---

---

UNITED
STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

_________________

FORM
10-K



_________________

þ     ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For
the fiscal year ended: December 31, 2012

or

o     TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934

For
the transition period from: _______ to ______

_________________

ORGANIC
ALLIANCE, INC.

(Exact name of registrant
as specified in its charter)

_________________

|Nevada                            | 000-53545    | 20-0853334         
|--------------------------------- | ------------ | -------------------
|(State or Other Jurisdiction      | (Commission  | (I.R.S. Employer   
|of Incorporation or Organization) | File Number) | Identification No.)

401 Monterey Street,
Suite 202 Salinas, CA 93901(Address of Principal Executive Offices) (Zip Code)

(831)-240-0295(Registrant’s
telephone number, including area code)

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

None

Title of each className
of each exchange on which registered

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

Common Stock $.0001
Par Value per share

Title of each className
of each exchange on which registered

_________________

Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  o     No  þ

Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes  o     No  þ



Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.    Yes  o     No  þ

Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes  þ     No  o



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, 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.



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company.

|Large
     accelerated filer  o | Accelerated
     filer  o | Non-accelerated
     filer  o | Smaller
     reporting company  þ
|------------------------------- | ------------------------- | ----------------------------- | ---------------------------------



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







As
of June 20, 2012, the aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was approximately
$920,930 based on the last sale price of the Common Stock on the OTC Bulletin Board on such date. For purposes of making this
calculation only, the registrant has defined affiliates as including all directors, executive officers and 10% owners. The number
of outstanding shares of the registrant's Common Stock, par value $.0001 per share, on June 3, 2013 was 18,473,554.



















---





ORGANIC
ALLIANCE, INC.

FORM
10-K ANNUAL REPORT

TABLE OF CONTENTS



|PART
    I      |                                                                                                    | Page
|--------------- | -------------------------------------------------------------------------------------------------- | ----
|                |                                                                                                    |     
|ITEM
    1.     | BUSINESS                                                                                           | 4   
|ITEM
    1A.    | RISK
    FACTORS                                                                                   | 7   
|ITEM
    1B.    | UNRESOLVED
    STAFF COMMENTS                                                                      | 11  
|ITEM
    2.     | PROPERTIES                                                                                         | 11  
|ITEM
    3.     | LEGAL
    PROCEEDINGS                                                                              | 11  
|ITEM
    4.     | MINE
    SAFETY DISCLOSURES                                                                        | 11  
|PART
    II     |                                                                                                    |     
|                |                                                                                                    |     
|ITEM
    5.     | MARKET
    FOR COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES | 12  
|ITEM
    6.     | SELECTED
    FINANCIAL DATA                                                                        | 16  
|ITEM
    7.     | MANAGEMENT’S
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS          | 16  
|ITEM
    7A.    | QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                     | 20  
|ITEM
    8.     | FINANCIAL
    STATEMENTS AND SUPPLEMENTARY FINANCIAL DATA                                          | F-1 
|ITEM
    9.     | CHANGES
    IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE           | 20  
|ITEM
    9A.    | CONTROLS
    AND PROCEDURES                                                                        | 20  
|ITEM
    9B.    | OTHER
    INFORMATION                                                                              | 21  
|PART
    III    |                                                                                                    |     
|                |                                                                                                    |     
|ITEM
    10.    | DIRECTORS,
    EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE                                         | 22  
|ITEM
    11.    | EXECUTIVE
    COMPENSATION                                                                         | 24  
|ITEM
    12.    | SECURITY
    OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS | 26  
|ITEM
    13.    | CERTAIN
    RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE                      | 26  
|ITEM
    14.    | PRINCIPAL
    ACCOUNTANT FEES AND SERVICES                                                         | 27  
|PART
        IV |                                                                                                    |     
|                |                                                                                                    |     
|ITEM
    15.    | EXHIBITS,
    FINANCIAL STATEMENT SCHEDULES                                                        | 27  
|                |                                                                                                    |     
|SIGNATURES      |                                                                                                    | 28  



---









CAUTIONARY
NOTICE REGARDING FORWARD LOOKING STATEMENTS



This
Annual Report on Form 10-K contains forward-looking statements which are based on current expectations,estimates and projections about our business based, in part, on assumptions made by our management. Actual results, levels
of activity, performance or achievements could differ materially from those discussed or
implied in the forward-looking statementsas a result of various factors, including future economic, competitive, regulatory,
and market conditions, future business decisions, changes in the supply and demand of the products
we sell, our relationships with our existing suppliers, our success in finding additional supply sources, our ability to attract
and retain customers,and the risks and other factors discussed in this Annual Report Form 10-K or in the other documents
we file with the Securities and Exchange Commission. In light of the significant uncertainties inherent in such forward-looking
statements, they should not be regarded as a representation that our objectives or plans will be achieved, and they should not
be relied upon by investors when making an investment decision. Words such as “believes,”
“anticipates,” “expects,” “intends,” “may,” “forecasts, “foresees,”
and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such
statements.Similarly, statements in this Form 10-K that describe our business strategy, outlook, objectives, plans, intentions
or goals are forward-looking statements.Weundertake no obligation to update or
revise any forward-looking statements for events or circumstances after the date on which such statement is made except as required
by law.



---











Table of Contents

PART
I



ITEM
I: DESCRIPTION OF BUSINESS



History



Our
company, a Nevada corporation, was organized in September 2001 under the name NB Design & Licensing, Inc. We were inactive
until April 2008, when we completed a reverse merger transaction with Organic Alliance, Inc., a Texas corporation organized in
2008 to sell organically grown fruits and vegetables. In June 2008, we changed our name to Organic Alliance, Inc.



Going
Concern



The
consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America
applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary
course of business. As of December 31, 2012, the Company had limited cash, a working capital deficit of approximately $6,702,000,
accumulated losses of approximately $20,577,000 since its inception, and has withheld $286,027 of payroll tax liabilities including
penalties and interest from wages paid which have yet to be remitted to the taxing authorities and are delinquent. The Company
currently is delinquent with its payroll tax filings since December 31, 2008; however, since April 1, 2012 the Company has been
remitting payroll tax on a current basis. Our accounts receivable are pledged per a factoring agreement. At December 31, 2012,
we are not compliant with the repayments terms of various notes payable for an aggregate of approximately $1,292,000 including
accrued interest. Our ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary
financing to meet obligations and pay liabilities arising from normal business operations when they come due, and increasing revenue
in order to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and
raises substantial doubt that the Company will be able to continue as a going concern. These consolidated financial statements
do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company
be unable to continue as a going concern.



The
Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of growing
high margin revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company
anticipates raising additional funds through public or private financing, strategic relationships or other arrangements in the
near future to support its business operations; however the Company does not have commitments from third parties for a sufficient
amount of additional capital, the Company cannot be certain that any such financing will be available on acceptable terms, or
at all, and its failure to raise capital when needed could limit its ability to continue its operations. The Company’s ability
to obtain additional funding will determine its ability to continue as a going concern. Furthermore, additional equity financing
may be dilutive to the holders of the Company’s common stock, and debt financing, if available, may involve restrictive
covenants or may require that the Company relinquish valuable rights.



Our
Company

We
are a global grower and marketer of organic and Fair Trade certified fruits and vegetables in the rapidly growing $29.2 billion
U.S. natural, organic and Fair Trade foods marketplace.Through our collaborative relationships with growers and our direct
involvement in growing operations, we have built a vertically-integrated supply chain that enables us to support our customers
with an increasing variety of certified sustainable products, sensible pricing, and steady supply -- the primary obstacles facing
buyers in the fast-growing organic and Fair Trade market segments. Our Organic Alliance branded mangoes, tomatoes, cucumbers,
bell peppers and more are already on the shelves of leading national grocery chains including Whole Foods, Heinen’s, Kroger,
Safeway, Trader Joes and others. Our company also sources and distributes some conventional produce (non-organic and Fair Trade)
to generate revenues that we believe will help us develop our organic and Fair Trade production.



Currently,
we are focusing our sourcing and development strategy in Mexico, the U.S.’s largest food supplier with sales to the United
States growing 25% in 2010 to $6 billion. We intend to continue our development of company-owned or managed organic production
in the United States as well as other key Latin American food exporting countries where we currently have strong grower and professional
networks, including in Argentina, Chile, Peru, Dominican Republic and Costa Rica.



The
primary segments for marketing our products are the mainstream supermarket channel, natural grocery chains, mass merchandisers,
food service distributors, fresh produce processors, consumer package goods companies, and overseas markets focusing on grocery
chains and their importer partners. Our Company has strong food industry relationships and currently supplies product to many
of these market segments.



Our
products also address the value proposition sought by many consumers of organic and Fair Trade goods, namely the social responsibility
associated with Fair Trade’s contribution to sustainable development and worker prosperity, and environmental responsibility
associated with organic farming.



-4-

---







Table of Contents

Fair
Trade

Fair
Trade certification offers producers the ability to trade directly with improved payment terms while paying workers dignified
wages and providing a premium for community development. This allows marginalized agricultural communities the opportunity to
improve their lives with technical training, better business infrastructure, improved schooling, health care and nutritious food.
Fair Trade investment provides a platform from which communities can rise out of poverty, be economically sustainable and take
control of their future while providing the market with better, more sustainable products. Fair Trade certified products offer
consumers a powerful way to reduce poverty through their everyday shopping5.



The
key objectives of the Fair Trade standards are to:



|· | ensure
    that producers receive prices that cover their average costs of sustainable production;                             
|- | -------------------------------------------------------------------------------------------------------------------------------
|· | provide
    a Fair Trade premium which can be invested in projects that enhance social, economic and environmental development;



|· | ensure
    safe working conditions and dignified wages for agriculture workers;                                
|- | ---------------------------------------------------------------------------------------------------------------
|· | facilitate
    long-term trading partnerships and enable greater producer control over the trading process; and



|· | set
    clear minimum and progressive criteria to ensure that the conditions of production and trade of all Fair Trade certified products
    are socially, economically fair and environmentally responsible.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Industry
Overview



The
organic and Fair Trade marketplace is characterized by strong producer and retailer pricing power as consumer demand continually
outstrips supply. As a result, organic and Fair Trade produce prices remain high compared with prices for conventional products.
We believe enormous earnings leverage is available to producers and retailers at far higher sales volumes if certified supplies
can be increased and prices made more affordable for more consumers.

U.S.
organic food sales rose from $6.1 billion in 2000 to $29.2 billion in 2011, a compounded growth rate of over 15 percent. Registering
a third straight year of double-digit gains, sales of organic fruits and vegetables rose 11.7 percent in 2011 to $11.8 billion.
U.S. Fair Trade sales were $1.5 billion in 2011, growing 20% over 2010 sales and closely following the rise of organic foods into
the mainstream.

Wall
Street clearly favors the organic industry’s strong prospects. Industry leading specialty grocer Whole Foods last month
posted second fiscal quarter sales that increased 14 percent to $2.7 billion. “Sales trends remain strong as it appears
that the growth of the natural and organic industry has accelerated,” wrote Meredith Adler, an analyst for Barclays Plc.
Another market leader, United Natural Foods, Inc. (UNFI), reported sales for the quarter ended April 28 of $1.39 billion, a 15.3
percent increase year over year.

Global
Fair Trade sales have followed the rise of organic at an 18% annual growth rate, reaching a total of $4.8 billion in 2009. Mainstream
retailers such as Wal-Mart and Whole Foods have demonstrated strong interest in the segment, with each offering a growing number
of Fair Trade products including retail-brand private label options. In 2007, Whole Foods launched its “Whole Trade”
initiative, requiring 50% of its imported food to be certified as Fair Trade within 10 years. Fair Trade sales in U.S. mainstream
grocery outlets grew 24% in 2010. Like organic, the principal barrier to growth is lack of supply and inconsistent quality and/or
pricing, which we believe our Company directly addresses.

