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EX-32.1 - CERTIFICATION - Inelco Corpontc_ex321.htm
EX-31.2 - CERTIFICATION - Inelco Corpontc_ex312.htm
EX-31.1 - CERTIFICATION - Inelco Corpontc_ex311.htm


U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
AMENDMENT NO.  2 TO
 
FORM 10-K
 
 
Mark One
 
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2011
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______ to _______
 
COMMISSION FILE NO. 000-53104
 
ONTECO CORPORATION
(Name of small business issuer in its charter)
 
NEVADA    90-0335743
(State or other jurisdiction of  incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
19495 Biscayne Blvd.
Suite 411
Aventura, Florida 33180
(Address of principal executive offices)
 
(305) 932-9795
(Issuer's telephone number)
 
Securities registered pursuant to Section 12(b) of the Act:      Name of each exchange on which registered:
 NONE
 
 
 
N/A
 (Former name, address and fiscal year, if changed since last report)

Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $0.001
(Title of Class)
 
Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. o
 
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 403 of the Securities Act.  o Yes  x No
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes  x No
 
Indicate by check mark whether the registrant has (i) 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 (ii) has been subject to such filing requirements for the past 90 days.  Yes  x No  o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 Yes  x No
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained in this form, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, 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 filed o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
 
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of the common equity, as of the last business of the registrant’s most recently completed second fiscal quarter: June 30, 2011: $217,161
 
 
 

 
 
EXPLANATORY NOTE
 
This Annual Report on Form 10-K is being amended to check the correct box on the cover page indicating that the Company is required to file reports pursuant to Section 13 or Section 15(d) of the Act.
 
 
 

 
 
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS
 
N/A
 
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the distribution of securities under a plan confirmed by a court. Yes  o No  o
 
APPLICABLE ONLY TO CORPORATE REGISTRANTS
 
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date.
 
Class Outstanding as of April 6, 2011 Common Stock, $0.001, 100,966,060 shares *
 
*This figure takes into account the Reverse Stock Split of 1:1,000 shares effected January 22, 2012.
 
DOCUMENTS INCORPORATED BY REFERENCE
 
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (i) any annual report to security holders; (ii) any proxy or information statement; and (iii) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The listed documents should be clearly described for identification purposes (e.g. annual reports to security holders for fiscal year ended December 24, 1990).
 
N/A
 
Transitional Small Business Disclosure Format (Check one): Yes o No x
 
 


 
 

 
ONTECO CORPORATION
 
FORM 10-K
 
INDEX
 
 
                                                                                           
  Page  
         
Item 1.
Business
    5  
           
Item 1A.
Risk Factors
    18  
           
Item 1B.
Unresolved Staff Comments
    28  
 
 
       
Item 2.
Properties
    28  
 
 
       
Item 3.
Legal Proceedings
    28  
           
Item 4.
Mine Safety Disclosures
    28  
           
Item 5.
Market for Registrant's Common Equity,  Related Stockholder Matters and Issuer Purchases of Equity Securities
    29  
           
Item 6.
Selected Financial Data
    33  
           
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operation
    34  
           
Item 7A.
Quantity and Qualitative Disclosure About Market Risks
       
           
Item 8.
Financial Statements and Supplemental Data
    48  
           
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    90  
           
Item 9A.
Controls and Procedures
    90  
           
Item 9B.
Other Information
    93  
           
Item 10.
Directors, Executive Officers and Corporate Governance
    93  
           
Item 11.
Executive Compensation
    94  
           
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    96  
           
Item 13.
Certain Relationships and Related Transactions and Director Independence
    97  
           
Item 14.
Principal Accountant Fees and Services
    97  
           
Item 15.
Exhibits and Financial Statement Schedules
    98  
 
 
 

 
 
Statements made in this Form 10-K that are not historical or current facts are "forward-looking statements" made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the Securities Exchange Act of 1934. These statements often can be identified by the use of terms such as "may," "will," "expect," "believe," "anticipate," "estimate," "approximate" or "continue," or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events.
 
AVAILABLE INFORMATION
 
Onteco Corporation files annual, quarterly, current reports, proxy statements, and other information with the Securities and Exchange Commission (the "Commission"). You may read and copy documents referred to in this Annual Report on Form 10-K that have been filed with the Commission at the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. You can also obtain copies of our Commission filings by going to the Commission's website at http://www.sec.gov.
 
 
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PART I
 
ITEM 1.
BUSINESS
 
This Annual Report is being amended to include a footnote in the financial statements regarding the acquisition of NexPhase Lighting Inc., a privately held Florida corporation, and to include an additional convertible note in the disclosure regarding material commitments.

BUSINESS DEVELOPMENT
 
Onteco Corporation was organized under the laws of the State of Nevada on December 31, 2007 as part of the implementation of the Chapter 11 plan of reorganization of Arrin Systems, Inc. ("Arrin"). Arrin filed for Chapter 11 Bankruptcy in April 2007 in the U.S. Bankruptcy Court for the Southern District of California. Arrin's plan of reorganization was confirmed by the U.S. Bankruptcy Court for the Southern District of California on December 12, 2007 and became effective on December 30, 2007. The plan of reorganization provided for our establishment and the sale to us of Arrin's proprietary software (used in the employee background screening industry) in exchange for 567,324 shares of our common stock, which were distributed to Arrin's general unsecured creditors. The shares of common stock were distributed to Arrin’s general unsecured creditors pursuant to section 1145 of the Bankruptcy code and were exempt from the registration requirements of Section 5 of the Securities Act of 1933 and any state or local law requiring registration for an offer or sale of securities.

Agreement for the Purchase of Common Stock and Warrants

Effective September 16, 2009, Daniel C. Masters, Attorney at Law, representing certain selling shareholders and warrant holders (collectively, the “Sellers”) and Westmount Securities Corp., a corporation organized under the laws of the Province of Quebec, representing certain purchasers (collectively, the “Purchasers”) entered into that certain agreement for the purchase of common stock and warrants (the “Purchase Agreement”). In accordance with the terms and provisions of the Purchase Agreement, the Sellers sold 4,990,000 shares of our common stock and 5,000,000 warrants to purchase shares of our common stock (the “Warrants”) in exchange for $275,000. In further accordance with the terms and provisions of the Purchase Agreement, the initial $10,000 was deposited on or before September 22, 2009 and the remaining final payment of $265,000 was to be paid by September 30, 2009. All funds were paid accordingly.

Share Purchase Agreement

Effective on November 25, 2010, Eilay Maman and Oyster Shell Investments LLLP (collectively, the “Seller”), who are the record holders of an aggregate 28,915,810 shares of our common stock entered into a share purchase agreement dated November 25, 2010 (the “Share Purchase Agreement”) with Dror Svorai, our current President/Chief Executive Officer (“Svorai”). In accordance with the terms and provisions of the Share Purchase Agreement, the Seller sold the 28,915,810 shares of restricted common stock to Svorai at a price of $0.011 per share for a total purchase price of $325,000.00. The terms and provisions of the Share Purchase Agreement provide that: (i) $150,000 is to be paid upon execution; (ii) $50,000 is due and owing on January 15, 2011; (iii) $50,000 is due and owing on February 15, 2011; and (iv) $75,000 is due and owing on March 15, 2011. As of the date of this Annual Report, an aggregate amount of $275,000 has been paid to the Seller. The parties have agreed that the final payment due date of March 15, 2011 is extended to April 30, 2011. Until the purchase price is paid in full by Svorai, the shares of common stock are being held in an escrow account to be released pro-rata to Svorai as the installments are paid to the Seller by Svorai. The sale and purchase of the 28,915,810 shares of our common stock constituted approximately 29.8% of the total issued and outstanding shares.
 
In accordance with the further terms and provisions of the transactions and the appointment of Svorai as our sole executive officer, President/Chief Executive Officer, Secretary, Treasurer/Chief Financial Officer, and as sole director, we issued 12,500,000 shares of our restricted common stock to Svorai. This resulted in a change in control and new business operations.
 
 
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RECENT DEVELOPMENTS

Certificate of Amendment – Increase in Authorized Capital

On January 18, 2011, our Board of Directors and shareholders holding a majority of the total issued and outstanding shares of common stock pursuant to written consents in lieu of a meeting approved a further amendment to our Articles of Incorporation to increase the authorized capital (the “2011 Amendment”). The 2011 Amendment was filed with the Nevada Secretary of State on January 19, 2011 increasing our authorized capital from 350,000 shares of common stock to 750,000,000 shares of common stock, par value $0.001, and 100,000,000 shares of preferred stock, par value $0.001.

Our Board of Directors may authorize the issuance from time to time of shares of our stock of any class, whether now or hereafter authorized, or securities convertible into shares of its stock of any class, whether now or hereafter authorized, for such consideration as the Board of Directors may deem advisable, subject to such restrictions or limitation, if any, as may be set forth in our bylaws.

The preferred stock may also be issued by us from time to time in one or more series and in such amounts as may be determined by our Board of Directors. The designations, voting rights, amounts of preference upon distribution of assets, rates of dividends, premiums of redemption, conversion rights and other variations, if any, the qualifications, limitations or restrictions thereof, shall be such as are fixed by our Board of Directors, authority to do so being hereby expressly granted and as are stated and expressed in a resolution or resolutions adopted by our Board of Directors providing for the issue of such series of preferred stock.

Designation of Preferred Stock

On January 19, 2011, we filed a designation of Series A preferred stock with the Nevada Secretary of State designating a series of 1,000,000 shares of preferred stock as Series A Preferred Stock (the “Series A Preferred Stock”) with a stated value of $0.001 per share. The Series A Preferred Stock holder shall be entitled to receive dividends payable via cash or stock in parity with the common stock holders. The holder of the shares of Series A Preferred Stock shall be entitled to vote on all matters submitted to a vote of our stockholders and shall have ten thousand (10,000) votes for every one (1) share of Series A Preferred Stock held at the record date for the determination of stockholders entitled to vote on such matters. One share of Series A Preferred Stock shall be convertible at the option of the Holder into one thousand (1,000) shares of common stock.
 
 
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Taking into consideration the Reverse Stock Split, each share of Series A Preferred Stock shall be adjusted by multiplying the Series A conversion rate by a fraction (x) the numerator of which is the total number of shares of common stock issued and outstanding immediately after the time of such subdivision, combination or consolidation, and (y) the denominator of which is the total number of shares of common stock issued and outstanding immediately prior to such subdivision, combination or consolidation.
 
In the event of any voluntary or involuntary liquidation, dissolution or winding up, our assets available for distribution to stockholders shall be distributed among the holders of the shares of Series A Preferred Stock and common stock, pro rata based on the number of shares held by each such holder, treating for this purpose all such securities as if they had been converted to common stock pursuant to the terms hereof immediately prior to such dissolution, liquidation or winding up.

The shares of Series A Preferred Stock are not redeemable.
 
See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Certificate of Amendment – Name Change

On March 29, 2011, we filed a Certificate of Amendment with the Nevada Secretary of State in order to change our name from “InfoSpi Inc.” to “Onteco Corporation” (the “Name Change”). The Name Change was effective with the Nevada Secretary of State on March 29, 2001 when the Certificate of Amendment was filed. The Name Change was approved by our Board of Directors pursuant to written conent resolutions dated March 15, 2011 and further approved by certain shareholders holding a majority of our total issued and outstanding shares of common stock pursuant to written consent resolutions dated March 16, 2011.

We filed the appropriate documentation with FINRA in order to effectuate the Name Change in the OTC Markets. The Name Change was effected on the OTC Markets April 11, 2011. Our new cusip number is 683311104.

Therefore, as of the date of this Annual Report, our trading symbol is “ONTC”. Our management deemed it appropriate to change our name to Onteco Corporation in furtherance of and to better reflect the nature of our new business operations.

Reverse Stock Split

On November 2, 2011, our Board of Directors and our controlling shareholder approved the reverse stock split of our issued and outstanding shares on the basis of 1 share for every 1,000 shares then issued and outstanding (the “Reverse Stock Split”). On January 10, 2012, FINRA advised us that they had finalized their review and the Effective Date for the reverse split was January 11, 2012.  As of that date and for the subsequent 20 days thereafter, our shares traded under the symbol “ONTCD”. At the time of the Reverse Stock Split the issued and outstanding shares were 981,555,947. After giving effect to the Reverse Stock Split, the issued and outstanding shares were 981,622 after giving effect to the round-up of shares. As of the date of this Annual Report, our shares trade under the symbol “ONTC”. Our new cusip number is 683311203.

 
7

 
 
Certificate of Amendment – Increase in Authorized Capital

On November 14, 2011, our Board of Directors and shareholders holding a majority of the total issued and outstanding shares of common stock pursuant to written consents in lieu of a meeting approved a further amendment to our Articles of Incorporation to increase the authorized capital (the “November 2011 Amendment”). The November 2011 Amendment was filed with the Nevada Secretary of State on November 14, 2011 increasing our authorized capital from 750,000 shares of common stock to 2,000,000,000 shares of common stock, par value $0.001, and 10,000,000 shares of preferred stock, par value $0.001.
 
Certificate of Amendment – Decrease in Authorized Capital

On April 3, 2012, we filed a Certificate of Amendment with the Nevada Secretary of State to reduce our authorized capital from 2,000,000,000 shares of common stock, par value $0.001, to 300,000,000 shares of common stock, par value $0.001, and 10,000,000 shares of preferred stock, par value $0.001 (the “Decrease in Authorized”). The Decrease in Authorized was effective with the Nevada Secretary of State on April 3, 2012 when the Certificate of Amendment was filed. The Decrease in Authorized was approved by our Board of Directors pursuant to written conent resolutions dated March 29, 2012 and further approved by the shareholders holding  a majority of the total issued and outstanding shares of common stock pursuant to written consent resolutions dated March 29, 2012.

Please note that throughout this Annual Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "InfoSpi" or “Onteco Corporation” refers to Onteco Corporation.
 
TRANSFER AGENT
 
Our transfer agent is Action Stock Transfer Corporation, 7069 Highland Drive, Suite 300, Salt Lake City, Utah 64121.
 
