OCTUS INC - FORM 10-Q - November 10, 2011

Attached files

file	filename
EX-31.1 - CERTIFICATION - OCTUS INC	f10q0311ex31i_octus.htm
EX-32.1 - CERTIFICATION - OCTUS INC	f10q0311ex32i_octus.htm
EX-32.2 - CERTIFIATION - OCTUS INC	f10q0311ex32ii_octus.htm
EX-10.2 - ORCHID ISLAND CAPITAL LLC EXECUTED EQUITY LINE OF CREDIT AND BRIDGE LOAN TERM SHEET - OCTUS INC	f10q0311ex10ii_octus.htm
EX-31.2 - CERTIFICATION - OCTUS INC	f10q0311ex31ii_octus.htm
EX-10.3 - MODIFICATION LETTER AND CONVERTIBLE PROMISSORY NOTE - OCTUS INC	f10q0311ex10iii_octus.htm
EX-10.1 - NON-EXCLUSIVE LICENSE AGREEMENT BETWEEN OCTUS, INC. AND ECONEXUS FOR ENVIRONMENT IMPACT MANAGER TECHNOLOGY AND RELATED EXHIBITS A -D (PROVIDED AS ADDITIONAL INFORMATION TO AGREEMENTS PREVIOUSLY INCLUDED IN 12/31/09 10K/A) - OCTUS INC	f10q0311ex10i_octus.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2011

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to ____________

Commission File Number: 0-21092

OCTuS, Inc.

(Exact name of registrant as specified in its charter)

Nevada	33-0013439
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

2020 Research Park Drive, Suite 110, Davis, California 95618

(Address of principal executive offices)

(530) 564-0200

(Issuer’s Telephone Number)

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

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

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

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

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

As of November 10, 2011, the registrant had 55,173,177 shares of common stock outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION			Page

	Item 1.	Financial Statements

		Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (Unaudited)	2

		Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and 2010 (Unaudited)	3

		Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)	5

		Notes to Consolidated Financial Statements (Unaudited)	7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

	Item 4.	Controls and Procedures	20

PART II. OTHER INFORMATION

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

	Item 5.	Other Information	22

	Item 6.	Exhibits	24

SIGNATURES

PART 1. FINANCIAL INFORMATION

Item 1. Financial Statements

OCTuS, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	(Successor) March 31, 2011			(Successor) December 31, 2010
ASSETS
CURRENT ASSETS
Cash	$	2,012		$	35,962
Accounts receivable – trade, net of allowance of $0 and $0, respectively		30,943			112,332
Deferred financing cost, net of accumulated amortization of $23,750 and $16,250, respectively		6,250			13,750
Other current assets		3,770			3,770
TOTAL CURRENT ASSETS		42,975			165,814

Property, plant and equipment, net of accumulated depreciation of $899 and $552, respectively		6,035			6,382
Goodwill		225,672			225,672
TOTAL ASSETS	$	274,682		$	397,868

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	350,360		$	373,217
Accrued liabilities		249,926			205,513
Accounts payable – related parties		5,908			5,908
Accrued liabilities – related parties		350,172			241,663
Deferred revenue		14,996			54,296
Stock payable		243,303			159,970
Notes payable		158,565			158,565
Notes payable – related parties		42,468			27,468
Convertible notes payable – related parties		275,000			237,500
Convertible notes payable, net of unamortized discount of $0 and $0, respectively		670,455			635,000
TOTAL CURRENT LIABILITES		2,361,153			2,099,100

LONG TERM LIABILITIES
Notes payable – related party		48,000			48,000
Convertible notes – related party – less current portion		205,539			243,039
Convertible notes, net of unamortized discount of $32,000 and $0, respectively - less current portion		-			35,455
TOTAL LIABILITIES		2,614,692			2,425,594

Commitments and contingencies		-			-

STOCKHOLDERS’ DEFICIT
Series A preferred stock, $0.001 par value,
300,000 shares authorized, no shares issued or outstanding		-			-
Series B preferred stock, $0.001 par value,
910,000 shares authorized, no shares issued or outstanding		-			-
Series C 6% cumulative preferred stock, $0.001
par value, 250,000 shares authorized, no shares issued and outstanding		-			-
Undesignated preferred stock, $0.001 par value,
540,000 shares authorized, no shares issued or outstanding		-			-
Common stock, $0.001 par value, 100,000,000
shares authorized 46,229,072 and 46,229,072 shares issued and outstanding, respectively		46,229			46,229
Additional paid-in capital		23,938,425			23,930,164
Accumulated deficit		(26,324,664	)		(26,004,119	)
Total stockholders’ deficit		(2,340,010	)		(2,027,726	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	274,682		$	397,868

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

OCTuS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Unaudited)


	(Successor) March 31				(Predecessor) March 31
	2011		2010		2010
Revenues
Product revenue	$	-	$	5,700	$	-
Service revenue		85,514		206		76,732
Total revenue		85,514		5,906		76,732
Cost of goods sold		50,264		-		21,460
Gross margin		35,250		5,906		55,272
Operating expenses:
General and administrative expenses		263,653		336,611		64,766
Loss from operations		(228,403)		(330,705)		(9,494)

Interest expense		(92,142)		(41,412)		(1,018)
Net loss	$	(320,545)	$	(372,117)	$	(10,512)

Per share information - basic and diluted:
Net loss per common share	$	(0.01)	$	$(0.01)	$	(1.05)
Weighted average shares outstanding		46,229,072		44,290,294		10,000

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

OCTuS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2011 AND 2010

(Unaudited)

	(Successor) March 31						(Predecessor) March 31
	2011			2010			2010
OPERATING ACTIVITIES
Net loss	$	(320,545	)	$	(372,117	)	$	(10,512	)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation		347			-			-
Share-based compensation		8,261			247,684			-
Share-based interest expense		51,333			-			-
Amortization of deferred financing cost		7,500			-			-
Amortization of debt discount		-			33,030			-
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		81,389			(5,700	)		(58,010	)
Increase (decrease) in accounts payable and accrued liabilities		53,556			31,167			(36,908	)
Increase (decrease) in accounts payable and accrued liabilities – related parties		108,509			6,433			-
Increase in stock payable		-			5,600			-
Decrease in deferred revenue		(39,300	)		-			-
Net cash used in operating activities		(48,950	)		(53,903	)		(105,430	)

FINANCING ACTIVITIES
Payments on line of credit		-			-			(2,367	)
Borrowings on line of credit		-			-			2,792
Cash distributions to owners		-			-			(32,122	)
Proceeds from convertible notes payable		-			30,000			-
Proceeds from loans – related party		15,000			500			20,049
Proceeds from exercise of warrants		-			400			-
Net cash provided by (used in) financing activities		15,000			30,900			(11,648	)

Net change in cash		(33,950	)		(23,003	)		(117,078	)