-5-

---







Table of Contents

Growth
Strategy



Due
to the continued increase in demand for certified organic and Fair Trade products, our customers’ procurement departments
are actively seeking additional sources for such products. Their challenge is to attain a reliable, year round supply at sensible
pricing, in part due to short supply and the fractionalized nature of the organic and Fair Trade farm bases. Our strategy to address
this challenge includes:



Rapidly
Increase Organic and Fair Trade Produce Supply. We intend to utilize our industry leading expertise in rapidly developing
Fair Trade certified and organic production to increase our ability to supply the marketplace. We believe our Fair Trade tomatoes
sold through Whole Foods in 2012 were the first of their kind to be introduced to the market, and we intend to develop a number
of other Fair Trade certified products that also will be the first of their kind to market. In doing so, we believe this will
give us preferred access to high-value markets.



Control
& Integrate Supply Chains. We expect to build company controlled production capacity in the United States, Mexico and
other countries, adding to our existing leased Mexican mango orchards and greenhouses established in early 2013. By continuing
to build company-owned production capacity, we believe we attract buyer favor by creating supply and price conditions that more
closely resemble the conventional food alternative.



Build
Market Share. We intend to leverage our increasing portfolio of Fair Trade and organic certified products, along with our
price-competitiveness and ability to customize client programs through vertical integration, to further expand our penetration
into the North American and European food retail markets.



Build
Brand Value. Through partnerships with retailers and scanable QR technology, our “Make Life SweetTM”campaign
allows us to tell the inspiring stories and impact of our products to consumers at the point-of-purchase. We intend to build the
Organic Alliance brand with the intrinsic value our products carry: “Food that is good for the planet, good for farmers
and good for you.”



Diversify
into Growing Market Segments. We intend to continue using our operational infrastructure to sell a small core list of conventional
produce to generate resources for the execution of large-scale development in the organic and Fair Trade agriculture sectors.
Specifically, we expect to develop capacity to process our fruit and vegetable production into organic and Fair Trade certified
value-added foods such as dried, juices and frozen, a new and rapidly growing sector in the organic foods market with healthy
margins and long-term growth potential.



Employees



As
of December 31, 2012 we had eight employees, including our two executive officers.



Where
You Can Find More Information



We
maintain a website at www.organicallianceinc.com/. The information contained
on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10−K. We make
available free of charge through our website our Annual Reports on Form 10−K, Quarterly Reports on Form 10−Q and Current
Reports on Form 8−K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange
Act, as soon as reasonably practicable after electronically filing such material with, or furnishing such material to, the Securities
and Exchange Commission. Further, we will provide free copies of any of our SEC filings upon request. Copies of our filings with
the SEC may be requested through the “Investors” section of our website, or by calling our offices at (831)240-0295.
In addition, because we are subject to the informational requirements of the Securities Exchange Act, we file reports, proxy statements
and other information with the SEC.  You may read and copy these reports, proxy statements and other information at
the SEC’s public reference room located at 100 F Street, N.E. Washington, D.C. 20549.  You may obtain information
on the operation of the public reference room by calling the SEC at (800) SEC-0330.  In addition, we are required
to file electronic versions of those materials with the SEC through the SEC’s EDGAR system. The SEC also maintains a web
site at http://www.sec.gov which contains reports, proxy statements and other information regarding registrants.

-6-

---









Table of Contents

ITEM
IA: RISK FACTORS



Risks
Related to Our Company



We
may not be able to continue as a going concern. We will need to raise additional capital in order to continue our operations,
which could dilute the ownership interests of existing shareholders and cause the issuance of securities with preferences and
privileges superior to our common stock.



As
of December 31, 2012, we had limited cash, a working capital deficit of approximately $6,702,000, accumulated losses of approximately
$20,577,000 since our inception, and have withheld $286,027 of payroll tax liabilities including penalties and interest from wages
paid which have yet to be remitted to the taxing authorities and are delinquent. We are currently delinquent with our payroll
tax filings since December 31, 2008; however, since April 1, 2012 we have been remitting payroll tax on a current basis. Our accounts
receivable are pledged per a factoring agreement. At December 31, 2012, we are not compliant with the repayments terms of various
notes payable for an aggregate of approximately $1,292,000 including accrued interest. The outcome of these matters cannot be
predicted with any certainty at this time and raises substantial doubt we will be able to continue as a going concern. Our consolidated
financial statements included in this Annual Report have been prepared using accounting principles generally accepted in the United
States of America applicable for a going concern which assumes we will realize our assets and discharge our liabilities in the
ordinary course of business. These consolidated financial statements do not include any adjustments to the amounts and classification
of assets and liabilities that may be necessary should we be unable to continue as a going concern.



Our
ability to continue as a going concern is dependent upon our ability to obtain the necessary financing to meet our obligations
and pay our liabilities arising from normal business operations when they come due and increasing our revenues in order to achieve
profitable operations. We estimate at least $2,000,000 in additional funds is required for us to continue operations through the
end of 2013. If funds are raised by issuing equity securities, it may result in substantial
dilution to existing stockholdersand such securities may have rights, preferences and privileges senior to those of our
common stock. If capital is raised through a debt financing, we would likely become subject
to restrictive covenants relating to our operations and finances. There can be no assurance that we will consummate any financing
on reasonable terms or at all. If we do not raise additional capital, we may be required to significantly curtail or cease our
activities.



Our
inability to contract for organic and Fair Trade products with growers and sell the food products to our customers will reduce
or eliminate our revenue.



In
order to generate revenue, we need to source organic food and Fair Trade fruits and vegetables from growers and sell the food
products to our customers. We are seeking to establish an extensive network of suppliers that will mitigate the risk of not having
ample supply to meet our customers’ needs, but we cannot assure you we will be successful in doing so. If we are unable
to establish a more extensive supply network, it could have a material adverse effect on our Company.



Our
products may be subject to recall, exposing us to significant liabilities.

Our
products may be subject to recall due to the existence of disease or other conditions in connection with the growing or processing
of the products, which could result in harm to the consumer. Any such recall or harm could subject us to significant financial
liability. We place a high emphasis on adherence to meeting our food safety standards from our grower base, and we have regular
audits performed that we believe meet or exceed the USDA standards, and we work closely with each grower in an attempt to ensure
compliance with such standards. In addition, we carry liability insurance covering us against liability for food safety events,
as well as covering our major customers through indemnification on our certificates. We cannot assure you that such insurance
will provide sufficient, or any, coverage if a food safety event occurs. And even with these protections in place, a recall of
our products could have a material adverse effect on our business.



We
have significant competition from a variety of sources, which could reduce our revenue and any profitability.

We
operate in competitive markets, and our future success will be largely dependent on our ability to provide quality products and
services at competitive prices. Our competition comes from a variety of sources, including other distributors of organic products
as well as specialty grocery and mass market grocery distributors. We cannot assure you that our current or potential competitors
will not provide products or services comparable or superior to those provided by us or adapt more quickly than we do to evolving
industry trends or changing market requirements. It also is possible that alliances among competitors may develop that rapidly
acquire significant market share, or that certain of our customers will increase distribution to their own retail facilities.
Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which could materially
adversely affect our business, financial condition or results of operations.

-7-

---







Table of Contents



Our
operations are sensitive to economic downturns, which could reduce our revenue and any profitability.



The
food industry is sensitive to national and regional economic conditions and the demand for our products may be adversely affected
from time to time by economic downturns. Diversification in the markets we serve around the world may help mitigate the effect
of economic downturn. In addition, we intend to continue our development into the European and Asian markets to mitigate our overall
risk. We cannot assure you that we will be successful in achieving meaningful diversification or development in other markets.
If we are unable to do so, it could have a material effect on our business.



We
may not be able to grow or to effectively manage our growth.



Our
future growth will depend upon a number of factors, some of which we cannot control. These factors include our ability to:



| | · | enhance
                                                                                                                                                        information
                                                                                                                                                        and
                                                                                                                                                        communication
                                                                                                                                                        systems
                                                                                                                                                        to
                                                                                                                                                        ensure
                                                                                                                                                        that
                                                                                                                                                        our
                                                                                                                                                        employees
                                                                                                                                                        can
                                                                                                                                                        effectively
                                                                                                                                                        communicate
                                                                                                                                                        with
                                                                                                                                                        each
                                                                                                                                                        other
                                                                                                                                                        and
                                                                                                                                                        our
                                                                                                                                                        growing
                                                                                                                                                        base
                                                                                                                                                        of
                                                                                                                                                        suppliers
                                                                                                                                                        and
                                                                                                                                                        distribution
                                                                                                                                                        outlets;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | implement
                                                                                                                                                        operational
                                                                                                                                                        plans
                                                                                                                                                        and
                                                                                                                                                        strategies;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | improve
                                                                                                                                                        our
                                                                                                                                                        operating
                                                                                                                                                        and
                                                                                                                                                        financial
                                                                                                                                                        systems
                                                                                                                                                        and
                                                                                                                                                        controls;
                                                                                                                                                        and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | hire,
                                                                                                                                                        train
                                                                                                                                                        and
                                                                                                                                                        retain
                                                                                                                                                        qualified
                                                                                                                                                        personnel
                                                                                                                                                        to
                                                                                                                                                        manage
                                                                                                                                                        and
                                                                                                                                                        operate
                                                                                                                                                        our
                                                                                                                                                        growing
                                                                                                                                                        business.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
failure to manage any of these factors effectively could adversely affect our business, financial position and results of operations.



Our
future operating results are subject to significant fluctuations which could have a negative effect on our operations and any
analysis of our future operating results.



Our
future operating results may vary significantly from period to period due to:



| | · | demand
                                                                                                                                                        for
                                                                                                                                                        our
                                                                                                                                                        products;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | changes
                                                                                                                                                        in
                                                                                                                                                        our
                                                                                                                                                        operating
                                                                                                                                                        expenses;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | changes
                                                                                                                                                        in
                                                                                                                                                        customer
                                                                                                                                                        preferences
                                                                                                                                                        and
                                                                                                                                                        changing
                                                                                                                                                        demands
                                                                                                                                                        for
                                                                                                                                                        organic
                                                                                                                                                        and
                                                                                                                                                        Fair
                                                                                                                                                        Trade
                                                                                                                                                        products,
                                                                                                                                                        including
                                                                                                                                                        levels
                                                                                                                                                        of
                                                                                                                                                        enthusiasm
                                                                                                                                                        for
                                                                                                                                                        health,
                                                                                                                                                        fitness
                                                                                                                                                        and
                                                                                                                                                        environmental
                                                                                                                                                        issues;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | fluctuation
                                                                                                                                                        of
                                                                                                                                                        organic
                                                                                                                                                        and
                                                                                                                                                        Fair
                                                                                                                                                        Trade
                                                                                                                                                        product
                                                                                                                                                        prices
                                                                                                                                                        due
                                                                                                                                                        to
                                                                                                                                                        competitive
                                                                                                                                                        pressures;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | personnel
                                                                                                                                                        changes;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | supply
                                                                                                                                                        shortages;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | general
                                                                                                                                                        economic
                                                                                                                                                        conditions;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | lack
                                                                                                                                                        of
                                                                                                                                                        an
                                                                                                                                                        adequate
                                                                                                                                                        supply
                                                                                                                                                        of
                                                                                                                                                        high-quality
                                                                                                                                                        agricultural
                                                                                                                                                        products;
                                                                                                                                                        and
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | volatility
                                                                                                                                                        in
                                                                                                                                                        prices
                                                                                                                                                        of
                                                                                                                                                        high-quality
                                                                                                                                                        agricultural
                                                                                                                                                        products.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Due
to the foregoing factors, we believe that period-to-period comparisons of our operating results may not necessarily be meaningful
and that such comparisons cannot be relied upon as indicators of future performance.