BUSINESS OPERATIONS

NexPhase Lighting
 
Effective on February 14, 2011, our Board of Directors approved and authorized the execution of a definitive agreement dated February 14, 2011 (the “Agreement”) with NexPhase Lighting, Inc., a privately held Florida corporation (“NexPhase”)., and the shareholders of NexPhase (the “NexPhase Shareholders”). In accordance with the terms and provisions of the Agreement: (i) we acquired from the NexPhase Shareholders an aggregate 60,622,000 shares of common stock of NexPhase representing the total issued and outstanding shares of NexPhase; (ii) in exchange therefore, we issued to the NexPhase Shareholders an aggregate 67,500,000 shares of our restricted common stock in proportion to the equity holdings of the NexPhase Shareholders; (iii) NexPhase transferred and assigned to us all existing material contracts including those related to distribution, licensing and marketing and those dealing with the grant of rights for the use of any and all intellectual property; (iv) we assumed all other assets of NexPhase, including licenses, royalty rights, equipment, product designs, marketing and sale materials, logos, trademarks, copyrights and website; and (v) we further assumed certain liabilities of NexPhase, including all trade and debt obligations.  Therefore, as of the date of this Annual Report, NexPhase has become our wholly-owned subsidiary.
 
The acquisition is being accounted for under the purchase method.
 
 
8

 
 
NexPhase is in the business of designing, developing, manufacturing and marketing a high quality and high efficiency full line of LED intelligent lighting fixtures and control systems for commercial applications and projects involving both new construction and retrofits (the “LED Lighting Fixtures”). NexPhase uses the highest quality products in the manufacture of its LED Lighting Fixtures which provides customers with an approximate six-year or 50,000 hour warranty on its fixtures. By utilizing world-class LEDs and photo-metrics and thermal management in the manufacture of the LED Lighting Fixtures, management believes that the NexPhase LED Lighting Fixtures of are of the highest quality and most reliable in lighting products. The LED Lighting Fixtures are as follows: (i) downlight troffer; (ii) reflective troffer, which adds an architectural flair to any space; (iii) high-bay fixtures, which provide a 50-70% energy savings over metal halide and high pressure sodium high bays; (iv) low-bay and parking garage fixtures, which provide a 50-70% savings over metal halide and high pressure sodium high bays; (v) MR-16 lamps with approximate 90% energy savings over conventional MR-16 with significantly less heat; and (vi) PAR 38 lamps with approximately 90% energy savings over conventional MR-16 with significantly less heat.
 
The LED Lighting Fixtures can be controlled through a variety of means. Permissions and the types of controls authorized are assigned during set-up. Fixtures or groups of fixtures can be controlled via a hand-held remote control, through any smart phone (i.e. iPhone) or via the computer. Moreover, the LED Lighting Fixtures are intelligent. They incorporate a MESH networking technology which allows the fixtures to communicate with each other wirelessly. The set-up and management of the LED Lighting Fixtures allows from the combining of multiple fixtures into a given group … specific offices, hallways, stairwells, conference rooms, etc.
 
NexPhase also has a patent pending “NexSense” technology that provides customers with an additional edge in lighting management and a return on investment. See – Intellectual Property and Patent” below. The LED Lighting Products incorporate advanced sensory features that expand a customer’s energy savings beyond just the use of energy saving LEDs as follows:
 
·
Proximity Sensing. The most energy saving light fixture available is one that is not on. Therefore, building on this premise, the NexPhase Proximity Sensor monitors movement within a given space and either dims or shuts the lights off if no movement has been sensed within a given period of time (configurable by the user).
 
·
Ambient Light Sensing.  This sensor takes advantage of the sun’s free light energy. Once the occupant of an office sets the light level they like within their space, this sensor monitors the light level throughout the date. If more light comes into the office as the sun rises, the sending system reduces the amount of light being given off by the fixture to ensure the light level within the space remains the same. The reverse is also true. If storm clouds move in and block the sublight that was previously coming into the space, the sensing system increases the amount of light from the fixture up to the maximum output.
 
Management believes that the LED Lighting Fixtures provide further additional benefits, such as (i) higher quality lighting as compared to standard lighting systems; (ii) reduced heat generation resulting in lower HVAC costs in warm environments; (iii) elimination of the release of mercury and other harmful chemicals into landfills at the end of the fixtures life cycle; (iv) less energy consumption to run the fixtures, which results in less green house gasses released into the atmosphere; (v) lower maintenance costs for business owners associated with the replacement of standard lamps and tubes based upon the LED Lighting Fixtures lifespan of 50,000 to 60,000 hours; (vi) easy installation and individual fixture programmability; (vii) instant “on”; and (viii) vibration and shock resistant.
 
 
9

 
 
INDUSTRY
 
The U.S Department of Energy, or the DOE, estimates that lighting accounted for 25% of U.S. electricity consumption in 2010. Accordingly, adoption of energy efficient lighting is increasingly being acknowledged as a critical means to reduce energy consumption from an environmental perspective and to mitigate the need for investments in new electrical generation capacity.
 
LEDs, which are solid state semiconductor devices that emit light when electric current is passed through them are, according to the DOE, the most promising technology for reducing energy consumption by lighting. Key benefits of LED lighting products relative to traditional sources of lighting include greater energy efficiency, longer lifetime, improved durability, increased environmental friendliness, digital controllability, smaller size, directionality, immediate full intensity and lower heat output.
 
Since the development of high brightness LEDs in the 1990s, LED technology has continued to advance rapidly, driving improvements in both product efficacy as well as cost of manufacturing. LEDs have a demonstrated history of rapid adoption in various applications when their total cost of ownership, including both purchase price and ongoing energy and maintenance costs, declines to a point that warrants their use. Reductions in total cost of ownership, which are primarily driven by increased product efficacy and lower purchase prices, improve users’ return on investment in LED technology and shorten the payback period for LEDs relative to other lighting technologies. We expect that as payback periods further shorten, LED adoption will accelerate across a growing range of applications in general illumination. We believe the following trends, in addition to improving product efficacy and declining purchase prices, will play key roles in this industry transition:  (i) continuing improvements in LED technology that will further increase light quality; (ii) increasing focus on energy efficiency among individuals as well as public and private entities; (iii) greater demand for lighting solutions with design differentiation and enhanced functionality, including digital controls; (iv) growing demand for electricity that may increasingly drive utilities and governmental agencies to provide greater financial incentives for energy efficient lighting technologies including LED lighting; (v) government regulations worldwide effectively eliminating incandescent bulb sales, including in the European Union by December 31, 2012 and in the United States by December 31, 2014; (vi) government regulations worldwide effectively eliminating incandescent bulb sales, including in the European Union by December 31, 2012 and in the United States by December 31, 2014; and (vii) government programs aimed at promoting awareness and improving quality and user experience of energy efficient products, which have established energy-efficiency accreditation and labeling guidelines for qualified products.
 
MATERIAL CONTRACTS
 
Purchase Orders
 
During fiscal year 2011, we received an order to supply over 800 units of our 5 watt MR16 and 15 watt PAR38 lamped LED product to the 1060 Brickell Avenue Condominium Association. We generated approximately $40,000 in revenue. The products have been on trial at the two tower facility since July 2010 and January 2011, the board of directors of the condominium association approved the first phase of LED adoption in the buildings. The 5 watt MR16 product is primarily used in the interior of the building and will be deployed throughout the lobby and residential areas. It will be replacing 10 watt halogen lamps. The 15 watt PAR 38 product will be used mainly in the exterior entrance area and will be replacing 100 watt halogen lamps. Management believes that the first phase of the LED retrofit project is projected to save the association about $4,000 monthly in electricity costs with a full payback in approximately one year.
 
 
10

 
 
We also fulfilled an initial purchase order with NYU-Poly resulting in revenue of $318,000.
 
Ingredient Branding and Trademark License Agreement
 
On March 3, 2011, we entered into an ingredient branding and trademark license agreement (the “Branding and License Agreement”) with Cree, Inc. (“Cree”), which is a market-leading innovator of lighting class LEDs. In accordance with the terms and provisions of the Branding and License Agreement, Cree will provide to us their MX-6 LEDs for use in our troffer. We believe that the MX-6 provides better color consistency and higher reliability than incumbent solutions. The MX-6 delivers higher lumen output without having to compromise between light output and efficacy. We will also be able to display the Cree logo on our website, marketing materials and packaging.
 
Consulting Agreements
 
CEC Consulting Agreement. On December 10, 2010, we entered into a consulting agreement (the “CEC Consulting Agreement”) with Corporate Excellence Consulting LLC (“CEC”). In accordance with the terms and provisions of the CEC Consulting Agreement: (i) CEC shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to CEC 16,000 shares of our restricted common stock.
 
Effective February 22, 2011, we entered into a termination and settlement agreement (the “Termination Agreement”) with CEC. In accordance with the terms and provisions of the Termination Agreement: (i) CEC is to return share certificate no. 1332 evidencing the issuance of the 16,000 shares of common stock, which will be cancelled and returned to treasury; and (ii) we shall issue to CEC 2,000 shares as settlement for services rendered by CEC to us. As of the date of this Annual Report, the 16,000 shares have not been cancelled or returned to treasury.
 
FIS Agreement. On December 1, 2010, we entered into an agreement (the “FIS Agreement”) with Financial Insights & Solutions Inc. (“FIS”). In accordance with the terms and provisions of the FIS Agreement: (i) FIS shall provide consulting services to us in the form of a senior administrator support for business transactions and coordination of outside legal and accounting services and other corporation matters and general business counsel relating to our overall business; (ii) we shall pay FIS an hourly rate of $175.00 for performance of such services; and (iii) issue to FIS 4,000 shares of our restricted common stock.

Kodiak Capital. On March 15, 2011, we entered into a consulting agreement (the “Kodiak Agreement”) with Kodiak Capital (“Kodiak”). In accordance with the terms and provisions of the Kodiak Agreement: (i) Kodiak shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Kodiak 1,667 shares of our restricted common stock.

Tracy Clinton. On March 17, 2011, we entered into a consulting agreement (the “Clinton Agreement”) with Tracy Clinton (“Clinton”). In accordance with the terms and provisions of the Clinton Agreement: (i) Clinton shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Clinton 100 shares of our restricted common stock.

 
11

 
 
Eric Weinberger. On March 23, 2011, we entered into a consulting agreement (the “Weinberger Agreement”) with Eric Weinberger (“Weinberger”). In accordance with the terms and provisions of the Weinberger Agreement: (i) Weinberger shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Weinberger 1,000 shares of our restricted common stock.

Dominick Falso. On March 23, 2011, we entered into a consulting agreement (the “Falso Agreement”) with Dominick Falso (“Falso”). In accordance with the terms and provisions of the Falso Agreement: (i) Falso shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Faslo 1,250 shares of our restricted common stock.

Michael Zoyes. On March 23, 2011, we entered into a consulting agreement (the “Zoyes Agreement”) with Michael Zoyes (“Zoyes”). In accordance with the terms and provisions of the Zoyes Agreement: (i) Zoyes shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Zoyes 1,000 shares of our restricted common stock.

Virmmac LLC. On April 5, 2011, we entered into a consulting agreement (the “Virmmac Agreement”) with Virmmac LLC (“Virmmac”). In accordance with the terms and provisions of the Virmacc Agreement: (i) Virmmac shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Virmmac 1,200 shares of our restricted common stock.

Charles Neustein. On May 23, 2011, we entered into a consulting agreement the “Neustein Agreement”) with Charles Neustein (“Neustein”). In accordance with the terms and provisions of the Neustein Agreement: (i) Neustein shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Neustein 1,000 shares of our restricted common stock.

Virmmac LLC. On June 7, 2011, we entered into a further consulting agreement (the “Virmmac Agreement”) with Virmacc. In accordance with the terms and provisions of the Virmmac Agreement: (i) Virmmac shall perform such services in connection with business development and marketing and growth capital funding; and (ii) we shall issue to Virmmac 2,000 shares of our restricted common stock.

See “Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
 
 
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TARGET MARKETS AND CUSTOMERS
 
We intend to target applications across several markets for which the return on investment, total cost of ownership and other benefits of LED lighting currently present clear and compelling reasons for its use. We believe that in many instances the products we will offer to our customers will have less than a two year payback depending on the cost of electricity, the efficiency and useful life of the replaced lamps or luminaires, and other factors including customer-specific characteristics such as daily duration of lighting use and ease or cost of incumbent lighting technology replacement. The exact payback period required to drive LED lighting adoption varies by application and end-user and is influenced by the perceived value of other benefits of LED lighting for a given application as well as individual end-user willingness to invest in the higher upfront cost of LED lighting. We expect that as payback periods further shorten, LED adoption will accelerate across a growing range of applications and we expect to broaden our target applications and roster of customers accordingly.
 
Residential and office. We intend to offer a line of retrofit lamps and luminaires targeted to compete with traditional incandescent and incandescent halogen lamps and luminaires for commercial and residential lighting applications.

Retail and hospitality. The market for lighting in the retail and hospitality environment is both large and varied and includes products for malls, retail stores, hotels and resorts, cruise ships and restaurants.
 
Government-owned and private infrastructure. Public and private infrastructure includes outdoor facilities and spaces that are managed by government and private entities. Primary applications in this market may include lighting for streets and highways, parking lots, airports, ports, railroads, utilities and other large outdoor areas. Street and highway lighting represents the largest segment within the infrastructure market with the number of street and area lights in the United States alone estimated at over 100 million fixtures. Although LED lighting currently represents only a small part of this market, we expect it to grow significantly due to increasing customer awareness of the benefits of LED technology, including longer lifetime, which reduces the need for costly and disruptive replacement and maintenance, and the improving performance and declining cost of LED lighting products.
 
RESEARCH AND DEVELOPMENT
 
We believe that our ongoing success depends in part on our ability to improve our current products and to develop new products for both existing and new applications. Our research and development team focuses on increasing the efficiency of all of the components and subsystems that comprise our products including power supplies, thermal management solutions and optical systems as well as on designing these components and subsystems for improved aesthetics and reduced total product cost. This goes beyond the optimization of existing technologies and includes the dedication of significant resources toward the development of new materials and methods related to these components and subsystems.
 
We have assembled a team of individuals to conduct our research and development with varying degrees in disciplines, including power electronics, lighting, thermal and mechanical engineering, materials science and cellular and molecular biology. These professionals combine a thorough understanding of the sciences required to develop LED lighting products with significant lighting application experience. Our research and development capabilities are enhanced through collaborations with leaders in a wide range of fields, including advanced material science and semiconductor performance.
 
 
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Pilot Program
 
On February 3, 2011, our 50 watt LED down lighting retrofit fixture was selected by a large south Florida metropolitan public transit system for the purpose of completing an economic study on the energy and cost savings to be achieved by our proprietary lighting fixtures in some of the most highly trafficked facilities. Management believes that this study will evidence the already achieved preliminary installation serves to validate our reputation among large commercial and municipal customers, our prime market. As of the date of this Annual Report, it is anticipated that the first stage of this large scale multi-year implementation will be initiated later in 2012.
 