CASH AT BEGINNING OF PERIOD		35,962			23,003			126,940

CASH AT END OF PERIOD	$	2,012		$	-		$	9,862

SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	-		$	-		$	-
Cash paid for income taxes	$	-		$	-		$	-


NONCASH INVESTING AND FINANCING ACTIVITIES
Decrease in accounts payable and accrued expenses for issuance of convertible notes payable	$	32,000		$	-		$	-
Debt discount associated with convertible note and stock payable	$	32,000		$	-		$	-
Debt discount from warrants issued with convertible debt	$	-		$	33,210		$	-
Conversion of note payable and accrued interest into convertible note payable - related party	$	-		$	5,455		$	-

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

OCTuS, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Organization and Basis of Presentation

OCTuS, Inc. (“OCTuS”) was formed as a California corporation in 1983. On December 29, 2001, a majority of the shareholders voted to change our state of incorporation from California to Nevada. In December 2003, the change was completed and OCTuS became a Nevada corporation. Today OCTuS is seeking to become a leading resource efficiency company that brings innovative energy efficiency and water efficiency solutions to the commercial and public sector markets. OCTuS intends to pursue and facilitate resource energy efficiency projects involving energy and water efficiency systems, and products that OCTuS may develop, acquire, license or distribute. OCTuS believes that the market demand for energy and water conservation presents an attractive business opportunity. On June 10, 2010, OCTuS entered into an Asset Purchase Agreement and related agreements with Quantum Energy Solutions, Inc., a California corporation (“Quantum”). Effective June 30, 2010, the acquisition of Quantum has been accounted for using purchase accounting since OCTuS acquired substantially all of the assets, debts, employees, intangible contracts and business of Quantum.

OCTuS determined Quantum Energy Solutions, Inc. to be its predecessor entity as Quantum’s historical operations were significantly larger than the historical operations of OCTuS. For purposes of financial statements, designation of an acquired business as a predecessor is required if a registrant succeeds to the business of another entity and the registrant’s own operations prior to the succession appear insignificant relative to the operations assumed or acquired. As such, OCTuS has included the historical financial statements of Quantum as its predecessor entity.

The accompanying unaudited interim consolidated financial statements of OCTuS have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with Management’s Discussion and Analysis and the audited financial statements and notes thereto contained in our 2010 Annual Report filed with the Securities and Exchange Commission on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for 2010 as reported on Form 10-K have been omitted.

Principles of Consolidation

The financial statements include the business combination of Quantum Energy Solutions, Inc. as of June 30, 2010 and thereafter. All significant intercompany transactions and balances, if any, have been eliminated in consolidation.

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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reclassification

Certain amounts for prior periods have been reclassified to conform to the current presentation.

Revenue Recognition

Revenue is derived primarily from providing services under short-term negotiated fixed and variable fee arrangements. Revenue is recognized when it is earned, typically when our services have been rendered. Upon execution of an agreement, if services have not been provided then the amount to be paid as a deposit under such agreement is recorded as deferred revenue on the balance sheet and is reclassified as revenue on the statement of operations after services have been provided and such revenue earned. Any amount that has been earned, but not yet billed, is recorded as work in process or unbilled at the balance sheet date. Our product revenue is recognized upon delivery to the customer.

Loss Per Share

Basic loss per common share calculations were determined by dividing net loss by the weighted average number of shares of common stock outstanding during the years. Diluted loss per common share calculations were determined by dividing the net loss by the weighted average number of common shares and dilutive common share equivalents outstanding. During the three months ending March 31, 2011 and 2010 common stock options of 1,560,000 and 60,000, warrants of 2,580,000 and 702,000, and debt convertible into shares of 8,341,928 and 5,806,690, respectively, were not included in the calculation, as their effect would be anti-dilutive.

Subsequent Events

OCTuS has evaluated all transactions from March 31, 2011 through the financial statement issuance date for subsequent event disclosure consideration.

New Accounting Pronouncements

There were various accounting standards and interpretations issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or cash flows.

Note 2 – Going Concern

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of OCTuS as a going concern. OCTuS has a working capital deficit of $2,318,178, a stockholders’ deficit of $2,340,010 and an accumulated deficit of $26,324,664 as of March 31, 2011. In addition, OCTuS has generated net losses of $320,545 and $372,117 during the three months ended March 31, 2011 and 2010, respectively, and currently has minimal revenue generated from operations. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern.

We are actively seeking technologies and business endeavors in the clean energy sector, which may include the licensing or acquisition of alternative energy and energy efficiency products or technologies and the development of clean energy financing programs. Although we are seeking such opportunities, it is unlikely that we will be able to consummate any such transaction which would generate sufficient revenues to sustain our operations. We anticipate the need for additional debt or equity financing and if OCTuS raises additional funds through equity financing transactions, the issuance of additional shares would dilute the ownership of existing shareholders. However, OCTuS has no commitment from any party to provide additional capital and there is no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to OCTuS. OCTuS is reliant on a related party to provide working capital. There is no assurance that such related party will continue to provide working capital.

The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of OCTuS to continue as a going concern.

Note 3 - Business Combination

Purchase of Quantum Energy Solutions, Inc.

On June 10, 2010, OCTuS entered into an Asset Purchase Agreement and related agreements with Quantum Energy Solutions, Inc., a California corporation (“Quantum”). Effective June 30, 2010, the acquisition of Quantum has been accounted for using purchase accounting since OCTuS acquired substantially all of the assets, debts, employees, intangible contracts and business of Quantum.

The purchase price included 150,000 shares of OCTuS common stock, valued at $7,500, on the date of the transaction closing which was June 10, 2010, at $0.05 per share, plus assumption of $62,891 in accounts payable and accrued expenses; assumption of a line of credit facility with a balance of $45,253 and assumption of a 3-year promissory note to the seller for $130,000.

OCTuS entered into various employment and consulting arrangements with Quantum employees and a former owner where OCTuS issued 700,000 stock options to purchase common stock at exercise prices ranging from $0.06 to $0.11 per share. OCTuS estimated the fair market value of these stock options to be $38,513 using a Black Scholes pricing model and will be amortized over the future requisite service period. During the year ended December 31, 2010 and the quarter ended March 31, 2011, $12,289 and $5,207, respectively, of stock-based compensation relating to these options was recognized. The two year consulting arrangement with a former owner of Quantum included additional compensation of (i) a monthly cash payment of $5,000 and (ii) commissions on contracts originated by the consultant on Quantum projects of 10% of the gross margin payable in common stock; 30% of the gross margin payable in cash on projects invoiced in the first 90 days after consummation of the purchase; 20% of the gross margin payable in cash on projects invoiced in the second 90 days after purchase; and 10% of the gross margin payable in cash for projects invoiced thereafter through the end of the two year term. All additional compensation described above occurs after the purchased accounts payable have been paid for.

