ANSI, is a not-for-profit organization that serves as administrator of the United States private sector voluntary standardization system. The primary objective of ANSI is to promote and facilitate voluntary consensus standards and conformity assessment systems. ANSI does not have authority to enforce such standards, but their standards are used by OSHA to be sure that certain safety devices, such as eyewear, provide adequate protection for workers.

The ANSI Z87.1 standard sets forth requirements for the design, construction, testing, and use of eye protection devices, including standards for impact and penetration resistance. All safety glasses, goggles, and face shields used by employees under OSHA jurisdiction must meet the ANSI Z87.1 standard. The eyewear standard includes the following minimum requirements:

·  
Provide adequate protection against the hazards for which they are designed;
·  
Be reasonably comfortable;
·  
Fit securely, without interfering with movement or vision;
·  
Be capable of being disinfected if necessary, and be easy to clean;
·  
Be durable; and
·  
Fit over, or incorporate, prescription eyewear.

The ANSI Z87.1 standard requires that eyewear pass certain tests, including a high mass impact test and a high velocity impact test. In May 2010, our telecommunications eyewear passed the ANSI Z87.1 testing requirements on its first attempt.

FCC/CE Regulatory Certification

The Federal Communications Commission, or FCC, has adopted limits for safe exposure to radiofrequency (RF) energy. These limits are given in terms of a unit referred to as the Specific Absorption Rate (SAR), which is a measure of the amount of radio frequency energy absorbed by the body when using a mobile phone. The FCC requires cell phone manufacturers to ensure that their phones comply with these objective limits for safe exposure. Any cell phone at or below these SAR levels (that is, any phone legally sold in the U.S.) is a "safe" phone, as measured by these standards. The FCC limit for public exposure from cellular telephones is an SAR level of 1.6 watts per kilogram (1.6 W/kg).   Our eyewear has been determined to be “safe” and has been certified by the FCC.

Similarly, a CE certification refers to a product’s eligibility to be sold in the European Union. The trading region defined by the EU is called the European Economic Area, or EEA.  Before we can sell our telecommunication eyewear to any of the countries in the EEA, it must obtain CE certification. A product bearing the CE Mark has been tested to all of the relevant standards that the EU demands.  We expect that our eyewear will receive a CE certification and will be sold in the EEA.

In order to obtain CE certification, we must satisfy the following obligations:
 
·
Carry out a risk analysis and determine what solutions can be applied to reduce risks in compliance with the appropriate EEA directive;
·
Write a user’s instruction manual that sets out the purpose for which the product is intended;
·
Draft an EEA declaration of conformity, in which the manufacturer declares that the product complies with the specified EEA directives and norms; and
· 
Prepare a product dossier, which includes the documents mentioned above, as well as design data, drawings, calculations and test reports. In other words, it contains everything which makes it possible to demonstrate that the essential requirements relating to CE marking have been met.
 
Bluetooth Qualification

Bluetooth is an open wireless technology standard for exchanging data over short distances (using short length radio waves) from fixed and mobile devices, creating personal area networks with high levels of security. Bluetooth Qualification is the Bluetooth SIG certification process required for any product using Bluetooth wireless technology and is a necessary pre-condition of the intellectual property license for the Bluetooth technology. Qualification is also necessary in order to apply the Bluetooth trademark to a product. Bluetooth Qualification requires certain testing standards for all products that use Bluetooth wireless technology. Our telecommunication eyewear has received Bluetooth Qualification as a v2.1 Bluetooth enabled device, which is the latest Bluetooth standard.

 
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CSA International

CSA International is provider of product testing and certification services for electrical products, whose certifications are recognized in the U.S., Canada and around the world. CSA International is accredited by national agencies including, OSHA, ANSI, National Voluntary Laboratory Accreditation Program, National Evaluation Service and Standards Council of Canada.

The CSA Z94.3 standard applies to eye and face protectors used in all occupational and educational operations or processes involving hazards to the eyes or face.  Typical hazards include flying objects and particles, splashing liquids, molten metal, and ultraviolet, visible, and infrared radiation, but do not include X-rays, gamma rays, high-energy particulate radiation, radioactive materials, lasers, or masers.  The CSA Z94.3 standard would be considered the Canadian equivalent of the ANSI Z87.1 standard.  On July 9, 2010, our eyewear was submitted for testing under the CSA Z94.3 standard and passed and may now be sold in Canada.

Manufacturing Operations

Our telecom eyewear product is a manufactured product using various components constructed for the project, and assembled and shipped for distribution. We have a contractual agreement with Samsin Innotec, and their wholly owned subsidiary, Samsin USA, by which it develops, provide prototypes for, and manufactures our telecom eyewear products in any of their three plants, located in South Korea, or mainland China.  The agreement with Samsin is mutually exclusive until October 2011, meaning that we cannot have the telecom eyewear manufactured by another company and Samsin cannot manufacture telecom eyewear or its components for another company.

The UVEX lenses are manufactured by Sperian Protection, located in Smithfield, Rhode Island.  The eyewear's specially designed sound attenuating ear plugs are manufactured by Howard Leight company, a division of Sperian, in a manufacturing plant in Mexico.  Other than the purchase orders we place with Sperian or Howard Leight, we have no contractual obligations to use their products and we could use lenses or ear plugs produced by other companies if we decided.

All components are then shipped to South Korea for assembly of the eyewear.  The completed eyewear is thoroughly tested in Samsin's own Quality Control facilities, then shipped to us for distribution, or directly to other first or second tier distributors wishing to distribute the product.

All eyewear frames and electronics purchased from Samsin USA and Samsin Innotec are subjected to a complete battery of performance tests before acceptance, and payment.  Because the eyewear has been in early production, those tests are extensive, and often result in eyewear being rejected and sent back to manufacturing for repair or improvement.  As a result, we did not receive our first invoice until May 27, 2010, when our eyewear was completed and ready for sale.  As manufacturing matures, the rejection rate will decrease, with fewer returns, and we will receive our inventory in a shorter period of time, which will result in fewer delays on payment to our manufacturer.

Distribution Operations

In addition to direct sales by our current partners and our own distribution efforts, we believe that one or more of the companies that produce the wireless headsets and industrial safety products will distribute the telecommunication eyewear product, probably under their own label, to gain new market share. For example, Sperian, who produces the lenses used in eyewear, or Howard Leight, who produces the ear plugs, may wish to sell our product since we incorporate one of their products.  If they decided to do so, they would purchase them from us to be sold under their own brand name for the eyewear.  Alternatively, a company such as Samsin, which produces the frames for the eyewear and manufactures the completed eyewear, may desire to sell the eyewear through its distribution network.  Samsin, which has a long history of selling products to police and military forces in Asia, would sell the eyewear and pay us a royalty rate based on the number of units sold.  We have had discussions with our partners regarding these potential sale arrangements, but other than the agreement discussed below with Tolson Uniforms LLC, we do not currently have any contracts or commitments nor can we be assured to reach any contracts or commitments regarding such arrangements.