COMPETITION
 
Our industry is highly competitive. We face competition from both traditional lighting technologies provided by numerous vendors as well as from LED-based lighting products provided by a growing roster of industry participants. The LED lighting industry is characterized by rapid technological change, short product lifecycles and frequent new product introductions, and a competitive pricing environment. These characteristics increase the need for continual innovation and provide entry points for new competitors as well as opportunities for rapid share shifts.
 
Relative to traditional lighting technologies, we primarily compete on the basis of the numerous benefits of LED lighting technology, such as greater energy efficiency, longer lifetime, improved durability, increased environmental friendliness, digital controllability, smaller size, directionality and lower heat output. We will compete primarily on the basis of our product performance as measured by efficacy, light quality and reliability, as well as on product cost. In addition to the aforementioned factors which generally contribute to total cost of ownership and product quality, we will also compete on the basis of our broad product portfolio and strong channel relationships. We believe our differentiated product design approach, proprietary technology and deep understanding of the lighting applications we address enable us to compete favorably on all of these factors.
 
Currently, we view our primary competition to be large, established companies in the traditional general lighting industry such as Acuity Brands, Cooper Industries, General Electric Company, Osram Sylvania, Panasonic Corporation, Koninklijke Philips Electronics N.V., or Philips, and Zumtobel Lighting GmbH. Certain of these companies also provide, or have undertaken initiatives to develop, LED lighting products as well as other energy efficient lighting products. Additionally, we face competition from a fragmented universe of dedicated smaller niche as well as low-cost offshore providers of LED lighting products. We also expect other large technology players with LED technology that are currently focused on other end markets for LEDs, such as backlighting for LCD displays, to increasingly focus on the general illumination market as their existing markets saturate and LED use in general illumination grows. In addition, we may compete in the future with vendors of new technological solutions for energy efficient lighting.
 
Some of our current and future competitors are larger companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand name recognition and channel access. Some of our more diversified competitors could also compete more aggressively with us by subsidizing losses in their LED lighting businesses with profits from other lines of business. Moreover, if one or more of our competitors or suppliers were to merge with one another, the change in the competitive landscape could adversely affect our customer, channel or supplier relationships, and, as a result, our competitive position. Additionally, any loss of a key channel partner, whether to a competitor or otherwise, could severely and rapidly damage our competitive position.
 
 
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INTELLECTUAL PROPERTY AND PATENT
 
The creation and use of proprietary intellectual property is a key aspect of our strategy to differentiate ourselves in the marketplace. We seek to protect our proprietary technologies by obtaining patents and licenses, retaining trade secrets and defending, enforcing and utilizing our intellectual property rights, where appropriate. We believe this strategy allows us to preserve the advantages of our products and technologies, and helps us to improve the return on our investment in research and development.
 
As of the date of this Annual Report, we have filed a U.S. patent application. The patent is a utility patent that covers our intelligent solution and was filed with the United States Patent, Trademark and Copyright Office on February 10, 2011. When we believe it is appropriate and cost effective, we intend to make corresponding international, regional or national filings to pursue patent protection in other parts of the world. In some cases, we rely on confidentiality agreements and trade secret protections to protect our proprietary technology. In addition, we license and have cross-licensing arrangements with respect to third-party technologies that are incorporated into some elements of our design activities, products and manufacturing processes.
 
The LED industry is characterized by the existence of a significant number of patents and other intellectual property, and by the vigorous pursuit, protection and enforcement of intellectual property rights. As is customary in the industry, many of our customer agreements require us to indemnify our customers for third-party intellectual property infringement claims. Claims of this sort could harm our relationships with our customers and might deter future customers from doing business with us. With respect to any intellectual property rights claims against us or our customers or distributors, we may be required to cease manufacture of the infringing product, pay damages, expend resources to defend against the claim and/or develop non-infringing technology, seek a license or relinquish patents or other intellectual property rights. We believe our extensive intellectual property portfolio, along with our license arrangements, provide us with considerable advantage relative to new entrants to the industry and smaller LED providers in serving sophisticated customers.
 
Intellectual Property Appraisal Report
 
On approximately February 22, 2011, we received an intellectual property appraisal services reports (the “Appraisal Services Report”) from Pellegrino & Associates LLC (“Pellegrino”). The Appraisal Services Report was commissioned by us regarding the value of the new patent pending NexPhase intellectual property, which is estimated at approximately $17,200,000.  The key points contained in the Appraisal Services Report are as follows:
 
·
The valuation model indicates the fair market value of the intellectual property at a 90% confidence level is between $6,820,229 and $41,109,593, with a mean value of $19,710,311 and a median value of $17,216,091. Pellegrino used the statistical median as its expected value, as it removes the impact of improbable outliers. Therefore, it is the opinion of Pellegrino, based upon a reasonable degree of probability within the valuation profession, that the fair market value of the intellectual property is $17,216,091 using the income approach to value.
 
 
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·
Sustainable competitive advantages. For the intellectual to retain value, it is imperative that it maintain certain sustainable competitive advantages. Without these sustainable competitive advantages, market forces would erode any economic power of the intellectual property and drive a lower value.
 
·
Several key sustainable competitive advantages related to the intellectual property have been identified as follows:
 
(i)
Advanced features. Troffers that use the intellectual property come with several advanced features such as PWM dimming, an ambient light sensor, a proximity sensor, mesh networking capability, and Internet-based control and configuration. Pellegrino discussed these features in the intellectual property overview section of the Appraisal Services Report. No other troffers Pellegrino identified on the market today contain such features.
 
(ii)
Pricing. NexPhase offers troffers that use the intellectual property for a sale price of $400. As Pellegrino showed in its competitive market review, the troffers that use the intellectual property have an aggressive price in the market when considering the advanced features included, lumens per watt, and dollars per lumen.
 
(iii)
Lumens per watt.  The troffers that use the intellectual property have a high lumen per watt output. As Pellegrino showed in its competitive market review, the troffers that use the intellectual property have a best-in-class lumens per watt output. The high lumen output allows NexPhase to conduct a site survey and reduce the number of fixtures required at a given location. A reduction in fixtures improves ROI and energy consumption. Pellegrino provided further detail on in its analysis of the value proposition for the intellectual property.
 
(iv)
Industry experience. NexPhase employees have extensive experience in the lighting and manufacturing industry. This experience enhances the likelihood that NexPhase will be successful in completing product development and establishing a high quality manufacturing facility. In fact, NexPhase began operations in June 2010 and has successfully deployed prototype troffers to customer locations for demonstration purposes.
 
·
U.S. based manufacturing. NexPhase can benefit from manufacturing products in the United States. The Buy American Provision of the Stimulus Act requires that stimulus money go to purchase goods manufactured in the United States rather than goods manufactured in another country. Any company or government agency using stimulus money to purchase goods must purchase the goods from a U.S. manufacturer. While there are other lighting manufacturers in the United States, NexPhase retains a competitive advantage over non-U.S.-based manufacturers for customers utilizing stimulus funding.
 
·
In consideration of Pellegrino’s analysis of the competitive advantages for the intellectual property, it is Pellegrino’s opinion, based upon a reasonable degree of probability within the valuation profession, that there are sufficient sustainable competitive advantages to create value.
 
·
The data suggests that NexPhase can provide unmatched value in advanced features, since no other troffer Pellegrino identified contained any integrated advanced features. NexPhase is at parity in the market with the expected life of its troffer. However, NexPhase is the only company to offer a seven-year warranty. NexPhase has the highest lumen output capability and lumens per watt. NexPhase also has the second lowest cost per lumen of output. The NexPhase product’s high lumen output enables lighting designers to reduce actual fixtures in the building potentially. Lighting designers would know for sure after performing a site survey. Naturally, an absolute reduction in fixtures provides additional savings.
 
 
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·
According to Energy Star, good lighting design can reduce lighting electricity use by half and improve lighting quality. While these designs can sometimes be pricey, they usually pay for themselves in a matter of a few years. In addition, they offer more benefits by reducing the size of electrical systems and providing better lighting, which results in more effective work environments.

·
According to Egret Consulting, the LED lighting market for 2009 (fixtures and replacement lamps) was $2.3 billion and was expected to reach $3 billion by the end of 2010. For the entire LED component market, sales were $5.3 billion in 2009 and forecast to be $20 billion by 2014. Pike Research anticipates LED lighting to become a significant part of the commercial building market and have a 46% penetration level in the commercial, industrial, and outdoor stationary markets by 2020.

·
The United States spends approximately one-quarter of its electricity dollars on lighting at a cost of more than $37 billion yearly. The lighting industry covers industrial, residential, retail, etc. Lighting drives approximately 37% to 40% of electrical energy consumption in commercial spaces. In the target markets evaluated (Hospital, Education and Commercial Office) the estimated fixtures in the field to be replaced in the United States is 1.2 Billion.
 
REGULATIONS, STANDARDS AND CONVENTIONS
 
The products of NexPhase are generally required to meet the electrical codes of the jurisdictions in which they are sold. Meeting the typically more stringent codes established in the United States and the European Union usually allows our products to meet the codes in other geographic regions.
 
We believe that certain of our customers may require our products to be listed by Underwriters’ Laboratories, Inc. (“UL”). UL is a United States independent, nationally recognized testing laboratory, third-party product safety testing and certification organization. UL develops standards and test procedures for products, materials, components, assemblies, tools and equipment, chiefly dealing with product safety. UL evaluates products, components, materials and systems for compliance to specific requirements, and permits acceptable products to carry a UL certification mark, as long as they remain compliant with the standards. UL offers several categories of certification. Products that are “UL Listed,” are identified by the distinctive UL mark. We have undertaken to have all of our products meet UL standards and be UL listed. There are alternatives to UL certifications but we believe that customers and end-users tend to favor UL listing. Because LED lighting products are relatively new in the market, UL’s specifications and standards for LED lighting products such as ours are not well established and the prior established specifications and standards for traditional lighting products are sometimes difficult to achieve for LED lighting devices.
 
 
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Certain that our products must meet industry standards, such as those set by the Illuminating Engineering Society of North America, or IES, and government regulations for their intended application.  For example, street lights must meet certain structural standards and must also deliver a certain amount of light in certain positions relative to the installed luminaire. In the United States, luminaires must meet standards and regulations established in the Americans with Disabilities Act. We specifically develop and engineer our products to meet and/or exceed the standards and regulations applicable to the lighting applications they address.
 
We further believe that certain of our customers and end-users may also expect our products to meet the applicable “Energy Star” requirements. In addition to the UL and IES certifications, each of our products will have LM79 and LM80 approval. These three combined approvals will allow us to submit to Energy Star for their subsequent approval. As of the date of this Annual Report, not all styles of LED fixtures have active Energy Star campaigns but new form factors will continue to be added by Energy Star in the future. Energy Star is an international standard for energy efficient consumer products. To qualify for Energy Star certification, LED lighting products must pass a variety of tests to prove that the products have certain characteristics.

EMPLOYEES

We employ approximately five persons on a full-time or on a part-time basis. Dror Svorai is our sole officer, Chief Executive Officer/President, Secretary, Treasurer/Chief Financial Officer. Mr. Svorai is primarily responsible for all of our day-to-day operations. Other services are provided by outsourcing and consultant and special purpose contracts.
 
ITEM 1A. RISK FACTORS
 
An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in evaluating us and our business before purchasing shares of our common stock. Our business, operating results and financial condition could be seriously harmed due to any of the following risks. The risks described below are all of the material risks that we are currently aware of that we are facing. Additional risks not presently known to us may also impair our business operations. You could lose all or part of your investment due to any of these risks.
 
RISKS RELATED TO OUR BUSINESS
 
We have a limited amount of revenues and a history of losses and may be unable to continue operations unless we can generate sufficient operating income from the sale of our products.
 
We have sustained operating losses since our inception. For fiscal year ended December 31, 2011, we generated revenue of $380,216 compared to $-0- during fiscal year ended December 31, 2010. As of December 31, 2011 and 2010, we had accumulated deficits of $2,590,932 and $777,741, respectively. As evidenced by these financial results, we may not be able to achieve or maintain profitability on a consistent basis. Continuing losses may exhaust our capital resources and force us to discontinue our operations.
 
 
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We have yet to achieve positive cash flow, and our ability to generate positive cash flow is uncertain. If we are unable to obtain sufficient capital when needed, our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations.
 
Our operations have not generated positive cash flow for any reporting period since our inception, and we have funded our operations primarily through the issuance of common and preferred stock and short-term debt. Our limited operating history makes an evaluation of our future prospects difficult. The actual amount of funds that we will need to meet our operating needs will be determined by a number of factors, many of which are beyond our control. These factors include the timing and volume of sales transactions, the success of our marketing strategy, market acceptance of our products, the success of our manufacturing and research and development efforts (including any unanticipated delays), the costs associated with obtaining and enforcing our intellectual property rights, regulatory changes, competition, technological developments in the market, evolving industry standards and the amount of working capital investments we are required to make. Our ability to continue to operate until our cash flow from operations turns positive will depend on our ability to continue to raise funds through public or private sales of shares of our capital stock or through debt.

During this economic downturn, we may experience limited access to the capital and credit markets, and it remains uncertain whether we will be able to obtain outside capital when we need it or on terms that would be acceptable to us. We may primarily need to rely on financing or guaranties from our affiliates. There are no assurances that such related parties will provide financing on terms that are acceptable to us or at all. If we raise funds by selling additional shares of our common stock or securities convertible or exercisable into our common stock, the ownership interest of our existing stockholders will be diluted. If we are unable to obtain sufficient outside capital when needed, our business and future prospects will be adversely affected and we could be forced to suspend or discontinue operations.
 
If we are unable to manage any future growth effectively, our profitability and liquidity could be adversely affected.
 
Our growth is expected to place significant strain on our limited research and development, sales and marketing, operational and administrative resources. To manage any future growth, we must continue to improve our operational and financial systems and expand, train and manage our employee base. We also need to improve our supply chain management and quality control operations and hire and train new employees, including sales and customer service representatives and operations managers. If we are unable to manage our growth effectively, our profitability and liquidity could be adversely affected.
 
If our developed technology or technology under development does not achieve market acceptance, prospects for our growth and profitability would be limited.
 