On June 10, 2010, OCTuS assumed a three-year promissory note with the former principal owner of Quantum in the amount of $130,000. The note has a simple interest rate of 6% per year. No later than the 10th day of each month, OCTuS shall pay 36 equal monthly payments of $3,955 for principal and interest (assuming no further principal payments are made as further described) and make principal reduction payments as may occur of 10% of the gross margin of revenue received over the prior 30 days from projects initiated by former Quantum employees or principals. OCTuS may prepay any or this entire note and accrued interest with no penalty any time before the maturity of the note. In June 2010, the former principal of Quantum and OCTuS agreed to assign this note to a trust administered by the former principal owner of Quantum. As of December 31, 2010, OCTuS had made principal payments of $13,319 under the terms of this note and is currently behind in its monthly payments. No payments were made during the quarter ended March 31, 2011.

In addition, OCTuS assumed the outstanding balance of $45,253 owed under a Line of Credit Facility with a variable interest rate currently at 7.25%. The total line of credit capacity is $50,000, but OCTuS cannot borrow under the line of credit. During the three months ended March 31, 2011 and 2010, OCTuS has made no principal payments under the terms of this line of credit. OCTuS is behind in its obligations under this note payable.

The acquisition price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values with the excess being recorded in goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. Subsequent to the acquisition, and at March 31, 2011, management examined the collectability of the acquired receivables and determined that $12,890 of the originally acquired receivables were no long deemed to be collectible, so management reserved for those receivables with a corresponding increase to goodwill:

Accounts receivable	$	19,972
Goodwill		225,672
Total assets acquired		245,644
Accounts payable and accrued expenses		62,891
Line of credit		45,253
Long term debt		130,000
Total liabilities assumed		238,144
Net assets acquired	$	7,500

The following unaudited pro-forma combined condensed financial statements are based on the unaudited historical financial statements of Quantum and OCTuS after giving effect to the acquisition of Quantum. The unaudited pro-forma condensed combined statements of operations for the three months ended March 31, 2010 is presented as if the acquisition had taken place on the first day of each period by combining the unaudited historical results of Quantum and OCTuS.

The unaudited pro-forma results were as follows:

OCTuS, Inc.

Unaudited Pro-forma Statements of Operations

	For the Three Months Ended March 31, 2010
	Historical OCTuS, Inc.			Historical Quantum			Pro-forma Adjustments				Pro-forma Condensed Combined
Revenues	$	5,906		$	76,732			$	-		$	82,638
Cost of sales		-			(21,460)				-			(21,460)
Gross margin		5,906			55,272				-			61,178
Operating expenses		(336,611	)		(64,766	)			-			(401,377	)
Interest income and expense, net		(41,412	)		(1,018	)			-			(42,430	)
Net loss	$	(372,117	)	$	(10,512	)		$	-		$	(382,629	)

Net loss per share - basic and diluted	$	(0.01	)								$	(0.01	)
Weighted average shares outstanding -basic and diluted		44,290,294							150,000	(a)		44,440,294

(a)

OCTuS issued 150,000 shares as consideration for the purchase of Quantum. The pro-forma adjustment treats the shares as having been issued at the first day of each period.

Note 4 – Related Party Transactions

Effective March 31, 2009, a convertible promissory note with a principal balance of $328,106 and accrued interest of $38,686 held by Grupo Dynastia SA was sold to Sasaima Holdings, SA, whose principal owner is the former president of Octus. This party had already held a promissory note in the amount of $113,747. The terms of the new combined $480,539 note were modified such that the principal and interest will be paid over 60 months. The Company is currently behind on payments, but the lender has waived default through April 15, 2012. The convertible promissory note can be converted into common stock at a rate of $0.10 per share and bears interest at an annual rate of 8% until converted or paid. The current portion of this note is $275,000 and $237,500 at March 31, 2011 and December 31, 2010, respectively. See Note 8 Subsequent Events for details on conversion of accrued interest.

Note 5 – Notes Payable - Related Parties

During March 2011, Octus CEO Chris Soderquist loaned OCTuS a total of $15,000 under a note agreement. The note accrued interest at the rate of 10% per year and payment of the accrued interest and principal are due not later than March 20, 2012.

During the year ended December 31, 2010, Mr. Soderquist loaned OCTuS a total of $48,500. $500 of these loans bears interest at 10% and is due upon demand. $48,000 of these notes is due in November and December 2012 and is presented as long term.

Note 6 – Convertible Notes Payable

In March 2011, OCTuS entered into an agreement for an Equity Line of Credit and a Convertible Bridge Loan with a third party.

Under the terms of the Equity Line of Credit:

o	The third party may commit to purchase up to $5,000,000 of the company’s common stock over the course of twenty-four months after an effective registration statement has been filed with the SEC. If the Company does not complete the registration statement, then the commitment is null and void.

o	Upon OCTuS’ option, the maximum amount of any individual purchase of OCTuS’ common stock is $350,000 at any one time and no purchase will be made in amount lower than $20,000.

o	The purchase price will be set at 90% of the market price of the stock.

o	There have been no issuances under this facility.

o	Under the terms of the Convertible Bridge Loan:

o	Financings will consist of a series of convertible notes in an aggregate amount of up to $250,000 with the first tranche being $32,000 and subsequent tranches as agreed upon by the parties.

o	In March 2011, $32,000 was funded directly to a vendor for payment of accounts payable.

The convertible notes carry an interest rate of 9% and are convertible into shares of common stock at the greater of $0.025 or 70% of the average lowest volume weighted average price for 10 trading days prior to conversion. The floor of $0.025 would be eliminated if OCTuS fails to enter into a minimum of $600,000 in new contracts by June 30, 2011. The Company did not meet this operational threshold and has determined that this instrument as a result of the floor being eliminated qualifies for a derivative liability to be recorded at June 30, 2011. The Company subsequently amended the agreement on September 29, 2011, to establish a permanent floor of $0.01. The Company has estimated a derivative liability of $35,566 at June 30, 2011 and $26 at September 29, 2011, the effective date of the amended agreement.

A commitment fee of $250,000 worth of restricted common shares will be issued to the third party in consideration of funding of the convertible notes. The first tranche of shares worth $83,333 was due with the funding of the first tranche of $32,000 that took place on March 31, 2011. OCTuS issued 2,547,055 shares on April 6, 2011 in satisfaction of this first commitment. At March 31, 2011, OCTuS recorded a debt discount and interest expense in the amount of $32,000 and $51,333 for the fair market value of the shares. These shares were not issued until April 2011; therefore OCTuS recorded a stock payable of $83,333 for this transaction as of March 31, 2011. On September 29, 2011, the amended agreement stated the shares issued for the initial tranche of $83,333 were deemed to fulfill the company’s obligations in their entirety. The remaining tranches of stock under the commitment fee are not due until (1) filing the registration statement, assuming funding has occurred and (2) the registration statement becoming effective, assuming funding has occurred. The details of all convertible notes payable are as follows:

Face value of convertible notes payable	$	1,182,994
Less: discount related to warrants		(215,843	)
discount related to conversion feature		(76,929	)
discount related to fair market value of stock		(32,000	)
Add: amortization of debt discount		292,772
Carrying value of notes at March 31, 2011	$	1,150,994

Note 7 – Equity

In June 2009, OCTuS entered into a twelve-month consulting agreement which calls for OCTuS to issue 10,000 shares of common stock each month the contract is in effect. OCTuS issued 30,000 shares under this agreement during the three months ended March 31, 2010, valued at $7,500 and recorded as share-based compensation.