 
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On July 30, 2010, we entered into a one year non-exclusive distribution agreement with Tolson, which is an online and retail-space supplier of support equipment to the police, fire, emergency medical services, military and private security markets.  Pursuant to this agreement, Tolson agreed to sell our telecom eyewear products only in areas where they have an active sales presence and is prohibited from selling in any country other than the U.S. without our prior written consent.  Tolson purchases the eyewear from us at a discount to the manufacturer’s suggested retail price.  Although Tolson is required to purchase at least $5,000 in eyewear from us annually in order to renew the distribution agreement, there is no minimum payment owed to us by Tolson pursuant to the agreement.

Many manufacturers distribute products that incorporate elements of our intellectual property.  However, we are not aware of any product or group of products which provides safety lenses, hearing protection and communication in a single, ergonomically oriented, sanitary, multi-user safety device. As a result, we believe there exists an opportunity that one or more companies that produce wireless headsets and industrial safety products will distribute our product because they will view our product as a complimentary product rather than a competitor.  For example, a company that sells protective lenses can offer our product in addition to their protective lenses.  A customer interested in just protective lenses likely would not buy our product because of the price compared to just protective lenses, but a customer that is looking for protective lenses and hearing protection (from another company) would buy our product rather than from a competitor that sells our products.  We have had discussions with at least one headgear communication company that is interested in offering our product, but we do not currently have any contracts or commitments nor can we be assured to reach any contracts or commitments regarding such arrangements.

We will seek to analyze the products being offered by other companies, evaluate which competitors could benefit from licensing our patents, and carefully determine which, if any, of their products may infringe on elements of our patented protection. Many of these companies hold patents on various elements of the products that they sell; however, none hold patents that protect the “means” for integrating additionally functionality into their core product offerings like our patents do. For that reason, we believe that companies will be interested in licensing our technology to be able to incorporate multi-functionality into their current products.

The following are targeted licensees, potential competitors and prospective partners:

 
Eyewear components
 
Cellular Carriers
In-Ear audio delivery systems
Information delivery
Sperian Protection S.A.
AT&T Inc.
Siemens AG
Dial2Do.com
3M  Company
Verizon Communications Inc.
Plantronics Inc.
 
North by Honeywell
Nokia Corp.
GN US, Inc. (Jabra)
 
Earmark, LLC
Sprint Nextel Corp.
   
Motorola, Inc.
     
Klein Electronics, Inc.
     

Targeted PPE Markets

The personal protection equipment market includes equipment and clothing worn for protection against bodily injury. Products include earmuffs and earplugs, communication headsets for noisy environments, safety eyewear and goggles, respirators, fall protection equipment, head protection equipment, protective clothing, gloves, footwear and other products. Within this global market, our telecommunication eyewear will compete primarily in the markets represented by hearing and eye protection and communication headset products.

Our telecommunication eyewear product will be targeted towards the following end-markets:

     
 
• 
Police and fire rescue, security services and military. To protect the eyes and ears during the use of firearms, explosives and other weaponry, to provide hands-free communication among personnel and allow for real-time viewing of intelligence;
     
 
• 
Manufacturing. To protect workers from plant hazards such as industrial noise and flying particles that may cause eye injuries;
     
 
• 
Construction, Mining and Logging Operations. To protect workers from airborne dust and debris and construction equipment noise and to provide two-way, instant communication;
     
 
• 
Video Game Players. To provide a better gaming experience with hands-free voice controls and streaming data; and
     
 
• 
Consumers. To protect consumers in home improvement and maintenance projects and to provide digital radio and cell phone communications.
 

 
 
24

 
Initially, we intend to target the market in the United States and then Europe, which we believe are the two largest PPE markets and the markets in which we have the greatest intellectual property protection.  Thereafter, the markets that we decide to target will be based on receiving patent protection and which distribution partners, if any, we enter into agreements with.

Research and Development

Research and development of our telecom eyewear product was conducted at various locations simultaneously:  our own offices (general layout, benefits, and ergonomics), research facilities at Howard Leight in Sand Diego, California (sound attenuation), at Samsin USA in Mason, Ohio (Bluetooth and other electronic design), and at Samsin Innotec's R&D facility (operating software system design, physical engineering) located in Seoul, South Korea.

Intellectual Property

We own and have obtained licenses to various domestic and foreign patents, patent applications and trademarks related to our products, processes and business. Our patents are often referred to as means plus function patents. Means plus function is the broadest type of patent protection and refers to a way of defining an invention in a patent claim that describes the element of the invention in terms of its function (i.e, the means by which a specific function is performed), rather than in terms of its specific structure. The use of a means plus function clause makes the claim harder to design around, since a patent on the means will then support all possible structures that can be performed by the specific function. Our patents expire at various times in the future not exceeding 20 years.

Patents and Patent Applications

We have been granted four applications in the United States and four in Europe.  We have one patent pending in the United States and we intend to file additional patent applications in the near future, in the United States and internationally.

Name of Patent Granted (Pending)
Jurisdiction
Date of Granting (Application)
Patent (Application) Number
       
Industrial safety assembly including disposable ear protection and earphone
USA
February 10, 1998
5,717,479
Industrial safety assembly including disposable ear protection and ear phone
Canada
June 3, 1999
CA2314348
Industrial safety assembly including disposable ear protection and ear phone
Australia
June 15, 1999
AU6321598
Industrial safety assembly
USA
January 11, 2000
6,012,812
Industrial safety assembly including disposable ear protection and ear phone
China
May 9, 2001
CN1294696
Industrial hearing protection and communication assembly
USA
September 27, 2005
6,950,531
Hearing protection and communication assembly
USA
November 7, 2006
7,133,532
Industrial safety assembly including disposable ear protection and ear phone
Europe
November 25, 2009
EP 1 060 433 B1
(Communication Eyewear Assembly)
USA
(September 9, 2008)
(US12/283,029)
Industrial safety assembly including disposable ear protection and ear phone
United Kingdom
November 9, 2009
EP 1060433
Industrial safety assembly including disposable ear protection and ear phone
Spain
January 4, 2010
E98907400
Industrial safety assembly including disposable ear protection and ear phone
Italy
January 12, 2010
1060433
Industrial safety assembly including disposable ear protection and ear phone
Germany
November 25, 2009
69841334.2
Industrial safety assembly including disposable ear protection and ear phone
France
November 25, 2009
EP 1060433
 
 

 
 
25

 
Trademark and Trademark Applications

We have been granted one trademark and have a pending application for another trademark as follows:

Name of Trademark Granted (Applied for)
Date of Registration (Application)
Registration (Serial) Number
     
Energytele.com
December 11, 2007
3354175
(Safe-Talk)
(May 7, 2010)
(85032675)

Competition

The global PPE market is highly fragmented. We estimate that there are several hundred manufacturers of PPE (other than safety clothing, gloves and shoes) in the United States, Europe and Southeast Asia. Participants in the industry range in size from small, independent, single-product companies with annual sales of a few million dollars, to a small number of multinational corporations with annual sales in excess of $100 million. We believe that participants in the PPE market compete primarily on the basis of product characteristics (such as design, style and functional performance), product quality, service, brand name recognition and, to a lesser extent, price. From a competitive standpoint, we believe we are currently well situated, primarily because we believe our telecommunication eyewear will appeal to many different potential end-users in the PPE market.