We
are subject to significant governmental regulation which can increase our costs, timing of products to market and profitability.



Our
business is highly regulated at the federal, state and local levels, and our products and distribution operations require various
licenses, permits and approvals. In particular:



| | · | our
                                                                                                                                                        products
                                                                                                                                                        are
                                                                                                                                                        subject
                                                                                                                                                        to
                                                                                                                                                        inspection
                                                                                                                                                        by
                                                                                                                                                        the
                                                                                                                                                        U.S.
                                                                                                                                                        Food
                                                                                                                                                        and
                                                                                                                                                        Drug
                                                                                                                                                        Administration;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | any
                                                                                                                                                        warehouse
                                                                                                                                                        and
                                                                                                                                                        distribution
                                                                                                                                                        facilities
                                                                                                                                                        we
                                                                                                                                                        may
                                                                                                                                                        use
                                                                                                                                                        will
                                                                                                                                                        be
                                                                                                                                                        subject
                                                                                                                                                        to
                                                                                                                                                        inspection
                                                                                                                                                        by
                                                                                                                                                        the
                                                                                                                                                        U.S.
                                                                                                                                                        Department
                                                                                                                                                        of
                                                                                                                                                        Agriculture
                                                                                                                                                        and
                                                                                                                                                        state
                                                                                                                                                        health
                                                                                                                                                        authorities;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | the
                                                                                                                                                        U.S.
                                                                                                                                                        Department
                                                                                                                                                        of
                                                                                                                                                        Transportation
                                                                                                                                                        and
                                                                                                                                                        the
                                                                                                                                                        U.S.
                                                                                                                                                        Federal
                                                                                                                                                        Highway
                                                                                                                                                        Administration
                                                                                                                                                        regulate
                                                                                                                                                        the
                                                                                                                                                        trucking
                                                                                                                                                        operations
                                                                                                                                                        of
                                                                                                                                                        our
                                                                                                                                                        contractors;
                                                                                                                                                        and
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | our
                                                                                                                                                        organic
                                                                                                                                                        products
                                                                                                                                                        must
                                                                                                                                                        be
                                                                                                                                                        certified
                                                                                                                                                        as
                                                                                                                                                        organic
                                                                                                                                                        by
                                                                                                                                                        the
                                                                                                                                                        USDA.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
loss or revocation of any existing licenses, permits, certifications or approvals or the failure to obtain any additional licenses,
permits or approvals in new jurisdictions where we intend to do business could reduce our revenue, increase our costs, affect
the timing of our products going to market and reduce any profitability.

-8-

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Table of Contents

We
are dependent for success on Parker Booth, our Chief Executive Officer, and Chris White, our Vice President of Global Supply Chain
Development. Our inability to retain either Mr. Booth’s or Mr. White’s services would impede our operations and growth
strategy, which would have a negative impact on the business and the value of your investment.



Our
success is largely dependent on the skills, experience and efforts of Parker Booth, our Chief Executive Officer, and Chris White,
our Vice President of Global Supply Chain Development. If Messrs. Booth or White is unable or unwilling to continue in their present
positions, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers. We
cannot assure you that we will be able to readily replace any departing executive officer. We do not maintain key man life insurance
on any of our executive officers.



Our
future success also depends, to a significant extent, on our ability to attract, train and retain qualified personnel. Recruiting
and retaining capable personnel, particularly those with expertise in the organic food industry, are vital to our success. There
is substantial competition for qualified personnel, and there can be no assurance that we will be able to attract or retain our
personnel. If we are unable to attract and retain qualified employees, our business may be materially and adversely affected.



Risks
Relating to Our Securities



Insiders
have substantial control over us, and they could delay or prevent a change in control of our company even if our other stockholders
wanted it to occur.

As
of the date of this Form 10-K, the Company’s executive officer, directors and 10% or greater stockholders own 11,628,395
shares of the our common stock, representing approximately 62% of our outstanding common stock. Accordingly, these individuals
will be able to control all matters requiring stockholder approval, including the election of directors and approval of significant
corporate transactions. This could delay or prevent an outside party from acquiring or merging with us even if our other stockholders
wanted it to occur.

Our
common stock is subject to the penny stock regulations and restrictions, which could impair our liquidity and make trading difficult.



SEC
Rule 15g-9, as amended, establishes the definition of a “penny stock” as any equity security that has a market price
of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions.
Our shares are considered to be penny stock. This classification could severely and adversely affect the market liquidity for
our common stock.



For
any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s
account for transactions in a penny stock and the broker or dealer receive from the investor a written agreement to the transaction
setting forth the identity and quantity of the penny stock to be purchased. To approve a person’s account for transactions
in a penny stock, the broker or dealer must obtain financial information and investment experience and objectives of the person,
and make a reasonable determination that the transactions in penny stocks are suitable for that person and that the person has
sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.



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



| | · | the
                                                                                                                                                        basis
                                                                                                                                                        on
                                                                                                                                                        which
                                                                                                                                                        the
                                                                                                                                                        broker
                                                                                                                                                        or
                                                                                                                                                        dealer
                                                                                                                                                        made
                                                                                                                                                        the
                                                                                                                                                        suitability
                                                                                                                                                        determination,
                                                                                                                                                        and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | that
                                                                                                                                                        the
                                                                                                                                                        broker
                                                                                                                                                        or
                                                                                                                                                        dealer
                                                                                                                                                        received
                                                                                                                                                        a
                                                                                                                                                        signed,
                                                                                                                                                        written
                                                                                                                                                        agreement
                                                                                                                                                        from
                                                                                                                                                        the
                                                                                                                                                        investor
                                                                                                                                                        prior
                                                                                                                                                        to
                                                                                                                                                        the
                                                                                                                                                        transaction.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Because
of these regulations, broker-dealers may not wish to engage in the above-referenced necessary paperwork and disclosures and/or
may encounter difficulties in their attempt to sell shares of our common stock. This, in turn, may affect the ability of selling
stockholders or other holders to sell their shares in any secondary market and have the effect of reducing the level of trading
activity in any secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities.
In addition, the liquidity for our securities may decrease, with a corresponding decrease in the price of our securities. Our
shares, in all probability, will be subject to such penny stock rules for the foreseeable future and our stockholders will, in
all likelihood, find it difficult to sell their securities.

-9-

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Table of Contents

The
market price of our common stock may be volatile.



The
market price of our common stock may be highly volatile. Some of the factors that may materially affect the market price of our
common stock are beyond our control, such as changes in financial estimates by industry and securities analysts, announcements
made by our competitors or sales of our common stock. These factors may materially adversely affect the market price of our common
stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume
volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently
unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market
price of our common stock.



We
do not expect to pay dividends in the near future, and any return on investment may be limited to the value of our stock.



We
do not anticipate paying any cash dividends on our common stock in the foreseeable future, so any return on investment may be
limited to the growth in the value of our stock. We plan to retain any future earnings to finance growth.



Failure
to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could prevent
us from producing reliable financial reports or identifying fraud. In addition, shareholders could lose confidence in our financial
reporting, which could have an adverse effect on our stock price.



Effective
internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud, and a lack of effective
controls could preclude us from accomplishing these critical functions. We are required to document and test our internal control
procedures in order to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act of 2002, which requires an annual
management assessment of the effectiveness of our internal controls over financial reporting. During the course of our testing,
we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal accounting
controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can
conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404.
Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause
investors to lose confidence in our reported financial information, either of which could have an adverse effect on our stock
price.



There
is a reduced probability of a change of control or acquisition of us due to the possible issuance of preferred stock. This reduced
probability could deprive our investors of the opportunity to otherwise sell our stock in an acquisition of our company by others.



Our
Articles of Incorporation authorize our Board of Directors to issue up to 10,000,000 shares of preferred stock, of which no shares
have been issued. Our preferred stock is issuable in one or more series and our Board of Directors has the power to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights,
terms of redemption, liquidation preferences and the number of shares constituting any series or designation of such series, without
further vote or action by stockholders. As a result of the existence of this “blank check” preferred stock, potential
acquirers of our company may find it more difficult to, or be discouraged from, attempting to effect an acquisition transaction
with, or a change of control of, our company, thereby possibly depriving holders of our securities of certain opportunities to
sell or otherwise dispose of such securities at above-market prices pursuant to such transactions.



The
market for our common stock is not active.



There
is a limited market for our common stock. There can be no assurance that a more active market for our common stock will develop.
Accordingly, investors may have to bear the economic risk of an investment in our common stock for an indefinite period of time.



We
are late in filing this annual report with the SEC and therefore have been de-listed from the OTCQB. Our failure to timely file
quarterly and annual reports may adversely affect our ability to be listed on the OTCBB or other more liquid exchanges in the
future.



Under
OTCQB rules relating to the timely filing of periodic reports with the SEC, any OTCQB issuer who fails to file a periodic report
(i.e., Forms 10−Q or 10−K) by the due date of such report may be removed from the OTCQB, and its common stock may
only be able to be traded on the OTC Pink. We are late filing this annual report and our quarterly report for the period ended
March 31, 2013. We have been removed from the OTCQB and currently are traded on the OTC Pink-Limited, which generally provides
for less liquidity than the OTCQB. When our filings are current, we believe we will be eligible to return to the OTCQB, though
we cannot assure you that such relisting will occur.



After
more than a one-year period of missed filings from 2010 to 2012, we became current in our reports on June 19, 2012. This recent
history of missed filings and the late filing of this annual report and our quarterly report for the period ended March 31, 2013
will likely have a negative impact on our ability to be listed on the OTCBB or other more liquid exchanges, even if we otherwise
meet the listing requirements of such exchanges.



If
we are unable to become listed on the OTCQB or on more liquid exchanges, it could materially adversely affect the ability of broker/dealers
to sell our shares and the ability of our stockholders to sell their shares of our common stock in the secondary market.

-10-

---









Table of Contents

ITEM
1B. UNRESOLVED STAFF COMMENTS

Not
applicable.

ITEM
2. PROPERTIES



We
do not own any real property. Beginning in December 2008, we leased approximately 1,250 square feet of office space located at
401 Monterey Street, Suite 202, Salinas, CA 93901, for approximately $2,300 per month under a one year agreement that expired
on December 31, 2009. We are currently paying rent on a month to month basis. During October 2012 we leased approximately 1,641
square feet of office space located at 2030 Addison Street, Berkeley, CA for approximately $4,200 per month under a 29 month agreement
with rental payments commencing on January 1, 2013. The rental fee escalates to approximately $4,350 on April 1, 2013 and approximately
$4,500 on April 1, 2014.



ITEM
3. LEGAL PROCEEDINGS



In
the normal course of business, we are, and in the future may be, subject to various disputes, claims, lawsuits, and administrative
proceedings arising in the ordinary course of business with respect to commercial, product liability, employment, and other matters,
which could involve substantial amounts of damages. In the opinion of management, any liability related to any such known proceeding
would not have a material adverse effect on our business or financial condition. Additionally, from time to time, we may pursue
litigation against third parties to enforce or protect our rights under our trademarks, trade secrets and our intellectual property
rights generally.



During
2010, we were served with a lawsuit for our past due liabilities. The lawsuit was Peri & Sons, plaintiff, vs. Organic Alliance,
Inc. and Parker Booth, defendants, for past due produce liabilities. An agreement was reached and OAI has been making payments
to the plaintiff. OAI was dismissed from the action and signed a confession of judgment. Over half of the past due amount has
been paid with a balance of approximately $21,000 remaining. The Company has accrued for this balance.