On December 6, 2009, OCTuS entered into a “Reserve Equity Financing Agreement” with AGS Capital Group, LLC (the “Facility”). The signed agreement authorized OCTuS to issue and sell up to $5,000,000 of shares of common stock. As of March 31, 2011, there have been no issuances under the Facility.

In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock to an employee upon execution of the agreement as a signing bonus, 10,000 shares of common stock each month, and pay a $4,000 stipend each month the contract is in effect. OCTuS issued 60,000 shares under this agreement during the quarter ended March 31, 2010, valued at $10,000 and recorded as share-based compensation.

In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock each month the contract is in effect. The consultant terminated the contract in March 2010. OCTuS issued 60,000 shares under this agreement during the three months ended March 31, 2010, valued at $18,900 and recorded as share-based compensation.

In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock to a consultant each month the contract is in effect. OCTuS issued 90,000 shares under this agreement during the quarter ended March 31, 2010, valued at $26,100 and recorded as share-based compensation.

In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock each month the contract is in effect. OCTuS issued 90,000 shares under this agreement during the quarter ended March 31, 2010, valued at $23,400 and recorded as share-based compensation.

In February 2010, OCTuS entered into a three-month consulting agreement which call for OCTuS to issue 15,000 shares of common stock each month the contract is in effect. OCTuS issued 30,000 shares under this agreement during the quarter ended March 31, 2010, valued at $6,900 and recorded as share-based compensation.

In February 2010, OCTuS entered into a six-month consulting agreement which calls for OCTuS to issue 1,000,000 shares of common stock for services. All services were not performed as originally agreed and 500,000 shares were returned by the consultant and cancelled by OCTuS. For the services that were performed, OCTuS agreed that the consultant could keep the remaining 500,000 shares which were valued at $150,000 and recorded as share-based compensation.

In January 2011, OCTuS entered into a two-year employment agreement with John Walter naming Mr. Walter as the Chief Operating Officer. Under the terms of the agreement, Mr. Walter will be paid a base salary of $120,000. By mutual consent, the salary from January 1, 2011 through March 31, 2011 was to be paid on April 1, 2011. Mr. Walter will be eligible for a discretionary bonus of 30% of the base salary as determined by the Board. OCTuS issued options to purchase 500,000 shares of common stock at an exercise price of $0.016 which will vest in two tranches at the one-year and two-year anniversary. OCTuS estimated the fair market value of these options using the Black-Scholes pricing model to be $5,690.

OCTuS estimates the fair value of each warrant and option at the grant date by using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants during the three months ended March 31, 2011 and 2010 as follows:

	March 31, 2011	March 31, 2010
Dividend yield	0.00%	0.00%
Expected volatility	149%	318%
Risk free interest rate	0.74%	0.82%
Expected lives in years	2	1.5

Warrant and option activity during the three months ended March 31, 2011 is as follows:

	Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding at December 31, 2010		2,580,000		0.01		0.9
Granted		-		-		-
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at March 31, 2011		2,580,000	$	0.01		0.7
Exercisable at March 31, 2011		2,580,000	$	0.01		0.7

As of March 31, 2011, all warrants outstanding had an intrinsic value of $18,834.

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)
Outstanding at December 31, 2010		1,060,000	$	0.09		1.3
Granted		500,000		0.01		2.0
Exercised		-		-		-
Forfeited		-		-		-
Outstanding at March 31, 2011		1,560,000	$	0.07		1.6
Exercisable at March 31, 2011		1,560,000	$	0.07		1.6

As of March 31, 2011, all options outstanding had an intrinsic value of $650.

For the three months ended March 31, 2011 and 2010, OCTuS amortized $8,261 and $4,884, respectively of share-based compensation relating to the options. As of March 31, 2011, there was $36,011 in unamortized stock-based compensation.

Note 8 – Subsequent Events

In April 2011, OCTuS issued 2,547,055 shares of common stock as a commitment fee related to the convertible notes described in Note 6.

In April, May, June and August of 2011, Mr. Soderquist loaned OCTuS a total of $57,000 under various note agreements. The notes accrue interest at the rate of 10% per year and payment of the accrued interest and principal are due April 2012 through August 2012.

In April 2011, OCTuS issued 58,325 shares for payment of accrued interest of $17,546 related to various convertible notes agreements. OCTuS calculated the conversion rate of the shares at $0.30 per share.

In June and July 2011, OCTuS entered into various note agreements with a third party and assigned certain customer receivables as collateral for these notes.

On June 13, 2011, $37,700 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $39,684. Payment of accrued interest and principal are due no later than November 12, 2011. OCTuS receives a discount from remitting the customer balance if collected and remitted prior to November 30, 2011. On June 29, 2011, as full payment OCTuS paid $38,493 of principal and interest related to this note.

On July 1, 2011, $23,010 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $24,221. Payment of accrued interest and principal are due no later than November 30, 2011. OCTuS receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In July and August 2011, OCTuS paid a partial payment of $16,173 related to principal and interest associated with this note. In September, 2011, OCTuS made the final payment of $7,563 which paid the note and interest in full.

On July 1, 2011, $32,331 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $34,033. Payment of accrued interest and principal are due no later than November 30, 2011. OCTuS receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In November, 2011, OCTuS paid a partial payment of $15,193 related to principal and interest.

On July 1, 2011, $11,245 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $11,837. Payment of accrued interest and principal are due no later than November 30, 2011. OCTuS receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In July 2011, as full payment OCTuS paid $11,481 in principal and interest associated with this note.

In July 2011, OCTuS modified and extended the terms of the $500,000 Convertible note issued in June 2010, which matured in June 2011. OCTuS received a default notice from the note holder and negotiated a modification. The general terms of the modification an extension include:

·	An extension of the maturity date from June 2010 to December 2, 2011;

·	The issuance of 2,000,000 shares of common stock;

·	Past due interest of approximately $30,000 became part of the principal amount;

·	Change in conversion price of the note from the greater of $0.30 or 70% of the average closing price of the common stock, for the ten trading days ending five days before the conversion date to a fixed conversion price of $0.15.

·	Removal of the cashless exercise provision of the warrants issued under the original agreement.