Our future success depends on market acceptance of our LED technology and the technology currently under development. Although adoption of LED lighting has grown in recent years, adoption of LED lighting products for general illumination has only recently begun, is still limited and faces significant challenges. Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology because of its higher initial cost or perceived risks relating to its novelty, reliability, usefulness, light quality and cost-effectiveness when compared to other established lighting sources available in the market. Changes in economic and market conditions may also affect the marketability of some traditional lighting technologies such as declining energy prices that favor existing lighting technologies that are less energy efficient. Moreover, if existing sources of light other than LED lighting products achieve or maintain greater market adoption, or if new sources of light are developed, our current products and technologies could become less competitive or obsolete. Even if LED lighting products continue to achieve performance improvements and cost reductions, limited customer awareness of the benefits of LED lighting products, lack of widely accepted standards governing LED lighting products and customer unwillingness to adopt LED lighting products in favor of entrenched solutions could significantly limit the demand for LED lighting products and adversely impact our results of operations.
 
 
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Lighting products, particularly emerging LED lighting products, are subject to rapid technological changes. If we fail to accurately anticipate and adapt to these changes, the products we sell will become obsolete, causing a decline in our sales and profitability.
 
LED lighting products are subject to rapid technological changes that often cause product obsolescence. Companies within the LED lighting industry are continuously developing new products with heightened performance and functionality. This puts pricing pressure on existing products and constantly threatens to make them, or causes them to be, obsolete. Our typical product’s life cycle is extremely short, generating lower average selling prices as the cycle matures. If we fail to accurately anticipate the introduction of new technologies, we may possess significant amounts of obsolete inventory that can only be sold at substantially lower prices and profit margins than we anticipated. In addition, if we fail to accurately anticipate the introduction of new technologies or are unable to develop the planned new technologies, we may be unable to compete effectively due to our failure to offer products most demanded by the marketplace. If any of these failures occur, our sales, profit margins and profitability will be adversely affected.
 
If we are unable to increase production capacity for our products in a cost effective and timely manner, we may incur delays in shipment and our revenues and reputation in the marketplace could be harmed.
 
An important part of our business plan is the expansion of production capacity for our products. In order to fulfill anticipated demand for our products, we invest in capacity in advance of actual customer orders, typically based on preliminary, non-binding indications of future demand. As customer demand for our products changes, we must be able to adjust our production capacity to meet demand while keeping costs down. Uncertainty is inherent within our facility and capacity expansion, and unforeseen circumstances could offset the anticipated benefits, disrupt our ability to provide products to our customers and impact product quality.
 
Our ability to successfully increase production capacity in a cost effective and timely manner will depend on a number of factors, including the following: (i) our ability to transition production in our manufacturing facility; (ii) the ability of contract manufacturers to allocate more of their existing capacity to us or their ability to add new capacity quickly; (iii) the ability of any future contract manufacturers to successfully implement our manufacturing processes; (iv) the availability of critical components and subsystems used in the manufacture of our products; (v) our ability to effectively establish adequate management information systems, financial controls and supply chain management and quality control procedures; and (vi) the occurrence of equipment failures, power outages, environmental risks or variations in the manufacturing process.
 
If we are unable to increase production capacity for our products in a cost effective and timely manner while maintaining adequate quality, we may incur delays in shipment or be unable to meet increased demand for our products which could harm our revenues and operating margins and damage our reputation and our relationships with current and prospective customers. Conversely, due to the proportionately high fixed cost nature of our business (such as facility expansion costs), if demand does not increase at the rate forecasted, we may not be able to reduce manufacturing expenses or overhead costs at the same rate as demand decreases, which could also result in lower margins and adversely impact our business and results of operations.
 
 
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We rely on our relationship with Cree and the loss of a material relationship with it could have a material adverse effect on our results of operations, our future growth prospects and our ability to distribute our products.
 
We intend to form business relationships and strategic alliances with retailers and other lighting companies to market our products under private or co-branded labels, such as our existing relationship with Cree. In certain cases, such relationships are important to our introduction of new products and services, and we may not be able to successfully collaborate or achieve expected synergies with these retailers or lighting companies. We do not control these retailers or lighting companies and they may make decisions regarding their business undertakings with us that may be
contrary to our interests, or may terminate their relationships with us altogether. In addition, if these retailers or lighting companies change their business strategies, we may fail to maintain these relationships.
 
We intend to assemble and manufacture certain of our products and our sales, results of operations and reputation could be materially adversely affected if there is a disruption at our assembly and manufacturing facility.
 
Our assembly and manufacturing operations for our products is based in Aventura, Florida. The operation of this facility involves many risks, including equipment failures, natural disasters, industrial accidents, power outages and other business interruptions. We could incur significant costs to maintain compliance with, or due to liabilities under, environmental laws and regulations, the violation of which could lead to significant fines and penalties. Although we intend to carry business interruption insurance and third-party liability insurance to cover certain claims in respect of personal injury or property or environmental damage arising from accidents on our properties or relating to our operations, any existing insurance coverage may not be sufficient to cover all risks associated with our business. As a result, we may be required to pay for financial and other losses, damages and liabilities, including those caused by natural disasters and other events beyond our control, out of our own funds, which could have a material adverse effect on our business, financial condition and results of operations. Additionally, any interruption in our ability to assemble, manufacture or distribute our products could result in lost sales, limited revenue growth and damage to our reputation in the market, all of which would adversely affect our business.
 
Additionally, we intend to rely on arrangements with independent shipping companies, such as United Parcel Service, Inc. and Federal Express Corp., for the delivery of certain components and subsystems from vendors and products to our customers in both the United States and abroad. The failure or inability of these shipping companies to deliver components, subsystems or products timely, or the unavailability of their shipping services, even temporarily, could have a material adverse effect on our business. We may also be adversely affected by an increase in freight surcharges due to rising fuel costs or added security.
 
 
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We may utilize a contract manufacturer to manufacture certain of our products and any disruption in this relationship may cause us to fail to meet our customers’ demands and may damage our customer relationships.
 
Although we intend to assemble and manufacture certain of our products, we may depend on a third party contract manufacturer to manufacture a portion of our products elsewhere. This manufacturer will need to provide the necessary facilities and labor to manufacture these products, which may be primarily high volume products and components that we intend to distribute to customers in regions outside of North America. Our reliance on a contract manufacturer involves certain risks, including the following: (i) lack of direct control over production capacity and delivery schedules; (ii) risk of equipment failures, natural disasters, industrial accidents, power outages and other business interruptions; (iii) lack of direct control over quality assurance and manufacturing yield; and (iv) risk of loss of inventory while in transit.
 
If a potential contract manufacturer were to terminate its arrangements with us or fail to provide the required capacity and quality on a timely basis, we would experience delays in the manufacture and shipment of our products until alternative manufacturing services could be contracted or offsetting internal manufacturing processes could be implemented. Any significant shortages or interruption may cause us to be unable to timely deliver sufficient quantities of our products to satisfy our contractual obligations and particular revenue expectations. Moreover, even if we timely locate substitute products and their price materially exceeds the original expected cost of such products, then our margins and results of operations would be adversely affected.
 
To qualify a contract manufacturer, familiarize it with our products, quality standards and other requirements and commence volume production may be a costly and time-consuming process. If we are required to choose  a contract manufacturer for any reason, our revenue, gross margins and customer relationships could be adversely affected.
 
Our industry is highly competitive and if we are not able to compete effectively, including against larger lighting manufacturers with greater resources, our prospects for future success will be jeopardized.
 
Our industry is highly competitive. We face competition from both traditional lighting technologies provided by numerous vendors as well as from LED-based lighting products provided by a growing roster of industry participants. The LED lighting industry is characterized by rapid technological change, short product lifecycles and frequent new product introductions, and a competitive pricing environment. These characteristics increase the need for continual innovation and provide entry points for new competitors as well as opportunities for rapid share shifts.
 
Currently, we view our primary competition to be from large, established companies in the traditional general lighting industry. Certain of these companies also provide, or have undertaken initiatives to develop, LED lighting products as well as other energy efficient lighting products. Additionally, we face competition from a fragmented universe of smaller niche or low-cost offshore providers of LED lighting products. We also anticipate that larger LED chip manufacturers, including some of those that currently supply us, may seek to compete with us by introducing more complete retrofit lamps or luminaires. We also expect other large technology players with packaged LED chip technology that are currently focused on other end markets for LEDs, such as backlighting for LCD displays, to increasingly focus on the general illumination market as their existing markets saturate and LED use in general illumination grows. In addition, we may compete in the future with vendors of new technological solutions for energy efficient lighting.
 
 
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Some of our current and future competitors are larger companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand name recognition. Some of our more diversified competitors could also compete more aggressively with us by subsidizing losses in their LED lighting businesses with profits from other lines of business. Moreover, if one or more of our competitors or suppliers were to merge with one another, the change in the competitive landscape could adversely affect our customer, channel or supplier relationships, or our competitive position. Additionally, any loss of a key channel partner, whether to a competitor or otherwise, could severely and rapidly damage our competitive position. To the extent that competition in our markets intensifies, we may be required to reduce our prices in order to remain competitive. If we do not compete effectively, or if we reduce our prices without making commensurate reductions in our costs, our net sales and profitability, and our future prospects for success, may be harmed.
 
If we do not properly anticipate the need for critical raw materials, components and subsystems, we may be unable to meet the demands of our customers and end-users, which could reduce our competitiveness, cause a decline in our market share and have a material adverse effect on our results of operations.
 
The lighting industry is subject to significant fluctuations in the availability of raw materials, components and subsystems. We depend on our suppliers for certain standard electronic components as well as custom components critical to the manufacture of our lighting devices. The principal raw materials and components used in the manufacture of our products are packaged LEDs and printed circuit boards, MOSFETS, magnetic and standard electrical components such as capacitors, resistors and diodes, wire, plastics for optical systems and aluminum for housings and heat sinks. We currently rely on a select number of suppliers for packaged LEDs used in the production of our products. From time to time, packaged LEDs and electronic components have been in short supply due to demand and production constraints. We depend on our vendors to supply in a timely manner critical components and subsystems in adequate quantities and consistent quality and at reasonable costs. Certain that these vendors operate out of Japan, and as a result of the effects of the earthquake and tsunami that recently occurred in Japan, these vendors may be unable to deliver sufficient quantities of components or subsystems or may be unable to deliver components or subsystems in a timely manner, which could have a material adverse affect on our results of operations. Finding a suitable alternate supply of required components and subsystems that meet our strict specifications and obtaining them in needed quantities may be a time-consuming process, and we may not be able to find an adequate alternative source of supply at an acceptable cost. Any significant interruption in the supply of these raw materials, components and subsystems could have a material adverse effect on our results of operations.
 
Our financial results may vary significantly from period-to-period due to unpredictable sales cycles in certain of the markets into which we sell our products, and changes in the mix of products we sell during a period, which may lead to volatility in our stock price.
 
The size and timing of our potential revenue from sales to our customers is difficult to predict and is market dependent. Our sales efforts will often require us to educate our customers about the use and benefits of our products, including their technical and performance characteristics. We intend to spend substantial amounts of time and money on our sales efforts and there is no assurance that these investments will produce any sales within expected time frames or at all. Given the potentially large size of purchase orders for our products, particularly in the infrastructure market, the loss of or delay in the signing of a customer order could significantly reduce our revenue in any period. Our revenues in each period may also vary significantly as a result of purchases, or lack thereof, by potential significant customers. Because most of our operating and capital expenses will be incurred based on the estimated number of product purchases and their timing, they are difficult to adjust in the short term. As a result, if our revenue falls below our expectations or is delayed in any period, we may not be able to proportionately reduce our operating expenses or manufacturing costs for that period, and any reduction of manufacturing capacity could have long-term implications on our ability to accommodate future demand.
 
 
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Our profitability from period-to-period may also vary significantly due to the mix of products that we may sell in different periods. As we expand our business we expect to sell more retrofit lamps and luminaires into additional target markets. These products are likely to have different cost profiles and will be sold into markets governed by different business dynamics. Consequently, sales of individual products may not necessarily be consistent across periods, which could affect product mix and cause gross and operating profits to vary significantly. As a result of these factors, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and that these comparisons cannot be relied upon as indicators of future performance.
 
Our products may contain defects that could reduce sales, result in costs associated with the recall of those items and result in claims against us.
 
The manufacture of our products involves highly complex processes. Despite testing by us and our customers, defects have been and could be found in our existing or future products. These defects may cause us to incur significant warranty, support and repair costs, and costs associated with recall may divert the attention of our engineering personnel from our product development efforts and harm our relationships with customers and our reputation in the marketplace. We generally provide a five year warranty on our products, and such warranty may require us to repair, replace or reimburse the purchaser for the purchase price of the product, at the customer’s discretion. Moreover, even if our products meet standard specifications, our customers may attempt to use our products in applications they were not designed for or in products that were not designed or manufactured properly, resulting in product failures and creating customer dissatisfaction. These problems could result in, among other things, a delay in the recognition or loss of revenues, loss of market share or failure to achieve market acceptance. Defects, integration issues or other performance problems in our products could also result in personal injury or financial or other damages to our customers for which they might seek legal recourse against us. We may be the target of product liability lawsuits and could suffer losses from a significant product liability judgment against us if the use of our products at issue is determined to have caused injury. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation and a loss of customer confidence in our products, which adversely affect our results of operations.
 
If we are unable to obtain and protect our intellectual property rights, our ability to commercialize our products could be substantially limited.
 
As of the date of this Annual Report, we have filed a U.S. patent application. When we believe it is appropriate and cost effective, we may make corresponding international, regional or national filings to pursue patent protection in other parts of the world. Our patent application may not be granted. Because patents involve complex legal, technical and factual questions, the issuance, scope, validity and enforceability of patents cannot be predicted with certainty. Competitors may develop products similar to our products that do not conflict with our patent rights. Others may challenge our patents and, as a result, our patent could be narrowed or invalidated. In some cases, we may rely on confidentiality agreements or trade secret protections to protect our proprietary technology. Such agreements, however, may not be honored and particular elements of our proprietary technology may not qualify as protectable trade secrets under applicable law. In addition, others may independently develop similar or superior technology, and in the absence of applicable prior patents, we would have no recourse against them.
 
Our business may be impaired by claims that we, or our customers, infringe intellectual property rights of others.
 