ITEM
4. MINE SAFETY DISCLOSURES.



Not
applicable.

-11-

---







Table of Contents



PART
II



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



Market
Information



Our
common stock is currently quoted on OTCQB of the OTC Marketplace under the symbol “ORGC.” The
range of high and low bids for shares of our common stock by quarter are as follows, based on bids that represent prices quoted
by broker-dealers on the OTCQB. The source of the high and low bids was the OTC Bulletin Board. The following quotations reflect
inter-dealer prices without retail mark-up, mark-down or commissions and, therefore, may not represent actual transactions.





|                   |  | High |      | Low
|------------------ |  | ---- | ---- | ---
|2011               |  |      |      |    
|First
    quarter  |  | $    | 0.51 |    
|Second
    quarter |  | $    | 0.31 |    
|Third
    quarter  |  | $    | 0.55 |    
|Fourth
    quarter |  | $    | 0.31 |    



|2012               |  |   |      | 
|------------------ |  | - | ---- | 
|First
    quarter  |  | $ | 0.32 | 
|Second
    quarter |  | $ | 0.32 | 
|Third
    quarter  |  | $ | 0.85 | 
|Fourth
    quarter |  | $ | 0.76 | 





Holders



As
of the June 3, 2013, we had approximately 570 stockholders of record of our common stock.



Dividends



We
have not paid any dividends since our inception. We currently intend to retain any earnings for use in our business, and therefore
do not anticipate paying dividends in the foreseeable future.

-12-

---









Table of Contents

Equity
Compensation Plan Information



The
below warrants and options were granted as of December 31, 2012 for services to our Company and/or as a financing incentive. There
is no formal stock compensation plan:

|Plan
    Category                                              |  | Number
    of securities to be issued upon exercise of outstanding options, warrants and rights |            | Weighted-average
    exercise price of outstanding options, warrants and rights |  | Number
    of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column
    (a))
|-------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|                                                               |  |                                                                                                 | (a)        |                                                                                 |  |                                                                                                                                                    
|Equity
    compensation plans approved by security holders     |  |                                                                                                 | 0          |                                                                                 |  |                                                                                                                                                    
|Equity
    compensation plans not approved by security holders |  |                                                                                                 | 22,537,237 |                                                                                 |  | $                                                                                                                                                  
|                                                               |  |                                                                                                 |            |                                                                                 |  |                                                                                                                                                    
|Total                                                          |  |                                                                                                 |            |                                                                                 |  |                                                                                                                                                    





Here
are the options and warrants issued during the year ended December 31, 2012:



During
February 2012, Spirit Management Inc., a company controlled by Barry Brookstein, CFO, was granted a three-year warrant to purchase
87,500 shares of our Company’s common stock at $0.10 per share as a financing incentive. The warrant vests immediately.

On
February 28, 2012, Michael Rosenthal, Chairman of the Company’s Board of Directors, was granted a three-year warrant to
purchase 125,000 shares of our Company’s common stock at $0.10 per share as a financing incentive. The warrant vests immediately.

On
February 29, 2012, any employee was granted a three-year warrant to purchase 125,000 shares of our Company’s common stock
at $0.25 per share as for service to our Company. The warrant vests immediately.



During
March, April and June 2012, in conjunction with our March 2012 offering of secured promissory notes, a group of investors were
granted a three-year warrant to purchase 2,337,500 shares of common stock at an exercise price of $0.10 per share as a financing
incentive. The warrant vests immediately. During October and November 2012, the holders of 1,140,063 warrants exercised their
warrants on a cashless basis and we issued 936,889 shares of our common stock. In addition, warrant holders exercised 62,500 shares
of our common stock for $6,250.



On
April 24, 2012, in conjunction with Roger Zardo’s employment as the Company’s Director of National Procurement, we
granted Mr. Zardo a three-year option to purchase 325,000 shares of our common stock at $0.25 per share. The option vested as
to 100,000 on the date of grant, vests as to 75,000 shares on each of the first two anniversaries of the grant date, and vests
as to 75,000 shares on November 28, 2014. During March 2013, Mr. Zardo resigned from the Company.



During
May 2012, Spirit Management Inc., a company controlled by Barry Brookstein, CFO, was granted a three-year warrant to purchase
125,000 shares of our Company’s common stock at $0.10 per share as a financing incentive. The warrant vests immediately.

On
May 18, 2012, in conjunction with Jack Connelly’s employment as our Director of National Sales, we granted Mr. Connelly
a three-year option to purchase 500,000 shares of our common stock at $0.25 per share. The option vested as to 100,000 on the
date of grant, vests as to 134,000 shares on each of the first two anniversaries of the grant date, and vested as to the final
132,000 shares on November 29, 2014.



-13-

---







Table of Contents

On
July 1, 2012, a consultant was granted a three-year warrant to purchase 250,000 shares of common stock at an exercise price of
$0.25 per share for accounting services. The warrant vests immediately.



On
August 1, 2012, an investor was granted a three-year warrant to purchase 50,000 shares of common stock at an exercise price of
$0.50 per share as a financing incentive. The warrant vests immediately.



On
August 7, 2012, an investor was granted a three-year warrant to purchase 25,000 shares of common stock at an exercise price of
$0.50 per share as a financing incentive. The warrant vests immediately.



On
August 22, 2012, an investor was granted a three-year warrant to purchase 50,000 shares of common stock at an exercise price of
$0.50 per share as a financing incentive. The warrant vests immediately.



On
August 23, 2012, an investor was granted a three-year warrant to purchase 25,000 shares of common stock at an exercise price of
$0.50 per share as a financing incentive. The warrant vests immediately.



On
August 31, 2012, in conjunction with George Borzilleri’s employment as our Manager, National Retail Sales, we granted Mr.
Borzilleri a three-year option to purchase 396,427 shares of our common stock at $0.35 per share. The option vested as to 135,714
shares on the date of grant, vests as to 86,904 shares on each of the first two anniversaries of the grant date, and vests as
to the final 86,905 shares on March 6, 2015.

During
August, September and October 2012, in conjunction with our August 2012 offering of secured promissory notes, a group of investors
were a granted three-year warrant to purchase 1,925,000 shares of common stock at an exercise price of $0.50 per share as a financing
incentive. The warrant vests immediately.



On
October 5, 2012, Chris White, the Company’s Vice President of Global Supply was granted a seven year non-qualified stock
option to purchase 3,837,719 shares of our common stock at $0.62 per share. The option vests as follows:



| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         immediately.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         upon
                                                                                                                                                         receipt
                                                                                                                                                         of
                                                                                                                                                         certificates
                                                                                                                                                         issued
                                                                                                                                                         by
                                                                                                                                                         IMO
                                                                                                                                                         Control
                                                                                                                                                         (Institute
                                                                                                                                                         for
                                                                                                                                                         Marker
                                                                                                                                                         Ecology)
                                                                                                                                                         certifying
                                                                                                                                                         compliance
                                                                                                                                                         with
                                                                                                                                                         IMO
                                                                                                                                                         Controls
                                                                                                                                                         ‘For
                                                                                                                                                         Life’
                                                                                                                                                         Fair
                                                                                                                                                         Trade
                                                                                                                                                         standards
                                                                                                                                                         for
                                                                                                                                                         three
                                                                                                                                                         key
                                                                                                                                                         Company
                                                                                                                                                         suppliers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         upon
                                                                                                                                                         the
                                                                                                                                                         launch
                                                                                                                                                         by
                                                                                                                                                         Mr.
                                                                                                                                                         White
                                                                                                                                                         of
                                                                                                                                                         an
                                                                                                                                                         internal
                                                                                                                                                         “alpha”
                                                                                                                                                         demonstration
                                                                                                                                                         website
                                                                                                                                                         that
                                                                                                                                                         contains
                                                                                                                                                         certain
                                                                                                                                                         functionality.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 198,250
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         on
                                                                                                                                                         each
                                                                                                                                                         of
                                                                                                                                                         the
                                                                                                                                                         next
                                                                                                                                                         8
                                                                                                                                                         quarter
                                                                                                                                                         dates
                                                                                                                                                         starting
                                                                                                                                                         January
                                                                                                                                                         6,
                                                                                                                                                         2013
                                                                                                                                                         through
                                                                                                                                                         October
                                                                                                                                                         6,2014.
                                                                                                                                                         The
                                                                                                                                                         final
                                                                                                                                                         quarterly
                                                                                                                                                         vesting
                                                                                                                                                         will
                                                                                                                                                         be
                                                                                                                                                         199,969
                                                                                                                                                         shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
October 23, 2012 we amended our March 2012 offering of secured promissory notes to remove the conversion right and extend the
due date to June 30, 2013, and to amend the warrants to remove certain anti-dilution provisions. Holders of an aggregate of $775,000
of the secured promissory notes agreed to such amendments and were granted a warrant to purchase 1,550,000 shares of our common
stock equal to two times the principal amount of the note amended, exercisable at $0.50 per share. The warrant vests immediately.



On
December 12, 2012, we amended the $50,000 promissory note from Michael Rosenthal, Chairman of the Company’s Board of Directors,
dated February 28, 2012, to extend the due date to June 30, 2013. For executing the agreement, the holder was granted a three-year
warrant to purchase 125,000 shares of the Company’s common stock, equal to two and one-half times the principal amount of
the note amended, exercisable at $0.20 per share. The warrant vests immediately.



On
December 12, 2012, we amended the $400,000 convertible multi-draw term loan facility with Spirit Management Inc., a company controlled
by Barry Brookstein, CFO, dated October 17, 2011 to remove the conversion right and extend the due date to June 30, 2013, and
to amend the warrants to remove certain anti-dilution provisions. For executing the agreement, the holder was granted a three-year
warrant to purchase 1,000,000 shares of the Company’s common stock, equal to two and one-half times the principal amount
of the note amended, exercisable at $0.20 per share. The warrant vests immediately.



During
December 2012, in conjunction with our December 2012 offering of secured promissory notes, a group of investors were granted a
three-year warrant to purchase 2,200,000 shares of common stock at an exercise price of $0.50 per share as a financing incentive.
The warrant vests immediately.

-14-

---







Table of Contents

On
December 31, 2012, we amended the $70,588 convertible promissory note dated February 3, 2011, to remove the conversion right and
extend the due date to June 30, 2013, and to amend the warrant to remove certain anti-dilution provisions. For executing the agreement,
the holder was granted a three-year warrant to purchase 61,856 shares of the Company’s common stock, exercisable at $0.18
per share. The warrant vests immediately.



On
December 31, 2012, we amended the $500,000 promissory note the note dated February 3, 2011 to extend the due date to June 30,
2013. For executing the agreement, the holder was granted a three-year warrant to purchase 438,144 shares of the Company’s
common stock, at an exercise price of $0.18 per share. The warrant vests immediately.