In July 2011, OCTuS issued 2,338,725 shares of common stock, with a fair value of $7,250, in payment of $5,075 of accrued interest related to the $480,539 convertible notes - related party outstanding.

In July 2011, OCTuS issued 2,000,000 shares, with a fair value of $6,200, as bonus shares under a two year convertible promissory note with a third party for $50,000. The maturity date of this note is in July 2013. The convertible note agreement has a stated interest rate of 9% and the accrued interest is due semi-annually. The note may be converted at the option of the holder at any time commencing ninety days after the issuance of the note at lesser of $0.03 per share or 70% of the average closing price of the shares for the ten days ending five days before the conversion date. Upon a financing of at least $1,000,000, (“Qualified Financing,”) the note shall be automatically converted into shares at a conversion price equal to the lesser of $0.03 or 70% of the price per share paid for the securities issued in the Qualified Financing. On August 2, 2011, the parties agreed that effective with the original date of the agreement, that the conversion price was changed to be the greater of $0.01 or 70% of the average closing price of the shares for the ten days ending five days before the conversion date.

In September 2011, OCTuS entered into various note agreements with a third party and assigned certain customer receivables as collateral for these notes.

· On September 16, 2011, $22,500 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $30,075. Payment of accrued interest and principal are due no later than December 15, 2011. OCTuS receives a discount from remitting the customer balance if collected and remitted prior to December 15, 2011. In October, 2011, OCTuS made a partial payment of $4,624 for principal and interest.

· On September 16, 2011, $60,000 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables as collateral for the note. Payment of accrued interest and principal are due no later than January 15, 2012. OCTuS receives a discount off the customer balance if collected and remitted prior to January 15, 2012.

In October 2011, OCTuS entered into two note agreements with Chris Soderquist and assigned certain receivables as collateral for these notes:

· On October 20, 2011, $8,000 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $8,000. Payment of accrued interest and principal in the amount of $8,320 are due no later than February 19, 2012. OCTuS receives a discount off the customer balance if collected and remitted prior to February 19, 2012.

· On October 25, 2011, $1,000 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $1,000. Payment of accrued interest and principal in the amount of $1,040 are due no later than February 24, 2012. OCTuS receives a discount off the customer balance if collected and remitted prior to February 24, 2012.

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

This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact. Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot guarantee that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and except as required by law, we assume no obligation to update any such forward-looking statements.

Critical Accounting Policy and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Annual Report for the year ended December 31, 2010 filed on Form 10-K.

Revenue Recognition

Overview

Octus was incorporated in October 1983 under the laws of the State of California. On December 29, 2001, a majority of the shareholders voted to change our state of incorporation from California to Nevada. In December 2003, this change was completed and we became a Nevada corporation. Currently our Common Stock is eligible for quotation on the OTC Bulletin Board (Pink sheets under the symbol OCTI.

The Company seeks to become a leading resource efficiency company that brings innovative energy efficiency and water efficiency solutions to the commercial and public sector markets. OCTuS intends to pursue and facilitate resource efficiency projects involving energy and water efficiency systems, and products that OCTuS may develop, acquire, license or distribute. OCTuS believes that the market demand for energy and water conservation presents an attractive business opportunity.

We are actively seeking technologies and business opportunities in the resource efficiency sector, which may include the licensing, acquisition or development of energy and water efficiency products or technologies and the facilitation and management of financing solutions for resource efficiency projects. We intend to recruit management, advisors and affiliates with sufficient experience needed to review and qualify such technologies and business opportunities for our involvement. Although we are seeking such opportunities, we may not consummate any such transactions beyond what have been consummated to date, and it is possible such transactions would not generate sufficient revenue to sustain our operations. We anticipate the need for additional debt or equity financing, and if the Company raises additional funds through equity financing transactions, the issuance of additional shares would dilute the ownership of existing shareholders.

On February 22, 2011, OCTuS announced the signing of a definitive agreement with Alternative Energy Partners, Inc. (OTCBB: AEGY) to acquire one hundred percent of Élan Energy Corp. and Sunarias Corporation in exchange for common shares of Octus. In addition, Octus signed a definitive agreement with Lin Han Equity Corporation to transfer majority ownership of Octus to Lin Han, in exchange for common stock in privately-held Healthcare of Today, Inc., and working capital to fund Octus' growth strategy.

On July 19, 2011, OCTuS announced that, effective July 13, 2011; it had discontinued negotiation of an Acquisition Agreement with Alternative Energy Partners, Inc. (“AEGY”) and an Investment Agreement with Lin-Han Equity Corporation due to non-performance by AEGY and Lin-Han, with no further action or claim.

On August 2, 2011, OCTuS announced it has completed seven water efficiency projects for multi-family apartment communities. The water-saving retrofit projects involved the replacement of inefficient toilets with high-efficiency systems in Northern California apartment complexes, generating an estimated 5.3 million gallons of water savings per year. Octus secured financing for the projects including $80,000 in utility rebates, significantly subsidizing the water-saving property improvement for the apartment management and investment groups.

On August 17, 2011, OCTuS announced the debut of RebateWorks™, a multi-faceted service focused on simplifying the procurement of utility company rebates and incentives.

On September 14, 2011, the Company announced the debut of PACEWorks™, a platform to develop, implement and manage Property Assessed Clean Energy (PACE) financing programs. PACE financing enables property owners to make renewable energy, energy efficiency, and water efficiency improvements through low-interest, long-term loans secured by voluntary property tax assessments. Through PACEWorks, Octus provides turnkey program services, including PACE program creation, sales and marketing, contractor training, project qualification, and project financing.

On September 19, 2011, the Company announced the successful implementation of a RebateWorks™ program for multi-family property management and investment companies. Octus submitted rebate reservations to Pacific Gas and Electric Co. (PG&E) on behalf of 56 apartment communities for the replacement of more than 10,000 water- and energy-guzzling showerheads.

On September 28, 2011, the Company announced it will team with Ygrene Energy Fund to collaboratively develop and market the City of Sacramento's commercial PACE (Property Assessed Clean Energy) financing program under a contract awarded to Ygrene on September 27, 2011. Octus and Ygrene estimate that, over the next five years, PACE-funded clean energy improvements in Sacramento will create more than 1,500 jobs and generate $264 million in economic output.

On October 12, 2011, the Company announced it has completed a comprehensive energy-saving renovation of the Hallmark Inn, a 134-room boutique hotel in Davis, California and an affiliate member of Worldhotels' First Class Collection. As a result, annual energy use for the modernized lighting systems will be reduced by 52 percent (an estimated 51,000 kWh), with annual demand savings of 13.6 kW (a 58 percent reduction).

Management believes that without an influx of significant new funds or the generation of positive cash flows through operations, we will not be able to sustain our operations in the near future. Although we have actively been pursuing new investment, we cannot give assurance that we will enter into any new investment, or that the terms of any such agreements will be on terms favorable to us. There is no assurance that anyone will continue to fund us. Should we be unable to obtain additional funds, we could be forced to cease business activities altogether, and the holders of security interests would likely be entitled to receive all or substantially all of our assets.