Our industry is characterized by vigorous protection and pursuit of intellectual property rights. These traits have resulted in significant and often protracted and expensive litigation. In addition, we may inadvertently infringe on patents or rights owned by others and licenses might not be available to us on reasonable or acceptable terms or at all. Litigation to determine the validity of patents or claims by third parties of infringement of patents or other intellectual property rights could result in significant legal expense and divert the efforts of our technical personnel and management, even if the litigation results in a determination favorable to us. Third parties have and may in the future attempt to assert infringement claims against us, or our customers, with respect to our products. In the event of an adverse result in such litigation, we could be required to pay substantial damages; stop the manufacture, use and sale of products found to be infringing; incur asset impairment charges; discontinue the use of processes found to be infringing; expend significant resources to develop non-infringing products or processes; or obtain a license to use third party technology and whether or not the result is adverse to us, we may have to indemnify our customers if they were brought into the litigation.
 
 
24

 

Failure to achieve and maintain effective internal controls could have a material adverse effect on our operations and our stock price.
 
We are subject to Section 404 of the Sarbanes-Oxley Act of 2002, which requires an annual management assessment of the effectiveness of our internal control over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports, and failure to achieve and maintain effective internal controls over financial reporting could cause investors to lose confidence in our operating results, and could have a material adverse effect on our business and on the price of our common stock. Because of our status as a smaller reporting company registrant as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the independent registered public accounting firm auditing our financial statements has not been required to attest to, and report on, the effectiveness of our internal control over financial reporting.
 
During the evaluation of disclosure controls and procedures for the years ended December 31, 2010, 2009 and 2008, we concluded that our disclosure controls and procedures were not effective in reaching a reasonable level of assurance of achieving management’s desired controls and procedures objectives in our internal control over financial reporting. We believe that many of the observed material weaknesses result from our transition from a small company with immature processes and inadequate staffing in our financial accounting and reporting functions to one that is growing rapidly and must now enhance our reporting and control standards to accommodate this growth. Although we have not yet remediated all of the identified weaknesses, we have taken certain remedial actions. See “Item 9A. Internal Controls and Procedures”.
 
Additional measures will be necessary to complete the remediation of our internal controls. We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address any other matters we identify. The process of designing and implementing effective internal controls and procedures is a continuous effort, however, that requires us to anticipate and react to changes in our business and economic and regulatory environments. Additionally, we or our independent registered public accounting firm may identify additional weaknesses. The steps we have taken, or may subsequently take, may not have been or be sufficient to fully remediate the material weakness identified or ensure that our internal controls are effective. Complying with these requirements may place a strain on our personnel, information technology systems and resources and divert management’s attention from other business concerns. We may need to hire, at a material expense to us, additional accounting and financial staff with appropriate public company experience and technical accounting knowledge as part of the remediation of our material weakness or otherwise.
 
Certification and compliance are important to adoption of our lighting products, and failure to obtain such certification or compliance would harm our business.
 
We will be required to comply with certain legal requirements governing the materials used in our products. Although we are not aware of any efforts to amend existing legal requirements or implement new legal requirements in a manner with which we cannot comply, our revenue might be materially harmed if such changes were to occur. Moreover, although not legally required to do so, we strive to obtain certification for substantially all of our products. In the United States, we will seek to obtain certification for substantially all of our products from UL. We design our products to be UL/cUL and Federal Communications Commission, or FCC, compliant. Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot be certain that we will be able to obtain any such certifications for any new products or that, if certification standards are amended, we will be able to maintain any such certifications for our existing products, especially since virtually all existing codes and standards were not created with LED lighting products in mind. The failure to obtain such certifications or compliance would harm our business.

 
25

 
 
The reduction or elimination of investments in, or incentives to adopt, LED lighting or the elimination of, or changes in, policies, incentives or rebates in certain states or countries that encourage the use of LEDs over some traditional lighting technologies could cause the growth in demand for our products to slow, which could materially and adversely affect our revenues, profits and margins.
 
We believe the near-term growth of the LED market will be accelerated by government policies in certain countries that either directly promote the use of LEDs or discourage the use of some traditional lighting technologies. Today, the upfront cost of LED lighting exceeds the upfront cost for some traditional lighting technologies that provide similar lumen output in many applications. However, some governments around the world have used policy initiatives to accelerate the development and adoption of LED lighting and other non-traditional lighting technologies that are seen as more environmentally friendly compared to some traditional lighting technologies. Reductions in (including as a result of any budgetary constraints), or the elimination of, government investment and favorable energy policies could result in decreased demand for our products and decrease our revenues, profits and margins. Further, if our products fail to qualify for any financial incentives or rebates provided by governmental agencies or utilities for which our competitors’ products qualify, such programs may diminish or eliminate our ability to compete by offering products at lower prices than our competitors.
 
We rely upon key members of our management team and other key personnel and a loss of key personnel could prevent or significantly delay the achievement of our goals.
 
Our success will depend to a large extent on the abilities and continued services of key members of our management team including Dror Svorai and Jon Cooper, president of NexPhase, as well as other key personnel. The loss of these key members of our management team or other key personnel could prevent or significantly delay the implementation of our business plan, research and development and marketing efforts. In particular, Jon Cooper is critical to our research and development efforts. If we continue to grow, we will need to add additional management and other personnel. Our success will depend on our ability to attract and retain highly skilled personnel, including a permanent Chief Executive Officer, and our efforts to obtain or retain such personnel may not be successful.

Nevada Law and Our Articles of Incorporation May Protect our Directors From Certain Types of Lawsuits.

Nevada law provides that our officers and directors will not be liable to us or our stockholders for monetary damages for all, but certain types of conduct as officers and directors. Our Bylaws permit us broad indemnification powers to all persons against all damages incurred in connection with our business to the fullest extent provided or allowed by law. The exculpation provisions may have the effect of preventing stockholders from recovering damages against our officers and directors caused by their negligence, poor judgment or other circumstances. The indemnification provisions may require us to use our limited assets to defend our officers and directors against claims, including claims arising out of their negligence, poor judgment, or other circumstances.

RISKS RELATED TO OUR COMMON STOCK

Sales of a Substantial Number of Shares of Our Common Stock Into the Public Market by Certain Stockholders May Result in Significant Downward Pressure on the Price of Our Common Stock and Could Affect Your Ability to Realize the Current Trading Price of Our Common Stock.

Sales of a substantial number of shares of our common stock in the public market by certain stockholders could cause a reduction in the market price of our common stock.  As of the date of this Annual Report, we have 100,966,060 post-Reverse Stock Split shares of common stock issued and outstanding. As of the date of this Annual Report, there are 50,262,282 outstanding shares of our common stock that are restricted securities as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”). Although the Securities Act and Rule 144 place certain prohibitions on the sale of restricted securities, restricted securities may be sold into the public market under certain conditions.

 
26

 
 
Any significant downward pressure on the price of our common stock as the selling stockholders sell their shares of our common stock could encourage short sales by selling stockholders or others. Any such short sales could place further downward pressure on the price of our common stock.

The Trading Price of Our Common Stock on the OTC Bulletin Board Will Fluctuate Significantly and Stockholders May Have Difficulty Reselling Their Shares.

As of the date of this Annual Report, our common stock trades on the Over-the-Counter Bulletin Board. There is a volatility associated with Bulletin Board securities in general and the value of your investment could decline due to the impact of any of the following factors upon the market price of our common stock: (i) disappointing results from our exploration or development efforts; (ii) failure to meet our revenue or profit goals or operating budget; (iii) decline in demand for our common stock; (iv) downward revisions in securities analysts' estimates or changes in general market conditions; (v) technological innovations by competitors or in competing technologies; (vi) lack of funding generated for operations; (vii) investor perception of our industry or our prospects; (viii) general economic trends; and ix) Commodity price fluctuation

In addition, stock markets have experienced price and volume fluctuations and the market prices of securities have been highly volatile. These fluctuations are often unrelated to operating performance and may adversely affect the market price of our common stock. As a result, investors may be unable to sell their shares at a fair price and you may lose all or part of your investment.

Additional Issuance of Equity Securities May Result in Dilution to Our Existing Stockholders.

Our Articles of Incorporation, as amended, authorize the issuance of 2,000,000,000 shares of common stock and 10,000,000 shares of preferred stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future and the issuance of any such shares may result in a reduction of the book value or market price of the then outstanding shares of our common stock. If we do issue any such additional shares, such issuance also will cause a reduction in the proportionate ownership and voting power of all other stockholders. As a result of such dilution, your proportionate ownership interest and voting power will be decreased accordingly. Further, any such issuance could result in a change of control.

Our Common Stock is Classified as a “Penny Stock” Under SEC Rules Which Limits the Market for Our Common Stock.

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for stock that becomes subject to those penny stock rules. If a trading market for our common stock develops, our common stock will probably become subject to the penny stock rules, and shareholders may have difficulty in selling their shares.
 
 
27

 
 
Securities analysts may not provide coverage of our common stock or may issue negative reports, which may have a negative impact on the market price of our common stock.
 
Securities analysts have not historically provided research coverage of our common stock and may elect not to do so in the future. If securities analysts do not cover our common stock, the lack of research coverage may cause the market price of our common stock to decline. The trading market for our common stock may be affected in part by the research and reports that industry or financial analysts publish about our business. If one or more of the analysts who elects to cover us downgrades our stock, our stock price would likely decline substantially. If one or more of these analysts ceases coverage of us, we could lose visibility in the market, which in turn could cause our stock price to decline. In addition, rules mandated by the Sarbanes-Oxley Act of 2002 and a global settlement reached in 2003 between the SEC, other regulatory agencies and a number of investment banks have led to a number of fundamental changes in how analysts are reviewed and compensated. In particular, many investment banking firms are required to contract with independent financial analysts for their stock research. It may be difficult for companies such as ours, with smaller market capitalizations, to attract independent financial analysts that will cover our common stock. This could have a negative effect on the market price of our stock.
 
We do not intend to pay cash dividends and, consequently, your ability to achieve a return on your investment will depend on appreciation in the price of our common stock.
 
We have never declared or paid cash dividends on our common stock and we do not anticipate paying any cash dividends in the foreseeable future. We have a history of losses and currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business. In addition, the terms of the Wells Fargo Facility restrict our ability to pay dividends and any future credit facilities and loan agreements may further restrict our ability to pay dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of potential gain for the foreseeable future.
 
ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
No report is required.
 
ITEM 2.
PROPERTY
 
Our principal office space is located at 19495 Biscayne Blvd., Suite 411, Aventura, Florida 33180. We entered into a three-year lease term for this office space on January 1, 2011 (the “Lease”). The terms and provisions of the Lease include: (i) monthly rent commencing February 1, 2011 in the amount of $3,794.35 plus sales tax; (ii) triple-net provisions; and (iii) our responsibility for the cost of build-out and partitioning of the space.

ITEM 3.
LEGAL PROCEEDINGS

Management is not aware of any legal proceedings contemplated by any governmental authority or any other party involving us or our properties. As of the date of this Annual Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings. Management is not aware of any other legal proceedings pending or that have been threatened against us or our properties.

ITEM 4.
MINE SAFETY DISCLOSURES
 
Not applicable
 
28

 

PART II

ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR COMMON EQUITY

Shares of our common stock commenced trading on the OTC Bulletin Board approximately July 2008. As of the date of this Annual Report, our common stock trades under the symbol “ONTC:QB”. The market for our common stock is limited, and can be volatile. The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated as quoted by the NASDAQ OTC:BB stock market. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.
 
Quarter Ended
 
High Bid
   
Low Bid
 
March 31, 2011
  $ 0.03     $ 0.0167  
June 30, 2011
  $ 0.0058     $ 0.0058  
September 30, 2011
  $ 0.0016     $ 0.0016  
December 31, 2011
  0.0014     $ 0.0014  
March 31, 2010
  $ 0.0033     $ 0.0025  
June 30, 2010
  $ 0.0013     $ 0.0013  
September 30, 2010
  $ 0.0069     $ 0.0042  
December 31, 2010
  $ 0.005     $ 0.003  

As of April 16, 2012, we had 101 shareholders of record, which does not include shareholders whose shares are held in street or nominee names.
 
DIVIDEND POLICY

No dividends have ever been declared by the Board of Directors on our common stock. Our losses do not currently indicate the ability to pay any cash dividends, and we do not have the intention of paying cash dividends on our common stock in the foreseeable future.

 
29

 
 
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS

We do not have any equity compensation plans. The table set forth below presents such information.

Plan Category
 
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(a)
   
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
(b)
   
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding column (a))
 
Equity Compensation Plans Approved by Security Holders
   
N/A
     
N/A
     
N/A
 
Equity Compensation   Plans Not Approved by Security Holders
   
N/A
     
N/A
     
N/A
 
 
RECENT SALES OF UNREGISTERED SECURITIES

As of the date of this Annual Report and during fiscal year ended December 31, 2011, to provide capital, we issued stock in exchange for our debts or pursuant to contractual agreements as set forth below.

Executive

In accordance with the appointment of Dror Svorai as our sole executive officer, President/Chief Executive Officer, Secretary, Treasurer/Chief Financial Officer, and our sole director, we issued an aggregate 12,500 shares of restricted common stock to Svorai at $5.00 per share. The Board of Directors evaluated certain factors regarding the issuance including, but not limited to, the following: (i) the 12,5000 shares of common stock are restricted and cannot be resold except under the parameters of Rule 144; (ii) the opportunity for successful new business operations for us based upon the engagement of Svorai and the opportunities and business contacts provided to us through his engagement; and (iii) our inability to monetarily compensate Dror Svorai and recognition of his current and continuous dedication and long-term loyalty to us. The shares of common stock were issued to Svorai in reliance on Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”). The shares have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements.
 
Consultant Agreements
 
In accordance with the terms and provisions of those certain consultant agreements, we issued an aggregate of 9,217 shares of restricted common stock. The shares were issued to the consultants in reliance on Section 4(2) of the Securities Act. The shares have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements. The consultants acknowledged that the securities to be issued have not been registered under the Securities Act, that they understood the economic risk of an investment in the securities, and that they had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.
 
 
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On October 29, 2011, our Board of Directors approved the issuance of 30,000 shares of common stock to FIS, a consultant to us, for services rendered. The shares were valued at $1.00 per share for a total of $15,000 based on the fair value of the services received.
 
Effective February 22, 2011, we entered into a termination and settlement agreement (the “Termination Agreement”) with CEC. In accordance with the terms and provisions of the Termination Agreement: (i) CEC is to return share certificate no. 1332 evidencing the issuance of the 16,000 shares of common stock, which will be cancelled and returned to treasury; and (ii) we shall issue to CEC 2,000 shares as settlement for services rendered by CEC to us. As of the date of this Annual Report, the 16,000 shares have not been cancelled or returned to treasury.