Recent
Sales of Securities



All
of the securities set forth below, except as otherwise indicated, were issued by us pursuant to Section 4(2) of the Securities
Act of 1933 as amended. Unless indicated, all such shares issued contained a restrictive legend (unregistered) and the holders
confirmed that they were acquiring the shares for investment and without intent to distribute the shares.



| | (i)    | During
    July 2012, we issued 150,000 shares of our common stock to a consultant for public and investor relation services.  The
    shares were valued at $0.315 per share.                                                                                                                                                   
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)   | During July 2012,
    we issued 3,473,708 shares of our common stock to a consultant for investor and public relation services. The shares were
    valued at $0.33 per share.  The shares issued were earned in August 2011.                                                                                                    
| | (iii)  | During August
    2012, a banker that provides investment banking services to our company exercised a warrant for 899,672 shares of our common
    stock, at an exercise price of $0.10, on a cashless basis.  We issued 747,185 shares of common stock based on the
    market value of $0.59 per share on the date of exercise.
| | (iv)   | During September
    2012, we issued 305,679 shares of our common stock in connection with the conversion of an outstanding convertible promissory
    note outstanding.                                                                                                                                                         
| | (v)    | During October
    2012, a lender converted a convertible promissory note in the principal amount of $57,500 into 1,265,000 shares of our common
    stock, at the conversion price of $0.05 per share.                                                                                                                          
| | (vi)   | During October
    2012, a group of five investors exercised warrants from our March 2012 offering of secured promissory notes into 821,211 shares
    of our common stock, at the exercise price of $0.10 per share, on a cashless basis. The shares were issued in December 2012.                                              
| | (vii)  | During October
    and November 2012, a group of five investors exercised warrants from our March 2012 offering of secured promissory notes into
    115,678 shares of our common stock, at the exercise price of $0.10 per share, on a cashless basis. The shares were issued
    in January 2013.                              
| | (viii) | During November
    2012, an investor exercised a warrant from our March 2012 offering of secured promissory notes into 62,500 shares of our common
    stock, at the exercise price of $0.10 per share. The shares were issued in February 2013.                                                                                
| | (ix)   | During March 2013,
    we issued 500,000 shares of our common stock to a consultant for investor and public relations services. The shares were valued
    at $0.11 per share.                                                                                                                                                   



Transfer
Agent



Our
Transfer Agent and Registrar for the common stock is Corporate Stock Transfer, 3200 Cherry Creek Drive South, Suite 430, Denver
CO, 80209.

-15-

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Table of Contents

ITEM
6. SELECTED FINANCIAL DATA



Not
applicable.



ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The
following discussion and analysis should be read in conjunction with the financial statements and the notes to those statements
included in this Annual Report on Form 10-K.



Critical
Accounting Estimates and Policies



Use
of Estimates- The preparation of consolidated financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Significant estimates that are particularly sensitive to change in the near term include, but are not limited to, realization
of deferred tax assets, allowance for doubtful accounts, and assumptions used in derivative valuations and share based payment
transactions. Actual results could differ from those estimates.



Principles
of Consolidation-The consolidated financial statements include the accounts of Organic Alliance, Inc. and its wholly-owned
subsidiary, Organic Texas, Inc. All significant inter-company transactions and balances have been eliminated in consolidation.



Allowance
for Doubtful Accounts - An allowance for uncollectible accounts receivable is recorded based on a combination of aging analysis,
past practices and any specific troubled accounts. Our Company’s produce is sold to our company’s customers for cash
or on credit terms which are established in accordance with local and industry practices and typically require payment within
10 to 30 days of delivery. Accounts are written off when uncollectibility is confirmed. Subsequent recoveries, if any, are credited
to the allowance account. The allowance for doubtful accounts amounted to $5,000 and $77,969 at December 31, 2012 and 2011, respectively.



In
addition, our Company also factors our receivables with full recourse and, as a result, accounts for the factoring akin to a secured
borrowing, maintaining the gross receivable asset and due to factor liability on our books and records. In connection with the
factoring of our receivables, our Company estimates an allowance for factoring fees associated with the collections. These fees
range from 3% to 5% depending on the actual timing of the collection. The actual recognition and amount of such fees may differ
from the estimates depending upon the timing of collections.



Inventory
- Inventory is stated at the lower of cost (first-in, first-out) or market, and includes principally produce our Company purchases
from growers and packaging materials. Our Company held $139,888 and $0 of inventory as of December 31, 2012 and 2011, respectively.



Income
Taxes- The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income
Taxes”. Under this method, income tax expense is recognized for the amount of (i) taxes payable or refundable for the current
year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.



Fair
Value of Financial Instruments - The carrying amounts of financial instruments, including cash, receivables, accounts payable
and accrued expenses approximated fair value as of the balance sheet date presented, because of the relatively short maturity
dates on these instruments. The carrying amounts of the notes payable issued approximate fair value as of the balance sheet date
presented, because interest rates and other terms on these instruments approximate terms currently available on similar instruments.



Derivative
Financial Instruments - Our Company does not use derivative instruments to hedge exposures to cash flow, market or foreign
currency risks. Our Company evaluates all of our financial instruments to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the
fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required
within 12 months of the balance sheet date.



-16-

---









Table of Contents

Revenue
Recognition -Revenue is recorded when (1) the customer accepts delivery of the product and title has been transferred and
our company has no significant obligations remaining to be performed; (2) a final understanding as to specific nature and terms
of the agreed upon transaction has occurred; (3) price is fixed and (4) collection is reasonably assured. Sales are presented
net of discounts and allowances.

Share
Based Compensation - Our Company accounts for share-based compensation in accordance with the fair value recognition provisions
of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) No. 718.
Share-based compensation expense for all share-based payment awards is based on the estimated grant-date fair value. Our company
recognizes these compensation costs over the requisite service period of the award, which is generally the option vesting term.
Option valuation models require the input of highly subjective assumptions, including the expected life of the option, and such
assumptions can materially affect the fair value estimate. The fair value of share-based payment awards was estimated using the
Black-Scholes option pricing model. Our Company accounts for the expected life of options in accordance with the “simplified”
method provisions of SEC Staff Accounting Bulletin (“SAB”) No. 110, which enables the use of the simplified method
for “plain vanilla” share options as defined in SAB No. 107.

Results
of Operations



For
the year ended December 31, 2012, net sales of $1,855,391 were recorded compared to $1,004,176 for the year ended December 31,
2011. The $851,215, or 85%, increase was attributable to significant growth in Q4 of 2012 as distribution gains in the retail
segment began to increase. The Company’s sales focus on retail chain markets resulted in the Company’s first shipments
to Whole Foods during the 4th Quarter of 2012. Vendor approvals were secured as well for supplying Safeway, Kroger,
and Heinen’s, and several larger produce distributors. Contributing to this increase was the hiring of a key retail sales
management team with extensive experience working in the retail market segment.



For
the year ended December 31, 2012, cost of goods sold was $1,611,686 compared to $984,248 for the year ended December 31, 2011.
The $627,438 or 64% increase was primarily attributable to the higher sales volume.



For
the year ended December 31, 2012, gross profit was $243,705 compared to $19,928 for the year ended December 31, 2011. The significant
increase in the gross margin was attributable to a positive impact from the company’s change towards securing long-term
supply contracts with our growing partners that resulted in lower costs, and from an increase in net sales revenue.



For
the year ended December 31, 2012, general and administrative (G&A) expenses were $3,204,403 compared to $2,694,313 for the
year ended December 31, 2011. The increase in G&A expenses of $510,090, or 19%, is primarily attributable to increased payroll
expenses of approximately $583,000 for the hiring of key management positions and staff to support company growth, increased professional
fees of approximately $218,000 for higher accounting fees, increased travel expense of approximately $122,000 due to the costs
associated with securing a larger and more strategic customer base, a write-off of approximately $192,000 for growers deposits
that have been deemed worthless, and increased other expense of approximately $179,000, offset by lower stock based compensation
with our reliance on working capital received from promissory notes.



For
the year ended December 31, 2012, the operating loss was $2,960,698 as compared to $2,674,385 for year ended December 31, 2011.
The $286,313, or 11%, increase in net operating loss was primarily attributable to the higher SG&A expenses described above.



For
the year ended December 31, 2012, the “Other (income) expense” category was $4,161,217 as compared to $383,546 for
year ended December 31, 2011. Included in other expense were the following items:



| | o | interest
                                                                                                                                                                             expense
                                                                                                                                                                             of
                                                                                                                                                                             $401,423
                                                                                                                                                                             and
                                                                                                                                                                             $248,694
                                                                                                                                                                             on
                                                                                                                                                                             notes
                                                                                                                                                                             and
                                                                                                                                                                             loans
                                                                                                                                                                             payable
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             years
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2012
                                                                                                                                                                             and
                                                                                                                                                                             2011,
                                                                                                                                                                             respectively.
                                                                                                                                                                             The
                                                                                                                                                                             increase
                                                                                                                                                                             is
                                                                                                                                                                             due
                                                                                                                                                                             to
                                                                                                                                                                             increased
                                                                                                                                                                             loan
                                                                                                                                                                             amounts;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | amortization
                                                                                                                                                                             of
                                                                                                                                                                             discount
                                                                                                                                                                             on
                                                                                                                                                                             notes
                                                                                                                                                                             payable
                                                                                                                                                                             of
                                                                                                                                                                             $1,383,551
                                                                                                                                                                             and
                                                                                                                                                                             $309,999
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             years
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2012
                                                                                                                                                                             and
                                                                                                                                                                             2011,
                                                                                                                                                                             respectively.
                                                                                                                                                                             The
                                                                                                                                                                             increase
                                                                                                                                                                             is
                                                                                                                                                                             due
                                                                                                                                                                             to
                                                                                                                                                                             overall
                                                                                                                                                                             increase
                                                                                                                                                                             in
                                                                                                                                                                             notes
                                                                                                                                                                             issued
                                                                                                                                                                             during
                                                                                                                                                                             the
                                                                                                                                                                             period
                                                                                                                                                                             with
                                                                                                                                                                             equity
                                                                                                                                                                             instruments
                                                                                                                                                                             fair
                                                                                                                                                                             valued
                                                                                                                                                                             and
                                                                                                                                                                             booked
                                                                                                                                                                             as
                                                                                                                                                                             debt
                                                                                                                                                                             discounts
                                                                                                                                                                             and
                                                                                                                                                                             the
                                                                                                                                                                             increase
                                                                                                                                                                             in
                                                                                                                                                                             the
                                                                                                                                                                             market
                                                                                                                                                                             price
                                                                                                                                                                             of
                                                                                                                                                                             our
                                                                                                                                                                             common
                                                                                                                                                                             stock
                                                                                                                                                                             during
                                                                                                                                                                             the
                                                                                                                                                                             period;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | factor
                                                                                                                                                                             advances
                                                                                                                                                                             fees
                                                                                                                                                                             of $80,140
                                                                                                                                                                             and
                                                                                                                                                                             $44,063,
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             years
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2012
                                                                                                                                                                             and
                                                                                                                                                                             2011,
                                                                                                                                                                             respectively.
                                                                                                                                                                             The
                                                                                                                                                                             increase
                                                                                                                                                                             is
                                                                                                                                                                             due
                                                                                                                                                                             to
                                                                                                                                                                             increased
                                                                                                                                                                             sales
                                                                                                                                                                             activity;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | a
                                                                                                                                                                             $1,892,355
                                                                                                                                                                             loss
                                                                                                                                                                             on
                                                                                                                                                                             change
                                                                                                                                                                             in
                                                                                                                                                                             fair
                                                                                                                                                                             value
                                                                                                                                                                             of
                                                                                                                                                                             derivative
                                                                                                                                                                             liability
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             year
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2012
                                                                                                                                                                             compared
                                                                                                                                                                             to
                                                                                                                                                                             a
                                                                                                                                                                             gain
                                                                                                                                                                             in
                                                                                                                                                                             change
                                                                                                                                                                             in
                                                                                                                                                                             fair
                                                                                                                                                                             value
                                                                                                                                                                             of
                                                                                                                                                                             derivative
                                                                                                                                                                             liability
                                                                                                                                                                             of
                                                                                                                                                                             $219,210
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             year
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2011.
                                                                                                                                                                             The
                                                                                                                                                                             increase
                                                                                                                                                                             is
                                                                                                                                                                             due
                                                                                                                                                                             to
                                                                                                                                                                             an
                                                                                                                                                                             increase
                                                                                                                                                                             in
                                                                                                                                                                             derivative
                                                                                                                                                                             warrants
                                                                                                                                                                             and
                                                                                                                                                                             conversion
                                                                                                                                                                             options
                                                                                                                                                                             issued
                                                                                                                                                                             during
                                                                                                                                                                             the
                                                                                                                                                                             period
                                                                                                                                                                             and
                                                                                                                                                                             an
                                                                                                                                                                             increase
                                                                                                                                                                             in
                                                                                                                                                                             the
                                                                                                                                                                             market
                                                                                                                                                                             price
                                                                                                                                                                             of
                                                                                                                                                                             our
                                                                                                                                                                             common
                                                                                                                                                                             stock;
                                                                                                                                                                             and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | finance
                                                                                                                                                                             fees
                                                                                                                                                                             of
                                                                                                                                                                             $403,750
                                                                                                                                                                             for
                                                                                                                                                                             the
                                                                                                                                                                             year
                                                                                                                                                                             ended
                                                                                                                                                                             December
                                                                                                                                                                             31,
                                                                                                                                                                             2012
                                                                                                                                                                             relating
                                                                                                                                                                             to
                                                                                                                                                                             our
                                                                                                                                                                             offering
                                                                                                                                                                             of
                                                                                                                                                                             $2,725,000
                                                                                                                                                                             of
                                                                                                                                                                             secured
                                                                                                                                                                             promissory
                                                                                                                                                                             notes
                                                                                                                                                                             in
                                                                                                                                                                             March
                                                                                                                                                                             2012, August
                                                                                                                                                                             2012
                                                                                                                                                                             and
                                                                                                                                                                             December
                                                                                                                                                                             2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