We are implementing a business plan focused to provide innovative solutions that significantly and reduce energy and water use in buildings. We seek to accomplish this through the implementation of energy and water efficiency projects, including equipment upgrades, energy auditing and consulting, financing programs, management and facilitation of utility company rebates, and lighting and HVAC retrofit projects.

Our corporate strategy is to:

(1)	Develop energy-saving projects and deliver energy-efficiency services, including the retrofit of municipal , commercial and multi-family buildings with energy-efficient lighting, HVAC and energy management systems;

(2)	Develop water-saving projects and deliver water-efficiency services, including the retrofit of municipal, commercial and multi-family buildings with water-saving products and systems;

(3)	Develop, administer, market and implement turnkey energy-efficiency and water-efficiency programs for energy utilities, water agencies, and commercial real estate managers, developers and investors; and,

(4)	Create, implement and administer energy financing programs;

(5)	Identify, analyze, prescribe, manage and procure utility company rebates under the Company’s RebateWorks service offering\.

We focus on three specific markets: the commercial and industrial market, including utilities, the multi-family market, and the M.U.S.H. (municipality, university, school and hospital) market.

We believe the following factors drive demand for resource efficiency services by property owners and managers in the U.S. commercial, industrial, utility, multi-family and M.U.S.H. markets:

·	The potential for significant return on investment and demonstrable long-term cost savings resulting from the financing and implementation of efficiency solutions;

·	Concerns regarding the substantial and volatile cost of energy and water, the adverse implication of global climate change and the desire for energy independence;

·	Increasing pressure on corporations and public sector organizations to establish and attain sustainability goals;

·	Increasing regulatory pressure on utilities to include energy efficiency, renewable energy and water conservation in their resource plans and budgets;

·	The availability of rebates and tax incentives at the federal, state, and regional levels for organizations that reduce their resource consumption;

·	Existing and prospective government mandates to improve the efficiency of M.U.S.H. facilities and;

·	The migration toward a low-carbon economy which will potentially place a price or tax on the carbon emissions of our clients.

Our EfficiencyWorks business provides energy engineering, consulting and financing services. These services target development and implementation of energy-efficient lighting, HVAC, water conservation, and energy management projects for commercial, industrial, multi-family and municipal building owners. Our customers reduce energy use and costs, improve reliability, increase the value of their real estate assets and maximize the operating efficiency of their buildings. In June 2010, we acquired certain assets of Quantum Energy Solutions, Inc., a pioneer in the development of energy efficiency projects.

Our RebateWorks business seeks to maximize the value of energy and water efficiency rebates for customers, and improve the impact these programs have for utilities and the communities they serve. RebateWorks offerings fall into three main categories:

1.	Services – A turnkey service for multi-family and institutional property owners and managers that aids them in capturing utility rebates and incentives for energy- and water-efficient building improvements.

2.	Products – Octus has partnered with manufacturers of leading energy- and water-efficiency products to bundle rebates with their products, thus improving the economic value of such measures.

3.	Programs – We leverage our experience in working with utility companies to assist in creating, marketing and administering rebate programs that have maximal impact on GHG and water reduction goals.

Our EfficiencyFinancing business seeks to create, manage and administer financing for building improvements that reduce utility expenses and improve the amenity of buildings.

Results of Operations for the Three Months Ended March 31, 2011 (Successor) Compared to the Three Months Ended March 31, 2010 (Predecessor)

We realized revenue of $85,514 during the three months ended March 31, 2011 from execution of resource efficiency projects as compared to $76,732 of revenue during the same period of March 31, 2011 (predecessor), an increase of $8,782. We recognized a gross profit of $35,250 during the three months ended March 31, 2011 as compared to $55,272 for our predecessor for the same period ending March 31, 2010, a decrease of $20,022. This was primarily related to negotiating projects at slimmer margins.

During the three months ended March 31, 2011, our general and administrative expenses were $263,653, as compared to $64,766 for the three months ended March 31, 2010 for our predecessor. The increase of $198,887 was primarily due to an increase in salary expense, professional and consulting fees and fees associated with being a public company.

Interest expense for the three months ended March 31, 2011 was $92,142 compared to $1,018 incurred by our predecessor for the three months ended March 31, 2010. The increase of $91,124 was due to a higher debt balance for the successor company and interest expense of $51,333 due to a difference in the market value of stock to be issued as a commitment fee of $83,333 to Orchid Capital and the amount of proceeds loaned to the company by Orchid of $32,000 for payment of certain accounts payable.

Liquidity and Capital Resources

For the three months ended March 31, 2011, we incurred a net loss of $320,545 that included $8,261 of noncash share-based compensation expense, $51,333 of share-based interest expense, and an increase of our accounts payable and accrued expenses of $53,556. Our total assets were $274,682 as of March 31, 2011 of which $225,672 was related to goodwill from our acquisition of Quantum Energy. Our current liabilities were $2,361,153 as of March 31, 2011 including $600,286 in accounts payable and accrued liabilities, $356,080 in accounts payable and accrued liabilities due to related parties, $670,455 in current portion of convertible notes net of debt discount of $32,000, $275,000 in convertible notes due to a related party, $42,468 of short-term debt to related parties and $243,303 of common stock payable. We also had $205,539 in the long-term portion of convertible debt and $48,000 notes payable due to a related party - long term.

During March 2011, Mr. Soderquist loaned OCTuS a total of $15,000 under a note agreement. The note accrued interest at the rate of 10% per year and payment of the accrued interest and principal are due not later than March 20, 2012.

During March 2011, an outside party, Orchid Capital, paid $32,000 directly to third party vendors for outstanding accounts payable. We recorded a convertible notes payable for the $32,000. We issued 2,547,055 shares as a commitment fee with a fair market value of $83,333. As such, we discounted the notes payable by $32,000 and recorded immediate interest expense of $51,333 for the value of the shares in excess of the note balance.

Subsequent Financings

In June and July 2011, OCTuS entered into various note agreements with a third party and assigned certain customer receivables as collateral for these notes.

On June 13, 2011, $37,700 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $39,684. Payment of accrued interest and principal are due no later than November 12, 2011. The company receives a discount from remitting the customer balance if collected and remitted prior to November 30, 2011. On June 29, 2011, as full payment OCTuS paid $38,493 of principal and interest related to this note.

On July 1, 2011, $23,010 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $24,221. Payment of accrued interest and principal are due no later than November 30, 2011. The company receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In July and August 2011, OCTuS paid a partial payment of $16,173 related to principal and interest associated with this note. In September, 2011, OCTuS made the final payment of $7,563 which paid the note and interest in full.