Conversion of Notes

During fiscal year ended December 31, 2011 certain holders of convertible notes presented us with conversion notices. Therefore, our Board of Directors authorized the aggregate of 628,834 shares of common stock at various conversion prices. The shares were issued to the note holders in reliance on Section 4(2) or Regulation S of the Securities Act. The shares have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements. The note holders acknowledged that the securities to be issued have not been registered under the Securities Act, that they understood the economic risk of an investment in the securities, and that they had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.  The aggregate shares issued at the respective conversion prices in settlement of the debt are as follows:

·  
We issued an aggregate of 4,000 shares of our restricted common stock at $5.00 per share for settlement of $20,000 in convertible debt.
 
·  
We issued an aggregate of 19,800 shares of our restricted common stock at $1.00 per share for settlement of $19,800 in convertible debt.
 
·  
We issued an aggregate of 12,000 shares of our restricted common stock at $10.00 per share for settlement of $120,000 in convertible debt.
 
·  
We issued an aggregate of 426,394 shares of our restricted common stock at $0.015 per share for settlement of $6,395 in convertible debt.
 
·  
We issued an aggregate of 469,364 shares of our restricted common stock at $0.0173 per share for settlement of $8,120 in convertible debt.
 
·  
We issued an aggregate of 1,250,000 shares of our restricted common stock at $0.02 per share for settlement of $23,021 in convertible debt.
 
·  
We issued an aggregate of 434,783 shares of our restricted common stock at $0.023 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 434,783 shares of our restricted common stock at $0.0276 per share for settlement of $12,000 in convertible debt.
 
·  
We issued an aggregate of 277,778 shares of our restricted common stock at $0.054 per share for settlement of $15,000 in convertible debt.
 
·  
We issued an aggregate of 214,286 shares of our restricted common stock at $0.056 per share for settlement of $12,000 in convertible debt.
 
·  
We issued an aggregate of 255,407 shares of our restricted common stock at $0.0675 per share for settlement of $17,240 in convertible debt.
 
·  
We issued an aggregate of 67,115 shares of our restricted common stock at $0.0745 per share for settlement of $5,000 in convertible debt.
 
·  
We issued an aggregate of 227,500 shares of our restricted common stock at $0.08 per share for settlement of $18,200 in convertible debt.
 
·  
We issued an aggregate of 23,919 shares of our restricted common stock at $0.10 per share for settlement of $4,900 in convertible debt.
 
·  
We issued an aggregate of 60,000 shares of our restricted common stock at $0.15 per share for settlement of $9,000 in convertible debt.
 
·  
We issued an aggregate of 18,422 shares of our restricted common stock at $0.19 per share for settlement of $3,500 in convertible debt.
 
·  
We issued an aggregate of 51,500 shares of our restricted common stock at $0.20 per share for settlement of $10,300 in convertible debt.
 
 
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·  
We issued an aggregate of 50,001 shares of our restricted common stock at $0.21 per share for settlement of $10,500 in convertible debt.
 
·  
We issued an aggregate of 32,000 shares of our restricted common stock at $0.25 per share for settlement of $8,000 in convertible debt.
 
·  
We issued an aggregate of 18,333 shares of our restricted common stock at $0.30 per share for settlement of $5,500 in convertible debt.
 
·  
We issued an aggregate of 35,000 shares of our restricted common stock at $0.36 per share for settlement of $12,500 in convertible debt.
 
·  
We issued an aggregate of 47,778 shares of our restricted common stock at $0.45 per share for settlement of $21,500 in convertible debt.
 
·  
We issued an aggregate of 17,391 shares of our restricted common stock at $0.46 per share for settlement of $8,000 in convertible debt.
 
·  
We issued an aggregate of 20,000 shares of our restricted common stock at $0.50 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 18,868 shares of our restricted common stock at $0.53 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 17,094 shares of our restricted common stock at $0.60 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 11,606 shares of our restricted common stock at $0.70 per share for settlement of $8,124 in convertible debt.
 
·  
We issued an aggregate of 31,875 shares of our restricted common stock at $0.80 per share for settlement of $25,500 in convertible debt.
 
·  
We issued an aggregate of 138,816 shares of our restricted common stock at $1.00 per share for settlement of $138,816 in convertible debt.
 
·  
We issued an aggregate of 10,000 shares of our restricted common stock at $1.20 per share for settlement of $12,000 in convertible debt.
 
·  
We issued an aggregate of 14,450 shares of our restricted common stock at $1.83 per share for settlement of $26,500 in convertible debt.
 
·  
We issued an aggregate of 9,000 shares of our restricted common stock at $2.00 per share for settlement of $18,000 in convertible debt.
 
·  
We issued an aggregate of 4,546 shares of our restricted common stock at $2.20 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 5,218 shares of our restricted common stock at $2.30 per share for settlement of $12,000 in convertible debt.
 
·  
We issued an aggregate 3,077 shares of our restricted common stock at $3.25 per share for settlement of $10,000 in convertible debt.
 
·  
We issued an aggregate of 1,875 shares of our restricted common stock at $4.00 per share for settlement of $7,500 in convertible debt.
 
·  
We issued an aggregate of 4,396 shares of our restricted common stock at $4.55 per share for settlement of $20,000 in convertible debt.
 
·  
We issued an aggregate of 2,033 shares of our restricted common stock at $6.15 per share for settlement of $12,500 in convertible debt.

Employee

On October 29, 2011, our Board of Directors approved the issuance of 30,000 shares of common stock to Jon Cooper, our employee, as recognition of business development accomplished by our subsidiary, NexPhase Lighting. On January 24, 2012, our Board of Directors approved the further issuance of 20,000,000 shares of common stock to Mr. Cooper in recognition of his business accomplishments during fiscal year 2011. The shares were issued to Mr. Cooper in reliance on Section 4(2) of the Securities Act. The shares have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements. Mr. Cooper acknowledged that the securities to be issued have not been registered under the Securities Act, that he understood the economic risk of an investment in the securities, and that he had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.

 
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Series A Preferred Stock

On October 31, 2011, our Board of Directors authorized the issuance of an aggregate 150,000 shares of Series A Preferred stock and an aggregate 70,000 shares of restricted common stock to our Dror Svorai, our President/Chief Executive Officer. Our Board of Directors had approved the designation of 150,000 shares as Series A Preferred Stock and the issuance of the 150,000 shares of Series A Preferred Stock and the 70,000 shares of common stock were based upon recognition of the outstanding services, leadership and innovative operational strategies provided by Mr. Svorai and his continuous dedication and loyalty to us.

President/Chief Executive Officer

On January 24, 2012, our Board of Directors approved the issuance of 30,000,000 shares of common stock to Dror Svoria, our President/Chief Executive Officer, in recognition of his outstanding services, loyalty and dedication to us during the period November 23, 2011 through January 23, 2011. The shares were issued to Mr. Svorai in reliance on Section 4(2) of the Securities Act. The shares have not been registered under the Securities Act or under any state securities laws and may not be offered or sold without registration with the United States Securities and Exchange Commission or an applicable exemption from the registration requirements. Mr. Svorai acknowledged that the securities to be issued have not been registered under the Securities Act, that he understood the economic risk of an investment in the securities, and that he had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.

ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information is qualified by reference to, and should be read in conjunction with our financial statements and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operation” contained elsewhere herein. The selected statement of operations data for fiscal years ended December 31, 2011 and 2010 and the selected balance sheet data as of December 31, 2011 and 2010 are derived from our audited restated financial statements which are included elsewhere herein.

STATEMENT OF OPERATIONS
 
Years Ended December 31
2011 and 2010
   
For the Period from December 29, 2003 (inception) to December 31, 2011
                 
Revenue
  $ 380,216     $ -0-     $ 380,216  
Cost of Good Sold
    187,762       -0-       187,762  
Gross Profit
    192,454               192,454  
Operating Expenses
                   
General and administrative expenses
    217,809       23,562       295,419  
Investor relations
    145,512       -0-       145,512  
Occupancy - Headquarters
    72,604       -0-       77,906  
Officer compensation
    278,676       335,000       613,676  
Professional fees
    110,003       31,302       149,955  
Staff Compensation
    406.648       15,000       421,648  
Stock-based compensation
    115,150       182,500       405,205  
Depreciation
    9,869       -0-       9.869  
Total Operating Expenses
    1,356,271       587,364       2,119,190  
                     
Loss from operations
    (1,163,817 )     (587,364 )     (1,926,736 )
                     
Other Expenses
                   
     Loss on Disposition of Assets
    -0-       567       567  
     Interest expense
    621,774       13,255       655,029  
     Write-off of project development costs
    27,000       -0-       27,000  
      Write-off of amount due from other
    -0-       1,000       1,000  
Total Other Expenses
    649,374       14,255       664,196  
                     
Net Loss
    (1,813,191 )     (601,619 )     (2,590,932 )
                     
BALANCE SHEET DATA
                   
Total Assets
    3,223,704       125,178      
Total Liabilities
    1,521,200       591,897          
Total Stockholders’ Equity (Deficit)
    1,702,504       (466,719 )    

 
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ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATION

The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this Annual Report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this Annual Report, particularly in the section entitled "Risk Factors." Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

We are a development stage company and have not generated any revenue to date. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.
 
We expect we will require additional capital to meet our long term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

RESULTS OF OPERATION

Fiscal Year Ended December 31, 2011 Compared to Fiscal Year Ended December 31, 2010.

Our net loss for fiscal year ended December 31, 2011 was ($1,813,191) compared to a net loss of ($601,619) for fiscal year ended December 31, 2010 (an increase of $1,211,572). During fiscal year ended December 31, 2011, we generated total revenue in the amount of $380,216 resulting from the sale of our NexPhase lighting products. During fiscal year ended December 31, 2010, our cost of goods sold was $187,762 resulting in a gross profit of $192,454. During fiscal year ended December 31, 2010, we did not generate any revenue from operations.

During fiscal year ended December 31, 2011, we incurred operating expenses of $1,356,271 compared to operating expenses of $587,364 incurred during fiscal year ended December 31, 2010 (an increase of $768,907). The operating expenses incurred during fiscal year ended December 31, 2011 consisted of: (i) general and administrative of $271,809 (2010: $23,562); (ii) investor relations of $145,512 (2010: $-0-); (iii) occupancy – headquarters of $72,604 (2010: $-0-); (iv) officer compensation of $278,676 (2010: $335,000); (v) professional fees of $110,003 (2010: $31,302); (vi) staff compensation of $406,648 (2010: $15,000); (vii) stock-based compensation of $115,150 (2010: $182,500: and (viii) depreciation of $9,869 (2010: $-0-). Our operating expenses increased primarily based on the increased scope and scale of our business operations relating to the acquisition of NexPhase as our wholly-owned subsidiary and marketing and sale of our NexPhase lighting products. Thus, operating expenses increased resulting substantially from an increase of $391,648 in staff compensation, $145,512 in investor relations, $72,604 in occupancy-headquarters, $194,247 in general and administrative expenses and $68,701 in professional fees. General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.
 
 
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Our operating expenses also increased based on the incurrence of $335,000 as staff compensation resulting from the consummation of an executive services agreement dated January 8, 2010 with Haim Mayan, our prior President/Chief Executive Officer. During fiscal year ended December 31, 2010, we paid $22,000 resulting in an accrued compensation liability of $308,000,. See “ – Material Commitments” below. Our expenses also increased based upon the incurrence of $406,648 related to issuances of shares of our common stock to employees, directors and consultants. See “Item 11. Executive Compensation”.

Therefore, our operating loss incurred during fiscal year ended December 31, 2011 was ($1,163,817) as compared to an operating loss incurred during fiscal year ended December 31, 29010 of ($587,364).

Other expenses incurred during fiscal year ended December 31, 2011 included: (i) interest expense of $621,774 (2010: 13,255); (ii) write-off of project development costs of $27,600 (2010: $-0-); and (iii) write off of amount due from other of $-0- (2010: $1,000). Therefore, our net loss and loss per share during fiscal year ended December 31, 2011 was ($1,813,191) or ($5.69) per post-Reverse Stock Split share compared to a net loss and loss per share of ($601,619) or ($7.87) per post-Reverse Stock Split share during fiscal year ended December 31, 2010. The weighted average number of shares outstanding was 318,761 for fiscal year ended December 31, 2011 compared to 76,397 for fiscal year ended December 31, 2010.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal Year Ended December 31, 2011

As of December 31, 2011, our current assets were $119,002 and our current liabilities were $1,521,200, which resulted in a working capital deficit of $1,402,198. As of December 31, 2011, our current assets were comprised of: (i) $41,804 in cash; (ii) $2,251 in accounts receivable; and (iii) $74,947 in inventories. As of December 31, 2011, current liabilities were comprised of: (i) $112,046 in accounts payable; (ii) $65,011 in accrued interest; (iii) $538,000 in accrued employee compensation; (iv) $2,678 in sales tax payable; (v) $1.100 in advances from non-affiliated related parties; (vi) $572,820 in notes payable, non-affiliated related parties; and (vii) $229,545 in notes payable – third parties.

As of December 31, 2011, our total assets of $3,223,704 were comprised of: (i) $119,002 in current assets; (ii) $103,844 in fixed assets of net property and equipment; (iii) $11,709 in security deposits; and (iv) $2,989,149 in valuation of intellectual property. As of December 31, 2011, our total liabilities of $1,521,200 were comprised of current liabilities.

Stockholders’ equity (deficit) increased from ($466,719) for fiscal year ended December 31, 2010 to $1,702,504 for fiscal year ended December 31, 2011.

Cash Flows from Operating Activities

We have not generated positive cash flows from operating activities. For fiscal year ended December 31, 2011, net cash flows used by operations was ($724,516). Net cash flows used in operating activities for fiscal year ended December 31, 2011 consisted of a net loss of ($1,813,191) adjusted by: (i) $9,869 in depreciation; (ii) $195,834 in stock issued for services; (iii) $27,600 in write-off of project development costs; (iv) ($84,000) in cancellation of stock issued for services; (v) $96,755 in interest accrued on notes payable, non-affiliate related parties; (vi) $12,352 in interest accrued on notes payable, third parties; and (vii) $537,669 in accretion of beneficial conversion feature as interest expense.