Government Regulation

As a manufacturer of safety products, we are subject to regulation by numerous governmental bodies. Principal among the federal regulatory agencies in the United States of America are the following: (i) Occupational Safety and Health Administration, which regulates the occupational usage of all PPE; (ii) the Environmental Protection Agency, which regulates labeling of hearing protection devices; and (iii) the Mine Safety and Health Administration, which regulates safety in mines. These agencies generally mandate that our products meet standards established by private groups, such as ANSI. Our products are also subject to foreign laws and regulations. In particular, they must comply with the Canadian Standards Association, European Committee for Standardization and Standards Australia in order to be sold in these markets. Our products are also subject to the Export Administration Regulation administered by the Department of Commerce, and certain products may be subject to the International Traffic in Arms Regulations administered by the Department of State. We believe we are in compliance in all material respects with the regulations and standards of these governmental bodies.

Environmental, Health and Safety Matters

We are subject to various evolving federal, state, local and foreign environmental, health and safety laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of hazardous substances and wastes. We believe that we are in substantial compliance with all such laws and regulations. We have an active program to ensure environmental compliance and achievement of environmental goals and objectives. We will continue to implement environmental management systems at our manufacturing facilities. The consequence for violating these laws and regulations can be material. We will likely have to make capital and other expenditures to comply with environmental and health and safety requirements. In addition, certain environmental laws and regulations impose joint and several strict liability on responsible parties, including past and present owners and operators of sites, to clean up, or contribute to the cost of cleaning up, sites at which hazardous wastes or materials were disposed or released. For example, if a release of hazardous substances occurs on or from our property or any offsite disposal location where our wastes have been disposed, or if contamination from prior activities is discovered at our property or third-party owned properties that we or our predecessors formerly owned or operated, we may be subject to liability arising out of such conditions and the amount of such liability could be material. Liability can include, among other things, for example, costs of investigation and cleanup of the contamination, natural resource damages, property damage to properties and personal injuries. Environmental laws and regulations are complex, change frequently and have tended to become more strict over time. If more stringent environmental laws or regulations are enacted, these future laws could have a material adverse effect on our results of operations.

Employees

As of August 5, 2010, we had one employee, our President.  We have entered into a five year consulting agreement for the services of Ronny Halperin, our Chief Financial Officer.  From time to time, we rely on consultants for various activities, including design, manufacturing and marketing, although we currently do not have any consulting agreements except for Mr. Halperin.  In addition, from time to time in the past, some of our shareholders have provided consulting services to us for no expected or received compensation. Currently, we have one consultant who is providing consulting services to us.  Mr. Tom Perszyk, our Bluetooth design engineer, formerly of Motorola, who provides all technical guidance required on the design, implementation, and development of the Bluetooth (and other RF) protocols employed by the design engineers at Samsin .  We and Mr. Perszyk have agreed in good faith to negotiate a new consulting agreement in the near future, pursuant to which it is anticipated that Mr. Persyzyk will receive compensation similar to his old consulting agreement, in which he received (i) a daily stipend of $490 per day, plus expenses, when working with our partners and suppliers at their facilities, (ii) shares of common stock, and (iii) options to purchase shares of common stock.  Until that time, Mr. Perszyk is not receiving any compensation and does not expect to receive any.

DESCRIPTION OF PROPERTIES

We maintain our principal office at 3501-B N. Ponce de Leon Blvd., #393, St. Augustine, Florida 32084.  Our telephone number at that office is (904) 819-8995 and our fax number is (904) 819-8181. Our current office space consists of approximately 1,500 square feet. The lease runs on a month-to-month basis at a cost of $1,750 per month. We believe that our existing facilities are suitable and adequate to meet our current business requirements. We maintain websites at www.energytele.com and www.energyeyewear.com and the information contained on those websites is not deemed to be a part of this prospectus.

LEGAL PROCEEDINGS

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


 
 
26

 

 
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Below are the names and certain information regarding our executive officers and directors:

Names:
Ages
Titles:
Board of Directors
Thomas Rickards
62
Chief Executive Officer
Director
Ronny Halperin
61
Chief Financial Officer
 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Currently there is one seat on our Board of Directors. Biographical resumes of each officer and director are set forth below.

Thomas Rickards has been our Chief Executive Officer and a member of the Board of Directors since founding Energy Telecom in 1993. Mr. Rickards has more than twenty-five years experience in the research, development, and exploitation of state-of-the-art manufacturing and technology-related intellectual property. Mr. Rickards was educated at Mercer University in Macon, GA, and after managing the physical testing section of Pittsburgh Testing Laboratory in Miami, Florida for ten years, independently applied his engineering experience in hundreds of major manufacturing plants around the world.  Mr. Rickards has traveled worldwide, designing and implementing several types of process control equipment/systems.

Among his numerous credits, Mr. Rickards is the original designer of several high speed, intelligent continuous-web control systems, and, industrial information transfer systems. Mr. Rickards is the inventor of record on numerous patents in the United States and other countries. Mr. Rickards is a member of the GAVI Alliance, a global health alliance, a member of the Chief Executive Officer group, and a member of the Chairmen and Chairwomen of the Board group.

Ronny Halperin has been our Chief Financial Officer since July 2009.  Prior to that, Mr. Halperin was our corporate counsel for 10 years. Mr. Halperin has been licensed to practice law in Florida since 1990. He specializes in corporate law, finance, mergers, acquisitions and real estate. Since 2003, Mr. Halperin has been the president and director of Ronny J. Halperin, PA, his personal law practice. Since July 2007, Mr. Halperin has been the managing member of RGM Title Services, LLC, a title agent company.  Since August 2006, Mr. Halperin has been the chief executive officer and director of Lyric Jeans, Inc. (LYJN.PK), a designer and manufacturer of clothing.  Prior to that, Mr. Halperin was the Vice President of Lyric Jeans.  Between January 2009 and May 2009, Mr. Halperin was the president, secretary and director of Xynergy Holdings, Inc. (XYNH.PK).  Between January 2009 and April 2009, Mr. Halperin was the president, secretary and director of Hydrogenetics, Inc. (HYGN.PK).

Previously, Mr. Halperin was a partner at Kluger, Peretz, Kaplan & Berlin, PC. He graduated with a degree in finance from the University of Miami and received his Juris Doctor from the University of Miami School of Law, where he graduated cum laude and was an editor of the University of Miami Law Review.