On July 1, 2011, $32,331 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $34,033. Payment of accrued interest and principal are due no later than November 30, 2011. The company receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In November, 2011, OCTuS paid a partial payment of $15,193 related to principal and interest.

On July 1, 2011, $11,245 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $11,837. Payment of accrued interest and principal are due no later than November 30, 2011. The company receives a discount off the customer balance if collected and remitted prior to November 30, 2011. In July 2011, as full payment OCTuS paid $11,481 in principal and interest associated with this note.

In July 2011, OCTuS modified and extended the terms of the $500,000 Convertible note issued in June 2010, which matured in June 2011. The company received a default notice from the note holder and negotiated a modification. The general terms of the modification an extension include:

·	An extension of the maturity date from June 2010 to December 2, 2011

·	The issuance of 2,000,000 shares of common stock;

·	Past due interest of approximately $30,000 became part of the principal amount;

·	Change in conversion price of the note from the greater of $0.30 or 70% of the average closing price of the common stock, for the ten trading days ending five days before the conversion date to a fixed conversion price of $0.15.

·	Removal of the cashless exercise provision of the warrants issued under the original agreement.

In July 2011, OCTuS issued 2,000,000 shares, with a fair value of $6,200, as bonus shares under a two year convertible promissory note with a third party for $50,000. The maturity date of this note is July 2013. The convertible note agreement has a stated interest rate of 9% and the accrued interest is due semi-annually. The note may be converted at the option of the holder at any time commencing ninety days after the issuance of the note at lesser of $0.03 per share or 70% of the average closing price of the shares for the ten days ending five days before the conversion date. Upon a financing of at least $1,000,000, (“Qualified Financing,”) the note shall be automatically converted into shares at a conversion price equal to the lesser of $0.03 or 70% of the price per share paid for the securities issued Qualified Financing. On August 2, 2011, the parties agreed that effective with the original date of the agreement, that the conversion price was changed to be the greater of $0.01 or 70% of the average closing price of the shares for the ten days ending five days before the conversion date.

In September 2011, OCTuS entered into various note agreements with a third party and assigned certain customer receivables as collateral for these notes.

· On September 16, 2011, $22,500 was funded under a note with an interest rate of 12% per year. As a result, OCTuS assigned customer receivables of $30,075. Payment of accrued interest and principal are due no later than December 15, 2011. OCTuS receives a discount from remitting the customer balance if collected and remitted prior to December 15, 2011 In October, 2011, OCTuS made a partial payment of $4,624 for principal and interest.

In October 2011, OCTuS entered into two note agreements with Chris Soderquist and assigned certain receivables as collateral for these notes:

In addition to revenues that we may receive from customers and sales of products and services, we will need to raise additional funds through debt or equity financing to achieve our current business strategy. The financing we need may not be available when needed. Even if this financing is available, it may be on terms that we deem unacceptable or are materially adverse to the interests of existing investors with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our inability to obtain financing will inhibit our ability to implement our development strategy, and as a result, could require us to diminish or suspend our development strategy and possibly cease our operations. If we are unable to obtain financing on reasonable terms, we could be forced to delay, scale back or eliminate certain product and service development programs. In addition, such inability to obtain financing on reasonable terms could have a negative effect on our business, operating results or financial condition to such an extent that we are forced to restructure, file for bankruptcy, sale assets or cease operations. We cannot provide assurances that we will be able to enter into any new investment, or that the terms of any agreements relating to any new investment will be on terms favorable to the Company.

Our Plan of Operations for the Next Twelve Months

Over the past year we have actively pursued technologies and business opportunities in the resource energy sector, and we continue to pursue such technologies and opportunities. We have recruited management, advisors and affiliates who we believe have sufficient experience to review and qualify such technologies and business opportunities. Although we continue to seek such opportunities, we may not consummate any such transactions beyond what have been consummated to date, and it is possible such transactions would not generate sufficient revenue to sustain our operations.

Although we have actively been pursuing new investment, we cannot give assurance that we will enter into any new investment, or that the terms of any such agreements will be on terms favorable to us. There is no assurance that anyone will continue to fund us. Should we be unable to obtain additional funds or finance growth through ongoing operations, we could be forced to cease business activities altogether, and the holders of security interests would likely be entitled to receive all or substantially all of our assets.

Off Balance Sheet Arrangements

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report. Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation, our principal executive officer and principal accounting officer concluded that as of March 31, 2011, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our conclusion was based on (1) our lack of systematic accounting and disclosure procedures, notwithstanding that the Company’s financial statements and notes thereto are prepared and reviewed by management and that the Company’s chief financial officer reviewed each transaction during the periods covered by the report that had an effect on the Company’s financial statements included in the Form 10-Q, (2) the absence of personnel, other than the chief financial officer, with requisite expertise in the functional areas of finance and accounting, and (3) the absence of a functioning audit committee or outside directors on the Company’s board of directors.

Management Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

1.	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

3.	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

During the Annual 10-K review process for the year ended December 31, 2010 management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2010 and the deficiencies reported continue to be deficiencies as of March 31, 2011.

Overall lack of systematic accounting and disclosure procedures, notwithstanding that the Company’s financial statements and notes thereto are prepared and reviewed by management and that the Company’s chief financial officer reviewed each transaction during the periods covered by the report that had an effect on the Company’s financial statements included in the Form 10-K,

The absence of personnel, other than the chief financial officer, with requisite expertise in the functional areas of finance and accounting, and

The absence of a functioning audit committee or outside directors on the Company’s board of directors.

A material weakness is a control deficiency (within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. Throughout the period covered by the report, the Company had minimal amounts of cash and limited active business activities. To address the weaknesses identified above, management reviewed and performed an analysis of every transaction for the period covered by the report that had an impact on the Company’s financial statements included in the Form 10-Q. Accordingly, notwithstanding the existence of the material weaknesses described in this Item, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presents in accordance with U.S. generally accepted accounting principles. The Company also intends to address the weaknesses identified above by adding more formalized accounting, control and disclosure procedures, by hiring additional personnel resources when the Company’s operations and financial position permit it to do so, by continuing to have the chief financial officer review all significant transactions affecting the Company’s financial statements, and by considering the appointment of outside directors and audit committee members in the future where appropriate.

Remediation of Material Weaknesses

The Company intends to address the weaknesses identified above by adding more formalized accounting, control and disclosure procedures, by hiring additional personnel resources when the Company’s operations and financial position permit it to do so, by continuing to have the chief financial officer review all significant transactions affecting the Company’s financial statements, and by considering the appointment of outside directors and audit committee members in the future where appropriate.

Changes in Internal Controls

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

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

In April 2011, OCTuS issued 2,547,055 shares in connection with a convertible note in the amount of $32,000 under the terms of a Convertible Bridge Loan.

·	An extension of the maturity date from June 2010 to December 2, 2011;

·	The issuance of 2,000,000 shares of common stock;

·	Past due interest of approximately $30,000 became part of the principal amount;

·	Change in conversion price of the note from the greater of $0.30 or 70% of the average closing price of the common stock, for the ten trading days ending five days before the conversion date to $0.15.