 
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Net cash flows used by operating activities was further changed by a decrease of: (i) $35,150 due from NexPhase; (ii) $2,678 in sales tax payable; and (iii) $109,555 in accounts payable. Net cash flows used by operating activities was further changed by an increase of: (i) ($2,251) in accounts receivable; (ii) ($74,947) in inventories; and (iii) ($7,589) in security deposits.

Cash Flows from Investing Activities

For fiscal year ended December 31, 2011, net cash flows used in investing activities was $64,753 consisting of $14,942 in net cash received from acquisition, which was offset by $79,695 in purchase of property and equipment.

Cash Flows from Financing Activities

We have financed our operations primarily from debt or the issuance of equity instruments. For fiscal year ended December 31, 2011, net cash flows provided from financing activities was $768,645 consisting of $511,450 in proceeds from note payable – non-affiliated related parties, $271,000 in proceeds from issuance of notes payable third parties and $1,100 in advances from non-affiliated related parties, which was offset by $14,905 in payments on notes payable – non-affiliated related parties.

PLAN OF OPERATION AND FUNDING

As noted above, we have acquired NexPhase as our wholly-owned subsidiary. Our business operations have increased in scale and scope with regards to the development, marketing and sale of our NexPhase lighting products. We have commenced generation of revenues. In connection with our future business plan, management anticipates additional increases in operating expenses and capital expenditures relating to our business operations. We would finance these expenses with further issuances of securities and debt issuances. We expect we would need to raise additional capital and generate revenues to meet long-term operating requirements. Additional issuances of equity or convertible debt securities would result in dilution to our current shareholders. Further, such securities may have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all.

MATERIAL COMMITMENTS

As of the date of this Annual Report, we have the following commitments for fiscal year 2012 as described below.

 
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Convertible Promissory Notes – Non-Affiliated Related Parties - Onteco

·  
On February 10, 2010, we entered into a convertible promissory note with a web designer in the amount of $3,150. The terms of the convertible promissory note included a bonus payment (interest) in the amount of $315 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  On January 3, 2011, we amended the terms and conditions of the convertible promissory note regarding the conversion price, which was adjusted from $0.03 to $0.001, the par value of our shares of common stock. No payments have been made on this note. On February 25, 2011, a portion of the note in the amount of $1,316 was converted to common stock.
 
·  
On June 7, 2010, we entered into a convertible promissory note with an investor in the amount of $5,000. The note is payable on demand, has no stated interest rate or due date and is convertible at a rate of $0.03. No payments have been made on this note.
 
·  
On August 9, 2010, we entered into a non-interest bearing convertible promissory demand note with a related party investor in the amount of $5,000. The terms of the convertible promissory demand note include a bonus payment (interest) of $500 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  The note has no stated due date. No payments have been made on this note.
 
·  
On August 25, 2010, we entered into a non-interest bearing convertible promissory demand note with a related party investor in the amount of $4,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  The note has no stated due date. No payments have been made on this note.
 
·  
On September 2, 2010, we entered into a non-interest bearing convertible promissory demand note with a related party investor in the amount of $20,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  The note has no stated due date. No payments have been made on this note.
 
·  
On October 13, 2010, we entered into a non-interest bearing convertible promissory demand note with Halevi Mayan Investments in the amount of $3,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.01 per share. The note has no stated due date and has a bonus payment of $300 upon payment. No payments have been made on this note.
 
·
On October 29, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $30,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate which is the greater of: (i) twice the par value of the common stock; or (ii) 75% discount to the market closing bid price  on the dagte of the conversion notice. The note is due on October 29, 2011. No payments have been made on this note. The note is currently in default.
 
·  
On November 4, 2010, we entered into a non-interest bearing convertible promissory demand note in the amount of $19,600. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.01 per share. The note has no stated due date and has a bonus payment of $200 upon payment. No payments have been made on this note.
 
·  
On November 8, 2010, we entered into a non-interest bearing convertible promissory demand note in the amount of $5,500. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.01 per share. The note has no stated due date and has a bonus payment of $500 upon payment. No payments have been made on this note.
 
 
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·  
On November 15, 2010, we entered into a non-interest bearing convertible promissory demand note in the amount of $28,000. The convertible promissory demand note is payable on demand, has no stated interest rate or due date and is convertible at a rate of $0.001. No payments have been made on this note.
 
·  
On November 30, 2010, we entered into a non-interest bearing convertible promissory demand note in the amount of $9,300. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.01 per share. The note has no stated due date and has a bonus payment of $930 upon payment. No payments have been made on this note.
 
·  
On December 15, 2010, we entered into a convertible promissory demand note with S & E Capital LLC in the amount of $15,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due December 15, 2011.  No payments have been made on this note.
 
·  
On December 23, 2010, we entered into a convertible promissory demand note with D & D Capital Inc. in the amount of $100,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due December 23, 2011.  As of December 31, 2011, a portion of this note in the amount of $44,500 and accrued interest in the amount of $500 was sold and assigned by the note holder to that party investor. As of December 31, 2011, a portion of the note in the amount of $55,500 plus accrued interest of $7,549 was converted into shares of common stock. As of December 31, 2011, the balance of the note is $-0-.
 
·  
On January 10, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $1,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. No payments of have been made on this note..
 
·  
On February 23, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $21,600, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due February 23, 2012.  No payments have been made on this note.
 
·  
On March 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $60,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 1, 2012.  No payments have been made on this note. As of December 31, 2011, a portion of the note in the amount of $49,000 has been converted into shares of common stock.
 
 
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·  
On March 2, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $6,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 2, 2012. As of December 31, 2011, the entire note was converted into shares of common stock.
 
·  
On March 8, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $105,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 8, 2012.  As of December 31, 2011, the entire note was converted into shares of common stock.
 
·  
On March 10, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $3,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 10, 2012. No payments have been made on this note.
 
·  
On March 31, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $5,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 31, 2012. No payments have been made on this note.
 
·  
On March 31, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $6,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 31, 2012. No payments have been made on this note.
 
·  
On April 11, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $3,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 11, 2012. As of December 31, 2011, the entire note was converted into shares of common stock.
 
·  
On April 14, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $17,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 14, 2012.  No payments have been made on this note.
 
·  
On April 15, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $27,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 15, 2012.  No payments have been made on this note.
 
 
39

 
 
·  
On April 18, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $1,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 18, 2012.  No payments have been made on this note.
 
·  
On April 18, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $2,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 18, 2012.  No payments have been made on this note.
 
·  
On April 21, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $5,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 21, 2012.  No payments have been made on this note.
 
·  
On April 27, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $2,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 27, 2012.  No payments have been made on this note.
 
·  
On April 28, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $2,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due April 28, 2012.  No payments have been made on this note.
 
·  
On May 16, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $15,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due May 16, 2012.  No payments have been made on this note.
 
·  
On June 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $3,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 1, 2012.  No payments have been made on this note.
 
 
40

 
 
·  
On June 10, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $3,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 10, 2012.  No payments have been made on this note.
 
·  
On June 20, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $6,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 20, 2012.  No payments have been made on this note.
 
·  
On June 24, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $2,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 24, 2012.  No payments have been made on this note.
 
·  
On August 4, 2011, we entered into a convertible promissory demand note in the amount of $15,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due August 4, 2012. No payments have been made on this note.
 
·  
On August 4, 2011, we entered into a convertible promissory demand note in the amount of $20,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due August 4, 2012. No payments have been made on this note.
 
·  
On August 18, 2011, we entered into a convertible promissory demand note in the amount of $2,500. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due August 18, 2012. No payments have been made on this note.
 
·  
On September 13, 2011, we entered into a convertible promissory demand note in the amount of $6,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due September 13, 2012. No payments have been made on this note.
 
·  
On September 22, 2011, we entered into a convertible promissory demand note in the amount of $1,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due September 22, 2012. No payments have been made on this note.
 
·  
On September 28, 2011, we entered into a convertible promissory demand note in the amount of $2,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note bears interest at the rate of 10% per annum and is due September 28, 2012. No payments have been made on this note.
 
 
41

 
 
·  
On October 6, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $5,800, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note is due October 6, 2012.  No payments have been made on this note.
 
·  
On October 21, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $1,700, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note is due October 31, 2012. No payments have been made on this note.
 
·  
On November 23, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $2,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note is due November 23, 2012.  No payments have been made on this note.
 
·  
On December 5, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $11,500, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note is due December 5, 2012.  No payments have been made on this note.

Convertible Notes – Non-Affiliated Related Party – NexPhase

·  
On June 21, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $105,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 21, 2011.  No payments have been made on this note. On March 8, 2011, the note was assigned to us.
 
·  
On August 4, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $60,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due August 4, 2011.  No payments have been made on this note. On March 1, 2011, the note was assigned to us.
 
·  
On November 1, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $70,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due November 1, 2011.  No payments have been made on this note.
 
·  
On December 1, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $10,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due December 1, 2011.  No payments have been made on this note.
 
 
42

 
 
·  
On December 8, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $40,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due December 8, 2011. No payments have been made on this note.
 
·  
On December 23, 2010, we entered into a convertible promissory demand note with an investment firm in the amount of $10,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due December 23, 2011. No payments have been made on this note.
 
·  
On January 10, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $15,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due January 10, 2011.  No payments have been made on this note.
 
·  
On February 7, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $10,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due February 7, 2012. No payments have been made on this note.
 
·  
On February 11, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $12,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due February 11, 2012.  No payments have been made on this note.
 
·  
On March 2, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $12,500, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 2, 2012. No payments have been made on this note.
 
·  
On March 11, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $20,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 11, 2012.  No payments have been made on this note.
 
·  
On May 9, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $10,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due May 9, 2012. No payments have been made on this note.
 
·  
On May 24, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $30,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due May 24, 2012.  No payments have been made on this note.
 
 
43

 
 
·  
On June 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $15,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 1, 2012. No payments have been made on this note.
 
·  
On June 20, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $16,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 20, 2012. No payments have been made on this note.
 
·  
On June 23, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $50,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due June 23, 2012.  No payments have been made on this note.
 
·  
On July 13, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $14,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due July 13, 2012. No payments have been made on this note.
 
·  
On July 27, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $15,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due July 27, 2012. No payments have been made on this note.
 
·  
On August 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $40,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due August 1, 2012.  No payments have been made on this note.
 
·  
On August 30, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $5,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due August 30, 2012. No payments have been made on this note.
 
·  
On August 31, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $10,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due August 31, 2012. No payments have been made on this note.
 
·  
On November 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $25,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.001 per share. The note is due November 1, 2012.  No payments have been made on this note.

 
44

 
 
Convertible Notes – Third Parties

·  
On January 17, 2010, we entered into a convertible promissory demand note with an advisory firm for services rendered in the amount of $59,000. The terms of the convertible promissory demand note include a bonus payment (interest) of $5,900 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  Payments in the amount of $11,750 have been made on this note.
 
·  
On February 10, 2010, we entered into a convertible promissory demand note with a project consultant for services rendered in the amount of $7,800. The terms of the convertible promissory demand note include a bonus payment (interest) of $780 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  No payments have been made on this note.
 
·  
On February 10, 2010, we entered into a convertible promissory demand note with an engineering firm for services rendered in the amount of $27,600. The terms of the convertible promissory demand note include a bonus payment (interest) of $2,760 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  No payments have been made on this note.
 
·  
On February 10, 2010, we entered into a convertible promissory demand note with a web designer for services rendered in the amount of $3,150. The terms of the convertible promissory demand note include a bonus payment (interest) of $315 and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  No payments have been made on this note. The note was assigned from the web designer to a non-affiliated related party investment firm. The conversion price was adjusted from $0.03 to $0.001 per share of common stock.  On February 25, 2011, a portion of the note in the amount of $1,316 was converted into shares of common stock.
 
·  
On June 7, 2010, we entered into a convertible promissory demand note in the amount of $10,000. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  No payments have been made on this note.
 
·  
On July 19, 2010, we entered into a convertible promissory demand note with a project consultant for services rendered in the amount of $2,500. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of $0.03 per share.  No payments have been made on this note.
 
·  
On March 2, 2011, we entered into a convertible promissory demand note in the amount of $60,000. The terms of the convertible promissory demand note include interest at the rate of 8% per annum and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a 40% discount to the market closing bid price on the date of the conversion notice. No payments have been made on this note. As of December 31, 2011, the entire note has been converted into shares of common stock.
 
·  
On March 1, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $25,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at the rate of either the greater of: (i) twice the par value of the common stock; or (ii) a 75% discount to the market closing bid price on the date of the conversion. The note is due March 1, 2012. No payments have been made on this note. As of December 31, 2011, the entire note has been converted into shares of common stock.
 
·  
On April 28, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $56,000. The terms of the convertible promissory demand note include interest at the rate of 8% per annum and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a 40% discount to the market closing bid price on the date of the conversion notice. No payments have been made on this note. The note is due January 31, 2012. As of December 31, 2011, a portion of the note in the amount of $35,500 has been converted into shares of common stock.
 
45

 
 
·  
On June 20, 2011, we entered into a convertible promissory demand note in the amount of $53,000. The terms of the convertible promissory demand note include interest at the rate of 8% per annum and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a 40% discount to the market closing bid price on the date of the conversion notice. No payments have been made on this note. The note is due March 22, 2012.
 
·  
On August 24, 2011, we entered into a convertible promissory demand note in the amount of $15,000. The terms of the convertible promissory demand note include interest at the rate of 10% per annum and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a 50% discount to the market closing bid price on the date of the conversion notice. The note is due April 24, 2012. No payments have been made on this note.
 
·  
On September 1, 2011, we entered into a convertible promissory demand note in the amount of $50,000. The terms of the convertible promissory demand note include interest at the rate of 8% per annum and a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a 40% discount to the market closing bid price on the date of the conversion notice. No payments have been made on this note. The note is due June 6, 2012.
 
·  
On October 26, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $12,000, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a fifty percent discount to the market closing bid price on the date of the conversion notice. The note is due October 26, 2012.  No payments have been made on this note.
 
·  
On October 26, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $78,124, which bears interest at the rate of 12% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a fifty percent discount to the market closing bid price on the date of the conversion notice. The note is due October 26, 2012.  No payments have been made on this note. The note was assigned and as of December 31, 2011, a portion of the note in the amount of $38,124 has been converted into shares of common stock.
 
·  
On November 4, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $20,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a fifty percent discount to the market closing bid price on the date of the conversion notice. The note is due November 4, 2012.  No payments have been made on this note. As of December 31, 2011, the entire note has been converted into shares of common stock.
 