Board Committees and Independence

We are not required to have any independent members of the Board of Directors. The board of directors has determined that (i) Mr. Rickards has a relationship which, in the opinion of the board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and is not an “independent director” as defined in the Marketplace Rules of The NASDAQ Stock Market.  As we do not have any board committees, the board as a whole carries out the functions of audit, nominating and compensation committees, and such “independent director” determination has been made pursuant to the committee independence standards.
 
 
27

 


EXECUTIVE COMPENSATION

The following tables set forth certain information regarding our CEO and each of our most highly-compensated executive officers whose total annual salary and bonus for the last two completed fiscal years exceeded $100,000:

Name & Principal Position
 
Year
 
Salary ($)
 
Bonus ($)
 
Stock Awards($)
 
Option Awards ($)
 
Non-Equity Incentive Plan Compensation ($)
 
Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)
 
All Other Compensation ($)
 
Total ($)
 
Thomas Rickards, CEO
   
2009
 
$
36,000
   
--
   
--
   
--
   
--
   
--
   
--
 
$
36,000
 
     
2008
 
$
36,000
   
--
   
--
   
--
   
--
   
--
   
--
 
$
36,000
 

Option/SAR Grants in Fiscal Year Ended December 31, 2009

None.

Stock Option Plans

None.

Employment Agreements

Thomas Rickards

We entered into a 20 year employment agreement with Mr. Rickards on April 15, 2010 to serve as President and Chief Executive Officer. Pursuant to the employment agreement, Mr. Rickards shall receive annual compensation of $36,000 in 2010, $100,000 in 2011, $125,000 in 2012, $175,000 in 2013 and $200,000 in 2014 and thereafter. Mr. Rickards received options to purchase 1,200,000 shares of our common stock, with 400,000 options exercisable immediately at $0.15 per share, expiring January 5, 2012, 400,000 options exercisable April 15, 2011 at $0.90 per share, expiring April 15, 2013 and 400,000 options exercisable April 15, 2012 at $2.00 per share, expiring April 15, 2015.

In addition, Mr. Rickards is entitled to participate in any and all benefit plans, from time to time, in effect for our employees, along with vacation, sick and holiday pay in accordance with policies established and in effect from time to time. Further, we shall provide full medical, dental and vision insurance plans for Mr. Rickards and his immediate family.  Mr. Rickards is reimbursed $700 per month for automobile expenses.

In the event Mr. Rickards is terminated without cause, or resigns for certain “good reasons” we are required to pay Mr. Rickards a severance payment.  The severance payment is the salary and benefits amount owed under the respective employment agreement from the date of termination through the remaining term of the employment agreement, plus a lump sum amount equal to two times Mr. Rickards then current base salary, as well as to provide all benefits through the remaining term of the employment agreement.

In the event of a change in control, Mr. Rickards shall have the right to purchase such number of shares of common stock of ours representing 10% of the total shares in the public market, at a price equal to 50% of the then current fair market value on the date of the change in control.

Ronny Halperin

We entered into a five year consulting agreement with Mr. Halperin on April 15, 2010 to serve as Chief Financial Officer. At the end of the initial term and upon each one year anniversary thereafter, the agreement will automatically renew for another one year.  Mr. Halperin received options to purchase 300,000 shares of our common stock, with 100,000 options exercisable immediately at $0.15 per share, expiring January 5, 2012, 100,000 options exercisable April 19, 2011 at $0.90 per share, expiring April 19, 2013 and 100,000 options exercisable April 19, 2012 at $2.00 per share, expiring April 19, 2015.
 
Director Compensation

None.

 
28

 

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Other than as disclosed below, during the last two fiscal years, there have been no transactions, or proposed transactions, which have materially affected or will materially affect us in which any director, executive officer or beneficial holder of more than 5% of the outstanding common or preferred stock, or any of their respective relatives, spouses, associates or affiliates, has had or will have any direct or material indirect interest. We have no policy regarding entering into transactions with affiliated parties.

In 2008 and 2009, we entered into agreements with George Bickerstaff, a shareholder, pursuant to which we sold shares of common stock to Mr. Bickerstaff.  In connection with these sales of common stock, we granted Mr. Bickerstaff anti-dilution protection so that Mr. Bickerstaff’s beneficial ownership percentage of our common stock related to such sales remained unchanged until such time as our shares of common stock are registered with the Securities and Exchange Commission.  Since 2008, we have issued additional shares of our common stock to Mr. Bickerstaff pursuant to the anti-dilution provision.  Upon the effectiveness of the registration statement that this prospectus is a part of, the anti-dilution provision will be null and void.

During 2007, we entered into an operating lease agreement for office space with Thomas Rickards, our Chief Executive Officer.  Mr. Rickards has agreed to sublet space to us for a fixed fee of $1,150 on a month-to-month basis.  Total rent expense for the years ended December 31, 2009 and 2008 was $18,000 and $13,800.

During the period from inception through December 31, 2009, we issued 1,477,778 shares of Class A common stock and 200,000 shares of Class B common stock to Mr. Rickards as consideration for the contribution of patents from Mr. Rickards to us.

We have received financing from Thomas Rickards. The stockholder notes bear interest of 10% per annum, compounding annually and are due on demand.

The following table summarizes stockholder notes payable as of March 31, 2010 (unaudited) and December 31, 2009:

   
March 31,
2010
   
December 31,
2009
 
Notes payable, due on demand, interest at 10%
  $ 38,486     $ 41,486  
Accrued interest
    24,302       22,773  
    $ 62,788     $ 64,259  
 
On July 22, 2010, we entered into an assignment and assumption agreement with Mr. Rickards, pursuant to which Mr. Rickards agreed to assume the rights, duties and obligations for payment of outstanding promissory notes that we owed to Sami A. Issa and Hopkins Carter Marine Hardware. The total amount of the outstanding notes as of July 22, 2010, including accrued interest, were $93,057 and we agreed to issue Mr. Rickards 186,114 shares of our common stock in consideration for Mr. Rickards assumption of such liabilities, of which, 116,798 shares were issued on July 23, 2010 and the remaining 69,316 shares are expected to be issued by August 11, 2010.

 
 
29

 
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial ownership of our common stock as of August 5, 2010.

·
By each person who is known by us to beneficially own more than 5% of our common stock;
·
By each of our officers and directors; and
·
By all of our officers and directors as a group.

NAME AND ADDRESS
OF OWNER (1)
TITLE OF
CLASS
 
NUMBER OF
SHARES OWNED (2)
   
PERCENTAGE OF CLASS PRIOR TO/AFTER
OFFERING (3)
 
               
Thomas Rickards
Class A Common Stock
    2,490,822 (4)     41.26 %
                   
Ronny Halperin
Class A Common Stock
    150,000 (5)     2.61 %
                   
All Officers and Directors As a Group (2 persons)
Class A Common Stock
    2,640,822 (6)     43.04 %
                   
George Bickerstaff (7)
Class A Common Stock
    522,119       9.26 %
                   
Thomas Rickards
Class B Common Stock
    200,000       100 %

(1) Unless otherwise noted, the mailing address of each beneficial owner is 3501-B N. Ponce de Leon Blvd., #393, St. Augustine, Florida 32084.