Item 5. Other Information

Certain Matters Relating to the Company’s 2003 Reincorporation Transaction

In connection with a review of previous corporate transactions, the Company recently became aware of administrative errors related to the Company’s change of domicile from California to Nevada at the end of 2003. At the time of all of the events described below, the Company was a shell company with no cash (or nominal cash), no business and a small amount of liabilities consisting primarily of accrued obligations and notes to a related party. Further, the majority shareholder, and the person who was the president of Octus California at the time of the events described below, have affirmed in writing to the Company that their vote, support and intention was to enact the events.

As reflected in previous filings by the Company with the Securities and Exchange Commission (the “Commission”), in December 2001, Octus, which was then incorporated in California (sometimes referred to as “Octus California”), distributed a proxy statement to its shareholders in connection with its annual meeting of stockholders to be held on December 29, 2001 (the “2001 Meeting”), soliciting approval for a proposal to change the state of incorporation of Octus from California to Nevada. The proxy statement indicated that the change of domicile would be accomplished by merging Octus California into a newly formed subsidiary, Octus Nevada. At the time, one shareholder, Grupo Dynastia, S.A., a foreign corporation, held approximately 56% of the outstanding voting stock as of the record date of the meeting. Grupo Dynastia has represented to management of the Company in writing that it supported the reincorporation and change of domicile. In addition, Grupo Dynastia and the person who at the time was the president of Octus California have represented to management of the Company in writing that Grupo Dynastia delivered to Octus California in advance of the 2001 Meeting a signed form of proxy appointing the president of Octus as proxy for the shareholder to vote the shareholder’s shares in favor of the reincorporation and the other proposals at the 2001 Meeting. However, the Company does not have in its records evidence that an executed proxy was received by Octus California from Grupo Dynastia or taken into account at the meeting.

In December 2003, the Company decided to effect the reincorporation transaction that it believed had been approved at the 2001 shareholder meeting. A new corporation was incorporated in Nevada named Octus, Inc. (“Octus Nevada”). All assets and liabilities of Octus California, which consisted of the nominal cash and minimal liabilities described below, were transferred to Octus Nevada on or before December 31, 2003 as part of the change of corporate domicile. However, for reasons of administrative inadvertence, articles of merger were not filed in either Nevada or California.

In January 2004, dissolution and winding up certificates were filed with the California Secretary of State for Octus California, reciting that Octus California had elected to wind up and dissolve; that the election was made by the vote of at least 5.8 million shares, representing in excess of approximately 90% of the outstanding shares of the Company; that the affairs of Octus California had been completely wound up; that the known debts and liabilities of the company had been paid or provided for; and that all known assets of the company had been distributed to the Octus California shareholders.

The person who was the president of Octus California at the time at the time of the events described above has affirmed in writing that these filings were intended to be part of the process of implementing the reincorporation merger transaction. At the time, Grupo Dynastia owned common stock and preferred stock of Octus California representing in excess of 97.6% of the voting power of the outstanding shares of Octus California. Grupo Dynastia has represented to management of the Company in writing that it supported and approved of the reincorporation transaction in December 2003, regardless whether it was effected by means of a merger, transfer of assets and liabilities or other mechanism.

On March 23, 2004, the Company filed its Annual Report on Form 10-K with the SEC with respect to the year ended December 31, 2003 (the “2003 Form 10-K”), indicating that it was a Nevada corporation and including the following disclosure: ”On December 29, 2001, a majority of the shareholders voted to change the Company’s state of incorporation from California to Nevada. In December 2003, this change was completed and the Company became a Nevada corporation.” According to the 2003 Form 10-K, at December 31, 2003, Octus was not engaged in any business activities, its total assets consisted of $22 of cash, and its liabilities consisted of accounts payable and accrued expenses of $1,238, accounts payable and accrued expenses to related parties of $16,138, and notes payable to a related party, Grupo Dynastia, of $144,271. According to the 2003 Form 10-K, the aggregate market value of shares held by non-affiliates of the Company as of March 18, 2004, was $31,676, and the actual value of those shares may have been even less in light of, among other factors, the Company’s liabilities and lack of any business and cash assets.

Implementing what management of the Company believed was the merger transaction; Octus Nevada subsequently issued one share of Octus Nevada for each share of Octus California held by each person who was a former shareholder of Octus California. If not part of the merger transaction, the Company believes the issuance of shares was part of the distribution by Octus California of its remaining assets, consisting of the shares issued by Octus Nevada, to its shareholders as part of the process of winding up Octus California. Accordingly, there was no change in ownership of shares of the Company as the result of the redomicile. In addition, no shareholder has communicated with the Company or its officers in any way concerning claims or complaints relating to the above matters.

The Company has submitted for filing with the Nevada Secretary of State, articles of merger reflecting the merger transaction that the Company believed occurred at the end of 2003. However, the Company cannot provide any assurances concerning the legal effect, if any, of belatedly filing such articles of merger at such time in the circumstances described above.

The foregoing matters may give rise to liabilities, claims or regulatory actions under federal or state laws, including without limitation relating to whether sufficient shareholder approval was obtained for the reincorporation transaction, whether the issuance of shares of Octus Nevada in the reincorporation transaction complied with federal and state securities laws, whether the foregoing matters affect Octus Nevada’s status as a successor issuer under federal securities laws, and other related matters. The Company can give no assurance as to whether any such liabilities, claims or regulatory actions, including actions by the Commission or state regulatory authorities, may arise in the future or the outcome of any such liabilities, claims or regulatory actions on the Company’s business and previously reported or current financial statements. An adverse outcome in any such claim or proceeding could have a material adverse effect on the Company’s business, financial position and results of operations.

Item 6. Exhibits

Exhibit No.	Description	Notes
10.1	Non-Exclusive License Agreement Between Octus, Inc. and EcoNexus for Environment Impact Manager Technology and related Exhibits A -D (Provided as additional information to agreements previously included in 12/31/09 10K/A)	(1)
10.2	Orchid Island Capital LLC Executed Equity Line of Credit and Bridge Loan Term Sheet	(1)
10.3	Modification Letter for the Orchid Island Convertible Promissory Note dated September 29, 2011 and Original Convertible Promissory Note dated March 30, 2011 by and between Octus, Inc and Orchid Capital LLC	(1)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1	Section 1350 Certification of Chief Executive Officer
32.2	Section 1350 Certification of Chief Financial Officer

Notes:

(1)	Included in this filing as an exhibit to form 10-Q for the period ended March 31, 2011.

SIGNATURES

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

	OCTuS, Inc., a Nevada corporation



November 10, 2011	By:	/s/ Christian Soderquist
		Christian Soderquist Chief Executive Officer and a Director

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OCTUS INC Reports

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