·  
On November 10, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $25,000, which bears interest at the rate of 8% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a fifty percent discount to the market closing bid price on the date of the conversion notice. The note is due November 10, 2012. No payments have been made on this note. The note was assigned and as of December 31, 2011, the entire note has been converted into shares of common stock.
 
·  
On December 5, 2011, we entered into a convertible promissory demand note with an investment firm in the amount of $25,000, which bears interest at the rate of 10% per annum. The terms of the convertible promissory demand note include a voluntary conversion feature allowing the holder thereof to convert all or a portion of the amount outstanding into shares of our restricted common stock at a price calculated at a fifty percent discount to the market closing bid price on the date of the conversion notice. The note is due December 5, 2012.  No payments have been made on this note. The note was assigned and as of December 31, 2011, a portion of the note in the amount of $6,800 has been converted into shares of common stock.

 
46

 
 
Stock Repurchase Agreements

On March 31, 2011, we entered into five separate stock repurchase agreements with those certain NexPhase investors to repurchase an aggregate of 244,000 shares of common stock acquired in the NexPhase acquisition. The terms of the stock repurchase agreement include principal and premium interest of 10%. The notes are due June 30, 2012. As of September 30, 2011, payments on certain of the stock repurchase agreements have been made aggregating $14,905.

Executive Employment Agreement

On January 8, 2010, we entered into an executive employment agreement effective January 11, 2010 with our then President/Chief Executive Officer (the “Executive Employment Agreement”). In accordance with the terms and provisions of the Executive Employment Agreement: (i) we shall pay a monthly fee of $15,000; (ii) we shall pay an inception bonus of $150,000; and (iii) the termination date shall be December 31, 2013. As of December 31, 2011, we accrued executive compensation of $488,000.

The executive officer resigned effective November 25, 2010 pursuant to a change in control. The terms of the Executive Employment Agreement remain in effect through December 31, 2013.

Lease

On January 1, 2011, we entered into a three-year office building lease for our corporate headquarters located in Aventura, Florida. The lease terms include: (i) monthly rent commencing on February 1, 2011 in the amount of $3,794.35 plus sales tax; (ii) triple-net provisions; and (iii) our responsibility for the cost of build-out and partitioning of the space.
 
PURCHASE OF SIGNIFICANT EQUIPMENT

We do not intend to purchase any significant equipment during the next twelve months.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Quarterly Report, we do not have any 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.

GOING CONCERN

The independent auditors' report accompanying our December 31, 2011 and December 31, 2010 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared "assuming that we will continue as a going concern," which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
 
CRITICAL ACCOUNTING POLICIES
 
The following describes the critical accounting policies used in reporting our financial condition and results of operations. In some cases, accounting standards allow more than one alternative accounting method for reporting. Such is the case with accounting for oil and gas activities described below. In those cases, our reported results of operations would be different should we employ an alternative accounting method.

As of the date of these financial statements, management has considered and included all current standards through and including ASU No. 2011-01 – Receivables and does not anticipate the retroactive application of any new accounting standard(s) to change the financial statements as currently presented.
 
 
47

 
 
 
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
49
   
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 2011 AND 2010.
50
   
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 31, 2007) TO DECEMBER 31, 2011.
51
   
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 AND FOR THE PERIOD FROM INCEPTION (DECEMBER 31, 2007) TO DECEMBER 31, 2010.
52
   
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM INCEPTION (DECEMBER 31, 2007) TO DECEMBER 31, 2011.
54
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
56
 
 
48

 
 
Drake & Klein CPAs
A PCAOB Registered Accounting Firm
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and
Stockholders of Onteco Corporation
 
We have audited the accompanying balance sheets of Onteco Corporation as of December 31, 2011 and 2010, and the related statements of income, stockholders’ equity and comprehensive income, and cash flows for the years then ended. The management of Onteco Corporation is responsible for these financial statements. 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 audit 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 audit 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 also 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 Onteco Corporation as of December 31, 2011 and 2010, and the results of its operations and its cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in footnote 1 to the financial statements, the Company has not generated revenue and has not established operations which raise substantial doubt about its ability to continue as a going concern.  Management’s plans concerning these matters are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Drake & Klein CPAs

Drake & Klein CPAs
April 16, 2012

 
 
 

 
PO Box 2493 2451 McMullen Booth Rd.
Dunedin, FL  34697-2493 Suite 210
727-512-2743 Clearwater, FL  33759-1362
 
 
49

 
 
ONTECO CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Balance Sheets
 
   
December 31,
 
   
2011
   
2010
 
             
ASSETS
             
Current assets:
           
Cash in banks
  $ 41,804     $ 62,428  
Due from NexPhase Lighting
    -       35,150  
Accounts receivable
    2,251       -  
Inventories
    74,947       -  
Project development costs
    -       27,600  
                 
Total current assets
    119,002       125,178  
                 
Fixed assets:
               
Property and equipment, net
    103,844       -  
                 
Other assets:
               
Security deposits
    11,709       -  
Intellectual property
    2,989,149       -  
                 
Total other assets
    3,000,858       -  
                 
Total assets
  $ 3,223,704     $ 125,178  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                 
Current liabilities:
               
Accounts payable
  $ 112,046     $ 1,942  
Accrued interest
    65,011       -  
Accrued employee compensation
    538,000       308,000  
Sales tax payable
    2,678       -  
Advances from non-affiliated related parties
    1,100       -  
Notes payable, non-affiliated related parties
    572,820       173,900  
Notes payable, third parties
    229,545       108,055  
Total current liabilities
    1,521,200       591,897  
                 
Other liabilities
    -       -  
                 
Total liabilities
    1,521,200       591,897  
                 
Commitments and contingencies
               
                 
Stockholders' equity (deficit):
               
Preferred stock $.001 par value 10,000,000 shares authorized, 150,000 and no
               
shares issued and outstanding at December 31, 2011 and 2010, respectively
    150       -  
Common stock $.001 par value 2,000,000,000 and 350,000,000 shares authorized,
               
923,444 and 116,893 shares issued and 923,200 and 116,893
               
shares outstanding at December 31, 2011 and 2010, respectively
    923       117  
Additional paid-in capital
    4,353,363       310,905  
Treasury stock, at cost (244 shares)
    (61,000 )     -  
Deficit accumulated during the  development stage
    (2,590,932 )     (777,741 )
Total stockholders' equity (deficit)
    1,702,504       (466,719 )
                 
Total liabilities and stockholders' equity (deficit)
  $ 3,223,704     $ 125,178  
 
See accompanying notes to consolidated financial statements.
 
 
50

 
 
ONTECO CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Operations
 
               
For the Period
 
               
December 31, 2007
 
         
(Inception) to
 
   
For the Year Ended December 31,
   
December 31,
 
   
2011
   
2010
   
2011
 
                   
Revenue
  $ 380,216     $ -     $ 380,216  
                         
Cost of goods sold
    187,762               187,762  
                         
Gross profit
    192,454       -       192,454  
                         
Operating expenses:
                       
General and administrative
    217,809       23,562       295,419  
Investor relations
    145,512       -       145,512  
Occupancy - Headquarters
    72,604       -       77,906  
Officer compensation
    278,676       335,000       613,676  
Professional fees
    110,003       31,302       149,955  
Staff compensation
    406,648       15,000       421,648  
Stock-based compensation
    115,150       182,500       405,205  
Depreciation
    9,869       -       9,869  
Total operating expenses
    1,356,271       587,364       2,119,190  
                         
Loss from operations
    (1,163,817 )     (587,364 )     (1,926,736 )
                         
Other expenses:
                       
Loss on dispotion of assets
    -               567  
Interest expense
    621,774       13,255       635,029  
Write-off of project development costs
    27,600       -       27,600  
Write-off of amount due from other
    -       1,000       1,000  
Total other expenses
    649,374       14,255       664,196  
                         
Net loss
  $ (1,813,191 )   $ (601,619 )   $ (2,590,932 )
                         
                         
Net loss per share - basic and diluted
  $ (5.69 )   $ (7.87 )        
                         
Weighted average number of shares
                       
oustanding during the period -
                       
Basic and diluted
    318,761       76,397          
 
See accompanying notes to consolidated financial statements.
 
 
51

 
 
ONTECO CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statements of Cash Flows
 
               
For the Period
 
               
December 31, 2007
 
         
(Inception) to
 
   
For the Year Ended December 31,
   
December 31,
 
   
2011
   
2010
   
2011
 
                   
Cash flows used in operating activities:
                 
Net loss
  $ (1,813,191 )   $ (601,619 )   $ (2,590,932 )
Adjustments to reconcile net loss to net cash used in operations:
                       
Depreciation
    9,869       -       9,869  
Stock-based compensation
    -       62,500       170,055  
Stock issued for services
    195,834       120,000       315,834  
Cancellation of stock issued for services
    (84,000 )     -       (84,000 )
Write-off of project development costs
    27,600       -       27,600  
Write-off of amounts due to others
    -       1,000       -  
Loss on disposition of software
    -       -       567  
Interest accrued on notes payable, non-affiliated related parties
    96,755       -       96,755  
Interest accrued on notes payable, third parties
    12,352       -       12,352  
Accretion of beneficial conversion feature as interest expense
    537,669       -       537,669  
Changes in operating assets and liabilities:
                       
Due from NexPhase Lighting
    35,150       (35,150 )     -  
Accounts Receivable
    (2,251 )     -       (2,251 )
Inventories
    (74,947 )     -       (74,947 )
Security deposits
    (7,589 )     -       (7,589 )
Accounts payable
    109,555       1,942       111,497  
Accrued expenses
    -       (64,000 )     -  
Sales tax payable
    2,678       -       2,678  
Accrued compensation
    230,000       308,000       538,000  
Net cash used in operating activities
    (724,516 )     (207,327 )     (936,843 )
                         
Cash flows used in investing activities:
                       
Net cash received from acquisition
    14,942       -       14,942  
Purchase of property and equipment
    (79,695 )     -       (80,262 )
Project development costs
    -       (27,600 )     (27,600 )
Net cash used in investing activities
    (64,753 )     (27,600 )     (92,920 )
                         
Cash flows from financing activities:
                       
Proceeds from issuance of note payable, non-affiliated related parties
    511,450       252,005       763,455  
Payments on notes payable, non-affiliated related parties
    (14,905 )     (11,750 )     (26,655 )
Proceeds from issuance of notes payable, third parties
    271,000       57,100       328,100  
Advances from non-affiliated related parties
    1,100       -       1,100  
Proceeds from sale of common stock
    -       -       5,567  
Net cash provided by financing activities
    768,645       297,355       1,071,567  
                         
Net increase (decrease) in cash
    (20,624 )     62,428       41,804  
                         
Cash at beginning of period
    62,428       -       -  
                         
Cash at end of period
  $ 41,804     $ 62,428     $ 41,804  
                         
                         
                   
Continued
 
 
See accompanying notes to consolidated financial statements.
 
 
52

 
 
ONTECO CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Statements of Cash Flows (Continued)
 
               
For the Period
 
               
December 31, 2007
 
               
(Inception of
 
         
Exploration Stage) to
 
   
For the Year Ended December 31,
   
December 31,
 
   
2011
   
2010
   
2011
 
                   
Supplemental disclosure of cash flow information:
                 
                   
Cash paid for interest
  $ -     $ -     $ -  
                         
Cash paid for taxes
  $ -     $ -     $ -  
                         
Non-cash investing and financing activities:
                       
                         
Net assets acquired in acquisition of NexPhase Lighting
  $ (2,700,000 )   $ -     $ (2,700,000 )
Common stock issued
    67,500       -       67,500  
Additional paid in capital on stock issued
    2,632,500       -       2,632,500  
                         
Conversion of note payable, related parties to common stock
    (138,816 )     -       (154,216 )
Conversion of accrued interest, related parties to common stock
    (18,000 )             (18,000 )
Common stock issued
    148       -       15,548  
Additional paid in capital on stock issued
    156,668       -       156,668  
                         
Conversion of note payable, third parties to common stock
    (258,924 )     -       (258,924 )
Conversion of accrued interest, third parties to common stock
    (5,400 )     -       (5,400 )
Common stock issued
    481       -       481  
Additional paid in capital on stock issued
    263,843       -       263,843  
                         
Benefical conversion feature discount to notes payable, related parties
    (479,323 )     -       (479,323 )
Benefical conversion feature discount to notes payable, third parties
    (331,117 )     -       (331,117 )
Additional paid in capital
    810,440       -       810,440  
                         
Conversion of notes payable, related parties to notes payable, third parties:
                 
Notes payable, related parties
    (218,092 )                
Accrued interest
    (26,022 )                
Notes payable, third parties
    244,114                  
                         
244,000 shares of stock acquired and placed in treasury
    (61,000 )     -       (61,000 )
Issuance of notes payable to former investors in NexPhase
    61,000       -       61,000  
 
See accompanying notes to consolidated financial statements.
 
 
53

 
 
ONTECO CORPORATION AND SUBSIDIARY
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity (Deficit)
For the period from December 31, 2007 (Inception) to December 31, 2011
 
                                       
Deficit
       
                                       
accumulated
     Total  
               
Additional
         
during the
   
stockholders'
 
   
Preferred stock
   
Common stock
   
paid-in
   
Treasury
   
development
    equity  
   
Shares
   
Amount
   
Shares
   
Amount
   
capital
   
stock
   
stage
   
(deficit)
 
                                                 
Common stock issued per Court Order Dec. 31, 2007
    -     $ -       568     $ 1     $ 566     $ -     $ -     $ 567  
                                                                 
Net loss for the year ended December 31, 2007
    -       -       -       -       -       -       (225 )     (225 )
                                                                 
Balance, December 31, 2007
    -       -       568       1       566       -       (225 )     342  
                                                                 
Common stock issued per Court Order Jan. 15, 2008
    -       -       1,000       1       999       -       -       1,000  
                                                                 
Common stock issued for cash
    -       -       4,000       4       3,996       -       -       4,000  
                                                                 
Net loss for the year ended December 31, 2008
    -       -       -       -       -       -       (3,775 )     (3,775 )
                                                                 
Balance, December 31, 2008
    -       -       5,568       6       5,561       -       (4,000 )     1,567  
                                                                 
Common stock issued for warrants
    -       -       28,572       28       (28 )     -       -       -  
                                                                 
Common stock issued for compensation
    -       -       35,853       36       107,519       -       -       107,555  
                                                                 
Net loss for the year ended December 31, 2009
    -       -       -       -       -