(2) Beneficial Ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of August 5, 2010 are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

(3) Percentage based upon 5,636,206 shares of class A common stock and 200,000 shares of class B common stock issued and outstanding as of August 5, 2010.

(4)  Includes 400,000 shares of common stock issuable upon conversion of outstanding options.  Does not include the shares of class B common stock, which are entitled to 10 votes per share.

(5)  Includes 100,000 shares of common stock issuable upon conversion of outstanding options.

(6)  Includes 500,000 shares of common stock issuable upon conversion of outstanding options.  Does not include the shares of class B common stock, which are entitled to 10 votes per share.

(7)  Mailing address is c/o CRT Investment Banking LLC, 262 Harbor Drive, 3rd Floor, Stamford, Connecticut 06902.
 
 
 
30

 

DESCRIPTION OF SECURITIES

Common Stock

Our certificate of incorporation provides that we have two classes of common stock: Class A common stock, which has one vote per share, and Class B common stock, which has ten votes per share. Our authorized capital stock consists of 210,000,000 shares, of which:
 
 
 
200,000,000 shares are designated as Class A common stock, with a par value of $0.0001 per share; and
 
 
 
10,000,000 shares are designated as Class B common stock, with no par value per share.
 
At August 5, 2010, we had outstanding 5,636,206 shares of class A common stock and 200,000 shares of class B common stock. The outstanding shares of common stock are validly issued, fully paid and nonassessable.

Holders of common stock do not have cumulative voting rights. Therefore, holders of a majority of the shares of common stock voting for the election of directors can elect all of the directors. Holders of common stock representing a majority of the voting power of our capital stock issued, outstanding and entitled to vote, represented in person or by proxy, are necessary to constitute a quorum at any meeting of stockholders. A vote by the holders of a majority of our outstanding shares is required to effectuate certain fundamental corporate changes such as liquidation, merger or an amendment to our articles of incorporation.

Only holders of class A common stock are entitled to share in all dividends that our Board of Directors, in its discretion, declares from legally available funds. In the event of a liquidation, dissolution or winding up, each outstanding share of class A common stock entitles its holder to participate pro rata in all assets that remain after payment of liabilities and after providing for each class of stock, if any, having preference over the common stock. The common stock has no pre-emptive, subscription or conversion rights and there are no redemption provisions applicable to the common stock.

Preferred Stock

We are not authorized to issue shares of preferred stock.

Options

As of August 5, 2010, we have issued 1,200,000 options to our Chief Executive Officer as follows:

# of Options
Vesting Date
Exercise Price
Expiration Date
       
400,000
Vested
$0.15
January 5, 2012
400,000
April 15, 2011
$0.90
April 15, 2013
400,000
April 15, 2012
$2.00
April 15, 2015

As of August 5, 2010, we have issued 300,000 options to our Chief Financial Officer as follows:

# of Options
Vesting Date
Exercise Price
Expiration Date
       
100,000
Vested
$0.15
January 5, 2012
100,000
April 19, 2011
$0.90
April 19, 2013
100,000
April 19, 2012
$2.00
April 19, 2015

Warrants

None.

Convertible Securities

None.


Transfer Agent

The transfer agent for our Common Stock is Securities Transfer Corporation. The transfer agent’s address is 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034, and its telephone number is (469) 633-0101.
 
 
 
31

 

INDEMNIFICATION FOR SECURITIES ACT LIABILITIES

Our Articles of Incorporation and Bylaws, as amended, provides to the fullest extent permitted by Florida law, our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of these provisions of our Articles of Incorporation and Bylaws, as amended, is to eliminate our rights and our shareholders (through shareholders' derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation and Bylaws, as amended, are necessary to attract and retain qualified persons as directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Act” or “Securities Act”) may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.

PLAN OF DISTRIBUTION

No market currently exists for our shares.  The price reflected in this prospectus of $0.85 per share is the initial offering price of the shares of common stock upon the effectiveness of this prospectus.  The selling stockholders may, from time to time, sell any or all of their shares of common stock covered by this prospectus in private transactions at a price of $0.85 per share or on any stock exchange, market or trading facility on which the shares may then be traded. If our shares are quoted on the Over-the-Counter Bulletin Board, the selling stockholders may sell any or all of their shares at prevailing market prices or privately negotiated prices. The term "selling stockholders" includes donees, pledgees, transferees or other successors-in-interest selling shares received after the date of this prospectus from a selling stockholder as a gift, pledge, partnership distribution or other non-sale related transfer. We will pay the expense incurred to register the shares being offered by the selling stockholders for resale, but the selling stockholders will pay any underwriting discounts and brokerage commissions associated with these sales. The selling stockholders may use any one or more of the following methods when selling shares:

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

an exchange distribution in accordance with the rules of the applicable exchange;

privately negotiated transactions;

short sales;

broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

a combination of any such methods of sale; and

any other method permitted pursuant to applicable law.
 
The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
 
Broker-dealers engaged by the selling stockholders may arrange for other brokers-dealers to participate in sales.  Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with NASDR Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with NASDR IM-2440.
 
In connection with the sale of the common stock or interests therein, the selling stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the common stock in the course of hedging the positions they assume.  The selling stockholders may also sell shares of the common stock short and deliver these securities to close out their short positions, or loan or pledge the common stock to broker-dealers that in turn may sell these securities.  The selling stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
 
 
 
32

 
The selling stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales.  In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.  Each selling stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Common Stock. In no event shall any broker-dealer receive fees, commissions and markups which, in the aggregate, would exceed eight percent (8%).
 
The $0.85 per share offering price of our common stock was arbitrarily chosen and it is not an indication of actual value. There is no relationship between this price and our assets, earnings, book value or any other objective criteria of value.  The price is similar with private placement sales we made in May 2010, although it is higher than the price of more recent private placements.  In addition, the offering price is less than that which our common stock, which is considered a grey market stock, last traded, which was $0.98 on August 2, 2010.  Additionally, the offering price of our shares is higher than the price paid by our founder, and exceeds the per share value of our net tangible assets. Therefore, if you purchase shares in this offering, you will experience immediate and substantial dilution. You may also suffer additional dilution in the future from the sale of additional shares of common stock or other securities, if the need for additional financing forces us to make such sales. Investors should be aware of the risk of judging the real or potential future market value, if any, of our common stock by comparison to the offering price.

The selling stockholder, alternatively, may sell all or any part of the shares offered in this prospectus through an underwriter. No selling stockholder has entered into any agreement with a prospective underwriter and there is no assurance that any such agreement will be entered into.