-17-

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Table of Contents

For
the year ended December 31, 2012, the net loss was $7,121,915 or $0.41 basic and diluted loss per share compared to $3,057,931
or $0.25 basic and diluted loss per share for the year ended December 31, 2011. The $4,063,984 or 133% increase in net loss was
primarily attributable to factors described above.



Liquidity
and Capital Resources



Our
operations to date have generated substantial losses that have been funded through our sale of common stock to, and loans from,
related parties and others. We will require additional sources of outside capital to continue our operations. We expect that our
primary sources of cash in the future will be from the issuance of common stock, loans, accounts receivable factoring and a line
of credit. On November 1, 2010, we signed a one year agreement with a financial services company for the purchase and sale of
accounts receivables which expired on October 31, 2011. The agreement is continuing on a month to month basis. The financial services
company commenced funding during February 2011. Under the agreement, the financial services company advances up to 80% of qualified
customer invoices less an applicable discount fee, and holds the remaining 20% as a reserve until the customer pays the financial
services company. The released reserves are used to fund other vendor purchases or returned to our company. We are charged 3%
for the first 30 days outstanding plus 1/10 of 1% daily for funds outstanding over 30 days. Uncollectable customer invoices are
charged back to our Company.



As
of December 31, 2012, we have withheld $286,027 of payroll tax liabilities including penalties and interest from wages paid which
have yet to be remitted to the taxing authorities.



The
consolidated financial statements have been prepared using US GAAP applicable for a going concern which assumes that we will realize
our assets and discharge our liabilities in the ordinary course of business. As of December 31, 2012, we had limited cash, a working
capital deficit of approximately $6,702,000 and have accumulated losses of approximately $20,577,000 since our inception.



Our
ability to continue as a going concern is dependent upon the ability of our Company to obtain the necessary financing to meet
our obligations and pay our liabilities arising from normal business operations when they come due, and increasing our revenues
in order to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and
raises substantial doubt that our company will be able to continue as a going concern. These consolidated financial statements
do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should our Company
be unable to continue as a going concern.



At
December 31, 2012, we are not compliant with the repayments terms of various notes payable for an aggregate of approximately $1,292,000
including accrued interest.



We
have limited funding available for marketing and will rely solely on the Company’s ability to raise debt or equity funds
in the immediate future.



Our
contractual obligation consists of notes and loans payable in the amount of $4,335,990 including accrued interest of $213,655,
for the notes at December 31, 2012.



On
February 28, 2012, we issued a $50,000 promissory note to a related party. The loan bears interest at 21% and had a maturity date
of the earlier of an event of default or August 28, 2012. During December 2012, we amended the note to extend the due date to
June 30, 2013. For consideration, the holder was granted a warrant to purchase 125,000 shares of our common stock equal to two
and a half times the principal amount of the note amended, exercisable at $0.20 per share.



In
March 2012, we commenced an offering of secured promissory notes for an aggregate principal amount of $1,000,000 with three-year
warrants to purchase an aggregate of 2,500,000 shares our common stock (2.5 shares for each $1 of the principal amount of the
notes purchased) exercisable at $0.10 per share. The notes bear interest at 18% and have various maturity dates beginning September
2, 2012. At the time of any new debt or equity financing by our Company, the principal and interest then due under the notes may
be converted into the number of fully paid and non-assessable debt instruments, shares/or units issued in the financing. The full
amount of the offering was not reached and notes in the aggregate principal amount of 850,000 and warrants to purchase an aggregate
of 2,125,000 were sold in the offering. In addition, the investment banker who facilitated the sale of the notes and warrants
received a three-year warrant to purchase 212,500 shares of our common stock (10% of the number of shares of common stock issuable
upon exercise of the warrants sold in the offering) exercisable at $0.10 per share. During October 2012 we amended the notes to
remove the conversion right and extend the due date to June 30, 2013, and to amend the warrants to remove certain anti-dilution
provisions. Holders of an aggregate of $775,000 agreed to such amendments were granted a warrant to purchase 1,550,000 shares
of our common stock equal to two times the principal amount of the note amended, exercisable at $0.50 per share.



-18-

---







Table of Contents

In
August 2012, we commenced an offering of secured promissory notes for an aggregate principal amount of $3,000,000 with three-year
warrants to purchase an aggregate of 6,000,000 shares our common stock (two shares for each $1 of the principal amount of the
notes purchased) exercisable at $0.50 per share. The notes bear interest at 18% and have a various maturity dates beginning March
13, 2013. At the time of any new debt or equity financing by our Company, the principal and interest then due under the notes
may be converted into the number of fully paid and non-assessable debt instruments, shares/or units issued in the financing. The
full amount of the offering was not reached and notes in the aggregate principal amount of 875,000 and warrants to purchase an
aggregate of 1,750,000 were sold in the offering. In addition, the investment banker who facilitated the sale of the notes and
warrants received a three-year warrant to purchase 175,000 shares of our common stock (10% of the number of shares of common stock
issuable upon exercise of the warrants sold in the offering) exercisable at $0.50 per share. The Company is not compliant with
the repayment terms of the note.



On
August 1, 2012, we issued a $60,000 promissory note with an original issue discount of 20%. The promissory note had a maturity
date of October 29, 2012. As a financing incentive, the lender received three-year warrants to purchase 50,000 shares of common
stock at an exercise price of $0.50 per share. The Company is not compliant with the repayment terms of the note.



On
August 7, 2012, we issued a $30,000 promissory note with an original issue discount of 20%. The promissory note had a maturity
date of November 5, 2012. As a financing incentive, the lender received three-year warrants to purchase 25,000 shares of common
stock at an exercise price of $0.50 per share. The Company is not compliant with the repayment terms of the note.



On
August 22, 2012, we issued a $60,000 promissory note with an original issue discount of 20%. The promissory note had a maturity
date of November 20, 2012. As a financing incentive, the lender received three-year warrants vesting to purchase 50,000 shares
of common stock at an exercise price of $0.50 per share. The Company is not compliant with the repayment terms of the note.



On
August 23, 2012, we issued a $30,000 promissory note with an original issue discount of 20%. The promissory note had a maturity
date of November 21, 2012. As a financing incentive, the lender received three-year warrants to purchase 25,000 shares of common
stock at an exercise price of $0.50 per share. In December 2012, the Company re-paid the note.



In
December 2012, we commenced an offering of secured promissory notes for an aggregate principal amount of $2,500,000 with three-year
warrants to purchase an aggregate of 5,000,000 shares our common stock (two shares for each $1 of the principal amount of the
notes purchased) exercisable at $0.50 per share. The notes bear interest at 18% and have a maturity date of June 30, 2013. The
full amount of the offering was not reached and notes in the aggregate principal amount of $1,000,000 and warrants to purchase
an aggregate of 2,000,000 were sold in the offering. In addition, the investment banker who facilitated the sale of the notes
and warrants received a three-year warrant to purchase 200,000 shares of our common stock (10% of the number of shares of common
stock issuable upon exercise of the warrants sold in the offering) exercisable at $0.50 per share.



Net
Cash Flows



For
the year ended December 31, 2012, net cash used in operating activities was $3,024,664 as compared to $1,056,345 for the year
ended December 31, 2011. The increase of $1,968,319, or 186%, primarily was attributable by increased spending for payroll, operating
activities, purchases of inventory, grower deposits for produce and decreases in accrued expense, offset by an increase in accounts
payable during the year ended December 31, 2012.



For
the year ended December 31, 2012, net cash provided by financing activities was $3,178,158 compared to $1,060,736 for the year
ended December 31, 2011. The increase of $2,117,422, or 200%, was primarily related to proceeds from the sales of secured promissory
notes.



At
December 31, 2012 and 2011, we had 8,042,896 and 2,983,750, and 14,494,340 and 5,862,140, of stock options and common stock purchase
warrants outstanding, respectively. The outstanding stock options have an exercise price range from $0.20 to $10.20 per share.
The outstanding warrants have an exercise price range from $0.001 per share to $0.50 per share. Accordingly, at December 31, 2012,
the outstanding options and warrants represented a total of 22,537,236 shares issuable for a maximum of $7,737,045 if all options
and warrants were exercised. The exercise of these options and warrants is at the discretion of the holder. There is no assurance
that any of these options or any additional warrants will be exercised.

-19-

---









Table of Contents

ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Not
applicable.



ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



See
the information on pages F-1 through F-26 at the end of this Annual Report.



ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.



Not
applicable.



ITEM
9A. CONTROLS AND PROCEDURES



Evaluation
of Disclosure Controls and Procedures



The
term disclosure controls and procedures means our controls and other procedures that are designed to ensure that information required
to be disclosed by us in the reports that we filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we
filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer
and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. It should be noted that any system of controls, however well designed and operated, can provide only reasonable and
not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of these and other inherent limitations of control systems,
there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless
of how remote.



Our
management team, under the supervision and with the participation our principal executive officer and principal financial officer,
evaluated the effectiveness of the design and operation our disclosure controls and procedures as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of December 31, 2012. Based on that evaluation,
our management team has concluded that the design of our disclosure controls was adequate but, due to lack of resources in our
accounting department, the controls with respect to financial disclosure were not operating effectively. The remediation plan
for improving the effectiveness over financial disclosure controls includes the creation of a financial disclosures roll-forward
model. This model will be maintained and updated by our staff and management as new business transactions require additional financial
disclosures. If and as we obtain additional resources, these financial disclosures will be reviewed by an outside financial disclosure
expert for completeness and accuracy earlier in the financial statement closing process cycle in order to help ensure completeness
and accuracy for reporting financial disclosures.



Management’s
Annual Report on Internal Control over Financial Reporting



Our
management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is a set of processes designed by, or under the supervision of, a company’s principal executive
and principal financial officers, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies
and procedures that:



| | · | pertain
    to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and dispositions of
    our assets;                                                                                                                                                                                      
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | provide reasonable
    assurance that our transactions are recorded as necessary to permit preparation of our financial statements in accordance
    with generally accepted accounting principles, and that receipts and expenditures of our are being made only in accordance
    with authorizations of our management and directors; and
| | · | provide reasonable
    assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
    have a material effect on the financial statement.                                                                                                                                   



Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. It should be noted
that any system of internal control, however well designed and operated, can provide only reasonable, and not absolute, assurance
that the objectives of the system will be met. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.