The selling stockholder may pledge its shares to their brokers under the margin provisions of customer agreements. If a selling stockholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares. The selling stockholder and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations under such act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling stockholder or any other such person. In the event that the selling stockholder is deemed affiliated with purchasers or distribution participants within the meaning of Regulation M, then the selling stockholder will not be permitted to engage in short sales of common stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. In regards to short sells, the selling stockholder is contractually restricted from engaging in short sells. In addition, if such short sale is deemed to be a stabilizing activity, then the selling stockholder will not be permitted to engage in a short sale of our common stock. All of these limitations may affect the marketability of the shares.
  
If the selling stockholder notifies us that it has a material arrangement with a broker-dealer for the resale of the common stock, then we would be required to amend the registration statement of which this prospectus is a part, and file a prospectus supplement to describe the agreements between the selling stockholder and the broker-dealer.

We are required to pay certain fees and expenses we incur incident to the registration of the shares.
 
Because the Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act including Rule 172 thereunder.  In addition, any securities covered by this prospectus which qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this prospectus.  There is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.
 
One Selling Stockholder, Mr. Rickards, who is our sole officer and director, is considered an affiliate for Rule 144 purposes and will be subject to the volume limitations of Rule 144 on the sales of common stock.  In general, under Rule 144 an affiliate would be entitled to sell, within any three-month period a number of shares that does not exceed the greater of:

 
•    
1% of the number of shares of our common stock then outstanding, which will equal approximately 56,362 shares immediately after this offering, assuming that no outstanding warrants are exercised; or
     
 
•    
the average weekly trading volume of our common stock on a principal market or exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
 
 
The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.
 
Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution.  In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the common stock by the Selling Stockholders or any other person.  We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
 
 
 
33

 
 
SELLING STOCKHOLDERS

The following table sets forth the common stock ownership of the selling stockholders as of August 5, 2010. Other than as set forth in the following table, the selling stockholders have not held any position or office or had any other material relationship with us or any of our predecessors or affiliates within the past three years.  One Selling Stockholder, Mr. Rickards, who is our sole officer and director, is considered an affiliate for Rule 144 purposes and will be subject to the volume limitations of Rule 144 on the sales of common stock.  In general, under Rule 144 an affiliate would be entitled to sell, within any three-month period a number of shares that does not exceed the greater of:

 
•    
1% of the number of shares of our common stock then outstanding, which will equal approximately 56,362 shares immediately after this offering, assuming that no outstanding warrants are exercised; or
     
 
•    
the average weekly trading volume of our common stock on a principal market or exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to that sale.
 

   
Beneficial Ownership Prior to this Offering (1)
     
Beneficial Ownership After this Offering (2)
   
Selling Stockholder
 
Number of
Shares
 
Percent
of Class
 
Shares That May be Offered and Sold Hereby
 
Number of
Shares
 
Percent
of Class
   
Rosita Angeli (a)
 
17,795
 
*
   
17,795
   
0
   
0%
   
Nathaniel Apel (a)
 
19,524
 
*
   
9,524
   
10,000
   
*
   
Jose A. Arriaga (c)
 
138,709
 
2.46%
   
138,709
   
0
   
0%
   
George Bickerstaff (3) (a)
 
522,119
 
9.26%
   
522,119
   
0
   
0%
   
Daniel Blumin (a)
 
7,353
 
*
   
7,353
   
0
   
0%
   
Benjamin Brussell (b)
 
3,000
 
*
   
3,000
   
0
   
0%
   
Alan L. Busselman (a)
 
11,000
 
*
   
11,000
   
0
   
0%
   
David Chancy (a)
 
14,000
 
*
   
14,000
   
0
   
0%
   
Carlos M. Cicilia (a)
 
17,858
 
*
   
17,858
   
0
   
0%
   
Corporate Awareness Professionals, Inc. (4) (b)
 
177,434
 
3.15%
   
40,000
   
137,434
   
2.44%
   
Jennifer Lamb Crosby (a)
 
1,600
 
*
   
1,600
   
0
   
0%
   
Bernardo Davila (a)
 
17,858
 
*
   
17,858
   
0
   
0%
   
Francisco Davila & Caroline Davila JTWROS (a)
 
7,353
 
*
   
7,353
   
0
   
0%
   
Steven Jay Dell (a)
 
1,017
 
*
   
1,017
   
0
   
0%
   
Mario Dicicco (a)
 
5,239
 
*
   
5,239
   
0
   
0%
   
Christopher W. Driscoll (a)
 
102,134
 
1.81%
   
102,134
   
0
   
0%
   
Steve Ebel (a)
 
10,000
 
*
   
10,000
   
0
   
0%
   
Jason Glenn Eubank (a)
 
29,167
 
*
   
19,167
   
10,000
   
*
   
Douglas E. Gore (a)
 
10,000
 
*
   
10,000
   
0
   
0%
   
James Grochowski (a)
 
28,321
 
*
   
28,321
   
0
   
0%
   
Ronny Halperin (5) (b)
 
150,000
 
2.61%
   
50,000
   
100,000
   
1.74%
   
Brett W. Hansen (a)
 
24,445
 
*
   
24,445
   
0
   
0%
   
Alan B Hays (a)
 
8,334
 
*
   
8,334
   
0
   
0%
   
Chuck Jacobson (b)
 
2,000
 
*
   
2,000
   
0
   
0%
   
Michael R. Jaeger (a)
 
21,000
 
*
   
21,000
   
0
   
0%
   
Robert Jewell (a)
 
11,667
 
*
   
11,667
   
0
   
0%
   
Martin Kaiser (a)
 
834
 
*
   
834
   
0
   
0%
   
Ashely Marie Kinna (a)
 
1,000
 
*
   
1,000
   
0
   
0%
   
Kenneth Konarzewski (a)
 
38,056
 
*
   
38,056
   
0
   
0%
   
Michael J. Kotulski (a)
 
15,455
 
*
   
5,455
   
10,000
   
*
   
Jennifer Sonya Lamb (a)
 
834
 
*
   
834
   
0
   
0%
   
Ernest Robert Langlais (a)
 
40,000
 
*
   
40,000
   
0
   
0%
   
Estella June Langlais (a)
 
10,000
 
*
   
10,000
   
0
   
0%
   
William H. Mclamore Jr. (a)
 
11,429
 
*
   
11,429
   
0
   
0%
   
Thomas Newslow &Angela Newslow JTWROS (a)
 
8,334
 
*
   
8,334
   
0
   
0%
   
Patrick Zeno O'Brian (a)
 
1,000
 
*
   
1,000
   
0
   
0%
   
 
 
 
34

 
 
Michael David Pate (a)
 
35,000
 
*
   
35,000
   
0
   
0%
   
Edwin Scott Pate (a)
 
16,000
 
*
   
16,000
   
0
   
0%
   
Val Pawlowski (a)
 
17,334
 
*
   
17,334
   
0
   
0%
   
Thomas H. Perszyk (b)
 
4,667
 
*
   
4,667
   
0
   
0%
   
Joseph D. Prall (a)
 
13,334
 
*
   
13,334
   
0
   
0%
   
Tom Rickards (6) (d)
 
2,490,822
 
41.26%
   
545,000
   
1,945,822
   
32.24%
   
Corey Rinker (c)
 
16,667
 
*
   
16,667
   
0
   
0%
   
Steven Rogers (a)
 
135,155
 
2.40%
   
135,155
   
0
   
0%
   
Robert Schwartz (a)
 
500
 
*
   
500
   
0
   
0%
   
Steven Schwartz (a)
 
3,000
 
*
   
3,000
   
0
   
0%
   
Steven Scott (a)
 
3,492
 
*
   
3,492
   
0
   
0%
   
Sichenzia Ross Friedman Ference LLP (7) (b)
 
140,000
 
2.48%
   
140,000
   
0
   
0%
   
Richard Silverman (a)
 
10,167
 
*
   
10,167
   
0
   
0%
   
Donald E. Sparks Jr. (a)
 
134,001
 
2.38%
   
123,667
   
10,334
   
*
   
Joseph Tetreault & Monica Tetreault JTWROS (a)
 
25,912
 
*
   
25,912
   
0
   
0%
   
Stephan Tetreault & Candice Tetreault JTWROS (a)
 
5,556
 
*
   
5,556
   
0
   
0%
   
Jeremy Lynn Teynor (a)
 
5,682
 
*
   
5,682
   
0
   
0%
   
Daniel Thomas VanHeusden (a)
 
11,667
 
*
   
11,667
   
0
   
0%
   
David Welsh (c)
 
55,567
 
*
   
55,567
   
0
   
0%
   
TOTALS
 
4,610,392
 
75.13%
   
2,386,802
   
2,223,590
   
36.24%
   

* Less than 1%.
(a) Shareholder purchased their shares in a private placement transaction in exchange for cash.
(b) Shareholder received their shares for consulting services rendered to the company.
(c) Shareholder received their shares for consulting services rendered to the company and in a private placement transaction in exchange for cash.
(d) Shareholder received their shares for transfer of intellectual property and in exchange for cash in a private placement.
 
(1)
Percentage calculated on the basis of 5,636,206 shares of class A common stock outstanding on August 5, 2010 .
   
       
(2)
Percentage calculated on the basis of 5,636,206 shares of common stock outstanding upon the completion of this offering and assumes the sale of all shares of common stock registered pursuant to this prospectus, although the selling stockholders are under no obligations known to us to sell any shares of common stock at this time.
   
       
(3)
In 2008 and 2009, we entered into agreements with George Bickerstaff, a shareholder, pursuant to which we sold shares of common stock to Mr. Bickerstaff.  In connection with these sales of common stock, we granted Mr. Bickerstaff anti-dilution protection so that Mr. Bickerstaff’s beneficial ownership percentage of our common stock related to such sales remained unchanged until such time as our shares of common stock are registered with the Securities and Exchange Commission.  Since 2008, we have issued additional shares of our common stock to Mr. Bickerstaff pursuant to the anti-dilution provision.  Upon the effectiveness of the registration statement that this prospectus is a part of, the anti-dilution provision will be null and void.
   
       
(4)
Hank Zernla has voting and investment control over shares held by this entity. This entity provided investor relations services to us pursuant to a promotion and representation agreement dated as of February 21, 2008.
   
       
(5)
Mr. Halperin serves as our Chief Financial Officer.  Beneficial ownership includes 100,000 shares of common stock issuable upon exercise of outstanding options.
   
       
(6)
Mr. Rickards serves as our Chief Executive Officer and director.  Beneficial ownership includes 400,000 shares of common stock issuable upon exercise of outstanding options.
   
       
(7)
Gregory Sichenzia, Marc J. Ross, Richard A. Friedman and Michael Ference have shared voting and dispositive power over the shares held by Sichenzia Ross Friedman Ference LLP.
   
 

 
 
35

 

Securities Issued to the Selling Stockholders

From time to time since our formation in 1993, we have issued shares to the selling stockholders in exchange for cash, services rendered or transfer of intellectual property.  We have identified in the selling stockholder chart, what each selling stockholder received shares for.  Except for the shares being registered for Sichenzia Ross Friedman Ference LLP, we have no contracts, commitments or obligations to register the shares included herein for resale.

LEGAL MATTERS

Sichenzia Ross Friedman Ference LLP, New York, New York will issue an opinion with respect to the validity of the shares of common stock being offered hereby.   Sichenzia Ross Friedman Ference LLP is also the holder of 140,000 shares of our common stock, all of which are included in this registration statement.

EXPERTS

CCR LLP, independent registered public accounting firm, have audited, as set forth in their report thereon appearing elsewhere herein, our financial statements as of December 31, 2009 and 2008 and for the years then ended and cumulative from inception of development stage that appear in the prospectus. The financial statements referred to above are included in this prospectus with reliance upon the independent registered public accounting firm’s opinion based on their expertise in accounting and auditing.

AVAILABLE INFORMATION

We have not previously been required to comply with the reporting requirements of the Securities Exchange Act.  We have filed with the SEC a registration statement on Form S-1 to register the securities offered by this prospectus.  For future information about us and the securities offered under this prospectus, you may refer to the registration statement and to the exhibits filed as a part of the registration statement.

In addition, after the effective date of this prospectus, we will be required to file annual, quarterly, and current reports, or other information with the SEC as provided by the Securities Exchange Act. You may read and copy any reports, statements or other information we file at the SEC's public reference facility maintained by the SEC at 100 F Street, N.E., Washington, D.C.  20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. Our SEC filings are also available to the public through the SEC Internet site at http\\www.sec.gov.
 
 
 
36

 

INDEX TO FINANCIAL STATEMENTS

ENERGY TELECOM, INC.
(A DEVELOPMENT STAGE COMPANY)


   
Report of Independent Registered Public Accounting Firm
F-1
Balance sheets as of December 31, 2009 and 2008
F-2
Statements of operations for the years ended December 31, 2009 and 2008 and cumulative from inception of development stage (August 22, 2000) through December 31, 2009
F-3
Statements of changes in stockholders’ equity (deficiency) cumulative from August 22, 2000 (inception of development stage) through December 31, 2009
F-4
Statements of cash flows for the years ended December 31, 2009 and 2008 and cumulative from inception of development stage (August 22, 2000) through December 31, 2009
F-6
Notes to financial statements
F-7

Balance sheets as of March 31, 2010 (unaudited) and December 31, 2009 (audited)
F-14
Statements of operations for the three months ended March 31, 2010 and 2009 and cumulative from inception of development stage (August 22, 2000) through March 31, 2010
F-15
Statements of changes in stockholders’ equity (deficiency) cumulative from August 22, 2000 (inception of development stage) through March 31, 2010
F-16
Statements of cash flows for the three months ended March 31, 2010 and 2009 and cumulative from inception of development stage (August 22, 2000) through March 31, 2010
F-18
Notes to financial statements
F-19


 
37 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

To the Stockholders and Board of Directors of
     Energy Telecom, Inc.