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Table of Contents

Under
the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer,
we conducted an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2012, based
on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO).

An
essential part of internal control is for certain procedures to be properly segregated and the results of their performance are
adequately reviewed. This is normally accomplished by assigning duties so that no one person handles a transaction from beginning
to end, and incompatible duties between functions are not handled by the same person.



We
do not currently have a sufficient complement of technical accounting and external reporting personal commensurate to support
standalone external financial reporting under public company or SEC requirements. Specifically, the Company did not effectively
segregate certain accounting duties due to the small size of its accounting staff, and maintain a sufficient number of adequately
trained personnel necessary to anticipate and identify risks critical to financial reporting and the closing process.



A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood
that a material misstatement of annual or interim financial statements will not be prevented or detected.



In
connection with the assessment described above, management determined that, due to our limited number of personnel, there is a
lack of segregation of duties and responsibilities with respect to our cash and control over the disbursements related thereto.
As a result of this material weakness, management has concluded that, as of December 31, 2012, our internal control over financial
reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO. If and
as we obtain additional resources, we intend to augment our internal controls procedures and expand our accounting staff to address
this identified material weakness.



Changes
in internal control over financial reporting



Based
on the evaluation of our management as required by paragraph (d) of Rule 13a-15(f) or 15d-15(f) under the Exchange Act, we believe
that there were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



ITEM
9B. OTHER INFORMATION



None.



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Table of Contents

PART
III



ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE



As
of December 31, 2012, the names, ages and positions of our directors and executive officers are as follows:



|Name
    of Director  |  | Age |  | Position(s)
    with our Company          |  | 
|--------------------- |  | --- |  | ----------------------------------------- |  | 
|                      |  |     |  |                                           |  | 
|Parker
    Booth      |  | 57  |  | Chief
    Executive Officer and Director  |  | 
|Barry
    Brookstein  |  | 71  |  | Chief
    Financial Officer and Director  |  | 
|Michael
    Rosenthal |  | 69  |  | Chairman
    of the Board                 |  | 
|Mark
    Klein        |  | 39  |  | Director                                  |  | 
|Chris
    White       |  | 32  |  | Vice
    President of Global Supply Chain |  | 



There
is no family relationship between any of our directors or executive officers.



FOR
EACH PERSON, LIST ANY OTHER DIRECTORSHIPS HELD WITH PUBLIC COMPANIES.



Parker
Booth – Chief Executive Officer and Director. Mr. Booth has been our Chief Executive Officer and a Director of our company
since 2008. He has over 30 years of sales and operation experience in the fresh foods and international transportation industries.
He brings extensive knowledge to the Organic Alliance team. Most recently, Booth was President of Ace Tomato and Delta PrePack,
two companies that farm, ship, repack and market fresh fruits and vegetables. Prior to running Ace Tomato and Delta PrePack, he
spent 14 years at Fresh Express, most recently as Vice President Food Service Division. In this position he was responsible for
overseeing and directing the company’s foodservice business, which included managing the sales division’s growth and
formulating long-range strategic sales plans. During this time, Mr. Booth led the $300 million food service divisions growth through
several new product launches for national restaurant chains and broad line distributor markets that resulted in a 30% revenue
growth. Mr. Booth has extensive international business and sales experience as a result of his work in Asia, Europe and South
America where he was responsible for developing and expanding markets for the use of controlled atmosphere technology. This technology
is used in the shipping industry today for the worldwide, long-distance, ocean transport of perishable commodities such as fresh
fruits and vegetables.



Barry
Brookstein – Chief Financial Officer and Director. Mr. Brookstein joined our company in October 2011 as Chief Financial
Officer and has been a Director since February 2012. Mr. Brookstein has been in the practice of public accounting for over 40
years and has served as Chairman and President of Barry M. Brookstein & Associates since 1996. Mr. Brookstein currently serves
as Chairman and Chief Executive Officer of Compliance Systems Corporation, and served as Chief Financial Officer and Treasurer
since 2002. Mr. Brookstein has served as a director and officer in numerous other companies in the consulting, human resource
and retail industries, and as Managing General Partner in real estate and oil and gas limited partnerships. Mr. Brookstein is
a graduate of Pace University.



Michael
Rosenthal – Director. On August 10, 2009, Michael Rosenthal joined our Board of Directors. Mr. Rosenthal has served
as Chairman and President of M.J. Rosenthal and Associates, Inc., an investment and consulting firm, since 1986, and has been
Chairman of Skins, Inc. since 2005. He served as Chairman and CEO of Bill Blass New York, a high-end manufacturer of men's and
women's clothing, from January 2006 through November 2007, and served as Chairman through November 2008. From 1984 to 1986, Mr.
Rosenthal was as a partner and a Managing Director of Wesray Capital Corp, an investment company, and prior to that was Senior
Vice President and Managing Director of the Mergers and Acquisitions Department of Donaldson, Lufkin, and Jenrette, Inc., an investment
banking firm. Mr. Rosenthal has also served as Chairman, director or Chief Operating Officer to a number of other companies including
Wilson Sporting Goods, Northwestern Steel & Wire Company, Western Auto Supply Company and Star Corrugated Box Company, Inc.



Mark
Klein – Director. On August 10, 2009, Mark Klein joined our Board of Directors. Mr. Klein has served as President and
CEO of both Skins Inc. and Skins Footwear Inc. since 2004. From 2001 to 2004, Mr. Klein served as the Sales Director for ICQ Mobile,
the mobile instant messaging division of AOL Time Warner. From 1999 to 2001, he was a senior marketing and sales executive for
both Comverse Network Systems (CMVT) and Oraios.com, where he directed, created and implemented sales and marketing initiatives.

Chris
White – Vice President of Global Supply Chain. On
September 1, 2009, Chris White joined our Company as our Chief Development Officer. On
July 3, 2011, Chris White was promoted to Vice President of Global Supply Chain. Mr. White is a food professional with
over 10 years of international experience building sustainable certified food production and pioneering models of development
and trade. Mr. White is responsible for building our international producer network, developing new Organic and Fair Trade certified
foods sources, overseeing our joint-venture agriculture projects and creating innovative media that connects consumers to producing
communities. He is the founder and President of Nexchange Organics. He has served as the Vice President of Sustainable Supply
at Fairtrasa International and as the National Business Manager at TransFair USA

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Table of Contents

Board
of Directors and Committees



Board
Meetings

During
calendar 2012, our Board of Directors held no meetings. We expect each of our directors to attend our Annual Meeting every year,
unless extenuating circumstances prevent their attendance.



Audit
Committee

Currently
we have no separately-designated standing audit committee. Our Board of Directors acts as our audit committee, and has determined
that our Chairman of the Board, Mike Rosenthal, though not independent of management, is qualified as an audit committee financial
expert.



Nominating
Committee

We
have no separately-designated standing nominating committee, and we have not adopted any procedures by which security holders
may recommend nominees to our Board of Directors.



Director
Compensation

In
2012, we did not pay any compensation to our directors in their capacities as such.



Director
Independence

Our
common stock is traded on the OTCQB of the OTC Marketplace, so we are not subject to any director independence requirements. However,
using the definition in NASDAQ Rule 5605(a)(2) for determining director independence (which defines
“independent director” as “a person other than an executive officer or employee of the company or any other
individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the exercise
of independent judgment in carrying out the responsibilities of a director”), two of our current directors, Michael Rosenthal
and Mark Klein, would be deemed independent.



Section
16(a) Beneficial Ownership Reporting Compliance



Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our officers and directors and persons who beneficially own
more than 10% of our common stock to file with the SEC initial reports of ownership and reports of changes in ownership of our
common stock. Based solely upon our review of copies of such forms we have received, and other information available to us:



Michael
Rosenthal, a Director our company, did not file any report with respect to warrants to purchase 125,000 shares granted to him
in December 2012.



Barry
Brookstein, our Chief Financial Officer and a Director of our company, did not file any report with respect to warrants to purchase
1,000,000 shares granted to him in December 2012.



Chris
White, our Vice President of Global Supply Chain Development, did not a Form 4 with respect to options to purchase 3,837,719 shares
granted to him in October 2012.



Code
of Ethics

We
have not adopted a Code of Ethics because our focus has been on building our operations and business, and our financial resources
are not sufficient enough to justify the expense of preparing, adopting and administering a Code of
Ethics.



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Table of Contents

ITEM
11. EXECUTIVE COMPENSATION



The
following table sets forth information concerning the compensation for the fiscal year ended December 31, 2012 for our Chief Executive
Officer and each of our other officers whose compensation exceeded $100,000 in 2012.



SUMMARY
COMPENSATION TABLE





|Name
    and Principal Position                     | Year | Salary
    ($)  | Bonus
    ($) | Stock
        Awards
        ($) | Option
        Awards
        ($) | Non-Equity
        Incentive
        Plan
        Compensation
        ($) | Nonqualified
        Deferred
        Compensation
        Earnings
        ($) | All
                                                                                                                             Other
        Compensation
        ($) | Total
    ($)
|--------------------------------------------------- | ---- | --------------- | ------------- | -------------------------------- | --------------------------------- | -------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------
|Parker
    Booth, Chief Executive Officer           | 2012 | 215,904(2)      |               |                                  |                                   |                                                                            |                                                                                 | 10,800(1)                                                                                                                                                               | 226,704      
|                                                    | 2011 | 180,000
    (2) |               | 95,736(3)                        |                                   |                                                                            |                                                                                 | 75,624(4)                                                                                                                                                               | 351,360      
|Barry  Brookstein,
    Chief  Financial Officer (5) | 2012 | 180,000
    (6) |               |                                  | 84,728
    (7)                    |                                                                            |                                                                                 |                                                                                                                                                                         | 164,728      
|                                                    | 2011 | 30,000(6)       |               |                                  | 70,074
    (8)                    |                                                                            |                                                                                 |                                                                                                                                                                         | 100,074      
|Chris
    White, V.P. of Global Supply Chain        | 2012 | 180,000
    (9) |               |                                  | 317,474
    (10)                  |                                                                            |                                                                                 |                                                                                                                                                                         | 497,474      
|                                                    | 2011 | 130,384
    (9) |               |                                  | 1,221,493
    (11)                |                                                                            |                                                                                 |                                                                                                                                                                         | 1,351,877    