 
We have audited the accompanying balance sheets of Energy Telecom, Inc. (a development stage company) as of December 31, 2009 and 2008, and the related statements of operations, changes in stockholders’ equity (deficiency) and cash flows for the years then ended and cumulative from inception of development stage (August 22, 2000) through December 31, 2009.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Energy Telecom, Inc. (a development stage company) as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 and cumulative from inception of development stage (August 22, 2000) through December 31, 2009 in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that Energy Telecom, Inc. will continue as a going concern. As reflected in the financial statements, Energy Telecom, Inc. has an accumulated deficit at December 31, 2009 and has suffered substantial net losses from inception of development stage, which raise substantial doubt about its ability to continue as a going concern. Management’s plans with regard to these matters are disclosed in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
/s/ CCR LLP

Glastonbury, Connecticut
August 9, 2010
 




 
F-1 

 

ENERGY TELECOM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 2009 AND 2008


             
ASSETS
           
             
   
2009
   
2008
 
CURRENT ASSETS
           
    Cash
 
$
82,355
   
$
122,244
 
                 
   
$
82,355
   
$
122,244
 
                 
    LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
               
                 
CURRENT LIABILITIES
               
Promissory notes  
$
10,000     $ 10,000  
    Stockholder loans payable
 
 
41,486
   
 
54,486
 
    Accrued interest
   
97,922
     
79,262
 
    Total current liabilities
   
149,408
     
143,748
 
                 
COMMITMENTS AND CONTINGENCIES
   
-
     
-
 
                 
STOCKHOLDERS' EQUITY (DEFICIENCY)
               
    Class A Common stock, $.0001 par value,
               
      200,000,000 shares authorized, 5,087,145 and
               
      4,694,561 shares issued and outstanding
               
      at December 31, 2009 and 2008, respectively
   
509
     
469
 
    Class B Common stock, no par value,
               
      10,000,000 shares authorized, 200,000 shares
   
-
     
-
 
      issued and outstanding at December 31, 2009 and 2008
   
-
     
-
 
    Additional paid-in capital
   
3,271,314
     
3,121,290
 
    Deficit accumulated prior to inception of development stage
   
(508,248
)
   
(508,248
)
    Deficit accumulated during development stage
   
( 2,830,628
)
   
(2,635,015
)
    Total stockholders' equity (deficiency)
   
(67,053
   
(21,504
)
   
$
82,355
   
$
122,244
 
                 

The accompanying notes are an integral part of these financial statements.


 
F-2

 

ENERGY TELECOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND CUMULATIVE FROM
INCEPTION OF DEVELOPMENT STAGE (AUGUST 22, 2000) THROUGH DECEMBER 31, 2009

               
Cumulative from
 
               
inception of
 
               
development stage
 
               
(August 22, 2000)
 
               
through
 
   
2009
   
2008
   
December 31, 2009
 
                   
REVENUES
 
$
-
   
$
-
   
$
-
 
                         
EXPENSES
                       
General and administrative expenses
   
164,244
     
228,640
     
2,730,288
 
                         
Loss from operations
   
(164,244
)
   
(228,640
)
   
(2,730,288
)
                         
                         
INTEREST EXPENSE
   
( 18,660
)
   
(17,528
)
   
( 90,346
)
DERIVATIVE INSTRUMENT EXPENSE
    (1,898 )     -       (1,898 )
INTEREST INCOME
   
1,043
     
2,455
     
3,758
 
                         
                         
Loss before provision for income taxes
   
(183,759
)
   
(243,713
)
   
(2,818,774
)
                         
PROVISION FOR INCOME TAXES
   
-
     
-
     
-
 
                         
Net loss, before cumulative effect of change in accounting principle
 
 
(183,759
)
 
 
(243,713
)
 
 
(2,818,774
)
Cumulative effect of change in accounting principle                 (11,854 )
Net loss, after cumulative effect of change in accounting principle 
  $ (183,759 )   $ (243,713 )   $ 2,830,628 )
                         
Net loss per share, basic and diluted (Note 14)
 
$
(0.0 4
)
 
$
(0.06
)
       
                         
Weighted average common shares
                       
outstanding (Notes 3 and 14)
   
5,122,058
     
4,112,874
         
                         

The accompanying notes are an integral part of these financial statements.

 
F-3

 
 
ENERGY TELECOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
CUMULATIVE FROM AUGUST 22, 2000 (INCEPTION OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2009
 
                                                 
                                 
Deficit
   
Deficit
       
                                 
Accumulated
      Accumulated
Total
 
                           
Additional
   
Prior to
   
During the
   
Stockholders'
 
   
Class A Common Stock
   
Class B Common Stock
   
Paid-in
   
Development
   
Development
   
Equity
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Stage
   
Stage
   
(Deficiency)
 
                                                 
Balance, August 22, 2000
                                               
   (inception of development stage)
    677,914     $ 68       -     $ -       494,562     $ (508,248 )     -     $ (13,618 )
Issuance of common stock
    9,297       1       -       -       29,999       -       -       30,000  
Issuance of common stock in connection
                                                 
   with patent acquisitions
    166,667       16       -       -       (16 )     -       -       -  
Net loss
    -       -       -       -       -       -       (14,289 )     (14,289 )
Balance, December 31, 2000
    853,878       85       -       -       524,545       (508,248 )     (14,289 )     2,093  
                      -       -                                  
Issuance of common stock
    16,667       2       -       -       21,571       -       -       21,573  
Issuance of common stock in connection
                                                 
   with consulting services
    60,295       6       -       -       27,540       -       -       27,546  
Net loss
    -       -       -       -       -       -       (45,957 )     (45,957 )
Balance, December 31, 2001
    930,840       93       -       -       573,656       (508,248 )     (60,246 )     5,255  
                                                                 
Issuance of common stock
    169,356       17       -       -       30,434       -       -       30,451  
Issuance of common stock in connection
                                                 
   with consulting services
    138,825       14       -       -       306,430       -       -       306,444  
Issuance of common stock in connection
                                                 
   with patent acquisitions
    416,667       42       -       -       (42 )     -       -       -  
Net loss
    -       -       -       -       -       -       (353,172 )     (353,172 )
Balance, December 31, 2002
    1,655,688       166       -       -       910,478       (508,248 )     (413,418 )     (11,022 )
                                                                 
Issuance of common stock
    9,763       1       -       -       31,860       -       -       31,861  
Issuance of common stock in connection
                                                 
   with consulting services
    16,107       1       -       -       32,310       -       -       32,311  
Net loss
    -       -       -       -       -       -       (55,639 )     (55,639 )
Balance, December 31, 2003
    1,681,558       168       -       -       974,648       (508,248 )     (469,057 )     (2,489 )
                                                                 
Issuance of common stock
    8,237       1       -       -       29,999       -       -       30,000  
Issuance of common stock in connection
                                                 
   with consulting services
    132,067       13       -       -       455,788       -       -       455,801  
Issuance of common stock in connection