| | (1) | During
                                                                                                                                                   2012,
                                                                                                                                                   Mr.
                                                                                                                                                   Booth
                                                                                                                                                   was
                                                                                                                                                   paid
                                                                                                                                                   a
                                                                                                                                                   salary
                                                                                                                                                   of
                                                                                                                                                   $191,250
                                                                                                                                                   plus
                                                                                                                                                   $24,654
                                                                                                                                                   which
                                                                                                                                                   represents
                                                                                                                                                   a
                                                                                                                                                   partial
                                                                                                                                                   catch-up
                                                                                                                                                   from
                                                                                                                                                   previous
                                                                                                                                                   year’s
                                                                                                                                                   salary.
                                                                                                                                                   Mr.
                                                                                                                                                   Booth
                                                                                                                                                   was
                                                                                                                                                   not
                                                                                                                                                   paid
                                                                                                                                                   during
                                                                                                                                                   2011.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (2) | Relates
                                                                                                                                                   to
                                                                                                                                                   accrued
                                                                                                                                                   automobile
                                                                                                                                                   benefits
                                                                                                                                                   for
                                                                                                                                                   $10,800
                                                                                                                                                   that
                                                                                                                                                   was
                                                                                                                                                   part
                                                                                                                                                   of
                                                                                                                                                   Mr.
                                                                                                                                                   Booth’s
                                                                                                                                                   October
                                                                                                                                                   1,
                                                                                                                                                   2008
                                                                                                                                                   employment
                                                                                                                                                   agreement.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Value
                                                                                                                                                   of
                                                                                                                                                   478,681
                                                                                                                                                   shares
                                                                                                                                                   of
                                                                                                                                                   our
                                                                                                                                                   common
                                                                                                                                                   stock
                                                                                                                                                   received
                                                                                                                                                   as
                                                                                                                                                   compensation.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (4) | Relates
                                                                                                                                                   to
                                                                                                                                                   accrued
                                                                                                                                                   automobile
                                                                                                                                                   benefits
                                                                                                                                                   for
                                                                                                                                                   $10,800
                                                                                                                                                   plus
                                                                                                                                                   $64,824
                                                                                                                                                   for
                                                                                                                                                   value
                                                                                                                                                   of
                                                                                                                                                   shares
                                                                                                                                                   issued
                                                                                                                                                   to
                                                                                                                                                   him
                                                                                                                                                   in
                                                                                                                                                   connection
                                                                                                                                                   with
                                                                                                                                                   the
                                                                                                                                                   retirement
                                                                                                                                                   of
                                                                                                                                                   debt
                                                                                                                                                   under
                                                                                                                                                   market
                                                                                                                                                   value.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (5) | Mr.
                                                                                                                                                   Brookstein
                                                                                                                                                   joined
                                                                                                                                                   our
                                                                                                                                                   company
                                                                                                                                                   on
                                                                                                                                                   November
                                                                                                                                                   1,
                                                                                                                                                   2011.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (6) | During
                                                                                                                                                   2012,
                                                                                                                                                   Mr.
                                                                                                                                                   Brookstein
                                                                                                                                                   earned
                                                                                                                                                   $180,000
                                                                                                                                                   and
                                                                                                                                                   was
                                                                                                                                                   paid
                                                                                                                                                   $67,500.
                                                                                                                                                   Mr.
                                                                                                                                                   Brookstein
                                                                                                                                                   was
                                                                                                                                                   not
                                                                                                                                                   paid
                                                                                                                                                   during
                                                                                                                                                   2011
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (7) | Value
                                                                                                                                                   of
                                                                                                                                                   three
                                                                                                                                                   year
                                                                                                                                                   warrant
                                                                                                                                                   to
                                                                                                                                                   purchase
                                                                                                                                                   312,500
                                                                                                                                                   shares
                                                                                                                                                   of
                                                                                                                                                   our
                                                                                                                                                   common
                                                                                                                                                   stock,
                                                                                                                                                   exercisable
                                                                                                                                                   at
                                                                                                                                                   $0.10
                                                                                                                                                   per
                                                                                                                                                   share,
                                                                                                                                                   and
                                                                                                                                                   1,000,000
                                                                                                                                                   shares
                                                                                                                                                   of
                                                                                                                                                   our
                                                                                                                                                   common
                                                                                                                                                   stock,
                                                                                                                                                   exercisable
                                                                                                                                                   at
                                                                                                                                                   $0.20
                                                                                                                                                   per
                                                                                                                                                   share,
                                                                                                                                                   received
                                                                                                                                                   as
                                                                                                                                                   a
                                                                                                                                                   financing
                                                                                                                                                   incentive.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (8) | Value
                                                                                                                                                                            of
                                                                                                                                                                            three
                                                                                                                                                                            year
                                                                                                                                                                            warrant
                                                                                                                                                                            to
                                                                                                                                                                            purchase
                                                                                                                                                                            687,500
                                                                                                                                                                            shares
                                                                                                                                                                            of
                                                                                                                                                                            our
                                                                                                                                                                            common
                                                                                                                                                                            stock,
                                                                                                                                                                            exercisable
                                                                                                                                                                            at
                                                                                                                                                                            $0.10
                                                                                                                                                                            per
                                                                                                                                                                            share,
                                                                                                                                                                            received
                                                                                                                                                                            as
                                                                                                                                                                            a
                                                                                                                                                                            financing
                                                                                                                                                                            incentive.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (9) | During
                                                                                                                                                   2012,
                                                                                                                                                   Mr.
                                                                                                                                                   White
                                                                                                                                                   earned
                                                                                                                                                   $180,000
                                                                                                                                                   and
                                                                                                                                                   was
                                                                                                                                                   paid
                                                                                                                                                   $87,890.
                                                                                                                                                   During
                                                                                                                                                   2011,
                                                                                                                                                   Mr.
                                                                                                                                                   White
                                                                                                                                                   earned
                                                                                                                                                   $130,384
                                                                                                                                                   and
                                                                                                                                                   was
                                                                                                                                                   paid
                                                                                                                                                   $23,141.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (10) | Value
                                                                                                                                                    of
                                                                                                                                                    2,950,000
                                                                                                                                                    shares
                                                                                                                                                    of
                                                                                                                                                    our
                                                                                                                                                    common
                                                                                                                                                    stock
                                                                                                                                                    option
                                                                                                                                                    received
                                                                                                                                                    as
                                                                                                                                                    compensation.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (11) | Value
                                                                                                                                                    of
                                                                                                                                                    3,837,719
                                                                                                                                                    shares
                                                                                                                                                    of
                                                                                                                                                    our
                                                                                                                                                    common
                                                                                                                                                    stock
                                                                                                                                                    option
                                                                                                                                                    received
                                                                                                                                                    as
                                                                                                                                                    compensation.
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





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Table of Contents

OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END TABLE

| | Option
    Awards | Stock
    Awards
| | ----------------- | ----------------



|                     |  | Number
    of Securities Underlying Unexercised Options (#) |        | Number
    of Securities Underlying Unexercised Options (#) |  | Equity
    Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |   | Option
    Exercise Price ($) |  | Option
    Expiration Date |   | Number
    of Shares or Units of Stock That Have Not Vested (#) |  | Market
    Value of Shares or Units of Stock That Have Not Vested ($) |      | Equity
    Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
    (#) |  | Equity
    Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That
    Have Not Vested ($)
|-------------------- |  | ----------------------------------------------------------- | ------ | ----------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------- | - | ----------------------------- |  | -------------------------- | - | --------------------------------------------------------------- |  | --------------------------------------------------------------------- | ---- | --------------------------------------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------
|Name                 |  | Exercisable                                                 |        | Unexercisable                                               |  |                                                                                                    |   |                               |  |                            |   |                                                                 |  |                                                                       |      |                                                                                                                 |  |                                                                                                                                
|Parker
    Booth (1) |  |                                                             | 33,750 | (1)                                                         |  |                                                                                                    | — |                               |  |                            | — |                                                                 |  |                                                                       | 10.2 |                                                                                                                 |  | September
    30, 2013                                                                                                         



_________________

(1)
Mr. Booth was promoted to Chief Executive Officer on December 11, 2009. This award was granted on October 1, 2008, upon joining
our company.



Employment/Consulting
Agreements.



October
1, 2008 we entered into an employment offer with Mr. Booth as our President, which was effective on November 15, 2008 and provides
for an annual salary of $300,000, participation in our annual performance-based incentive plan (PIP) that could increase the compensation
up to 50% based on meeting projected strategic outputs and profit objectives to be determined by our Board of Directors, pay the
premium on current $300,000 life insurance policy, a $900 per month car allowance and participation in any other benefits that
we may offer. The agreement also included a five-year option to purchase 33,750 shares of our stock at $10.20 per share that vested
as to one-third of such shares on each of September 30, 2009, 2010, and 2011. We accrued the salary for Mr. Booth beginning on
November 15, 2008 through June 1, 2009. Beginning on June 1, 2009, Mr. Booth began receiving his salary. Mr. Booth's salary was
reduced to $180,000 a year beginning May 16, 2010. We accrued the salary for Mr. Booth beginning on May 16, 2010 through December
31, 2010. The accrued salary of $446,269 through June 1, 2009 and between June 1, 2010 and December 31, 2012 has not been paid
and remains a liability of our company at December 31, 2012.

On
July 3, 2011, Chris White entered into an employment agreement with our Company and was promoted to Vice President of Global Supply
Chain. Mr. White’s employment agreement provides for an annual salary of $180,000. As part of his agreement, Mr. White was
granted a stock option to purchase 2,950,000 shares of our common stock. The option expires in seven years with 1,180,000 shares
vesting on July 3, 2011 and 295,000 shares vesting on each of the first six semi-annual anniversaries after such date. The exercise
price is $0.20 per share.



Liability
and Indemnification of Officers and Directors



Our
Articles of Incorporation provide that liability of directors to us for monetary damages is eliminated to the full extent provided
by Nevada law. Under Nevada law, a director is not personally liable to us or our stockholders for monetary damages for breach
of fiduciary duty as a director except for liability (i) for any breach of the director’s duty of loyalty to us or our stockholders;
(ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; (iii) for authorizing
the unlawful payment of a dividend or other distribution on our capital stock or the unlawful purchases of our capital stock;
(iv) a violation of Nevada law with respect to conflicts of interest by directors; or (v) for any transaction from which the director
derived any improper personal benefit.



The
effect of this provision in our Articles of Incorporation is to eliminate our rights and our stockholders’ rights (through
stockholders’ derivative suits) to recover monetary damages from a director for breach of the fiduciary duty of care as
a director (including any breach resulting from negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (v) above. This provision does not limit or eliminate our rights or the rights of our security holders to
seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director’s duty of care or
any liability for violation of the federal securities laws.

Insofar
as indemnification for liabilities arising under the Act may be permitted to our directors, officers and controlling persons pursuant
to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.



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Table of Contents

|ITEM |  | 12.
                                                                                       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
                                                                                       OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
                                                                                       MATTERS
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



At
the date of filing, there are 18,473,554 shares of common stock outstanding. The following table sets forth certain information
regarding the beneficial ownership of the outstanding shares of our common stock as of such date by (i) each person who is known
by us to own beneficially more than 5% of our outstanding common stock; (ii) each of our executive officers and directors; and
(iii) all of our executive officers and directors as a group. Unless otherwise indicated, each such person has investment and
voting power with respect to such shares, subject to community property laws where applicable.



|Name
    of Beneficial Owner                                                                 |  | SharesBeneficiallyOwned (1) |           | PercentageBeneficiallyOwned
|-------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | ---------------------------
|Parker
    Booth, Chief Executive Officer                                                    |  |                             | 5,419,233 | (2)                        
|Barry Brookstein,
    Chief Financial Officer and Director                                   |  |                             | 2,000,000 | (3)                        
|Michael J. Rosenthal,
    Director                                                           |  |                             | 1,772,831 | (4)                        
|Mark Klein, Director                                                                         |  |                             | 42,500    |                            
|Chris White c/o
    Organic Alliance, Inc. 401 Monterey Street, Suite 202 Salinas, CA 939010 |  |                             | 4,896,193 | (5)                        
|Summit Trading
    [address]                                                                 |  |                             | 4,169,638 |                            
|Executive Officers
    and Directors as a group (4 persons)                                  |  |                             | 9,234,564 |                            



|(1) |  | All
                                                                                                                         shares
                                                                                                                         post
                                                                                                                         20:1
                                                                                                                         reverse-split
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | This
                                                                                                                         amount
                                                                                                                         includes
                                                                                                                         options
                                                                                                                         to purchase
                                                                                                                         33,750
                                                                                                                         shares
                                                                                                                         of common
                                                                                                                         stock.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
                                                                                                                         1,000,000
                                                                                                                         shares
                                                                                                                         of common
                                                                                                                         stock
                                                                                                                         issuable
                                                                                                                         upon
                                                                                                                         the exercise
                                                                                                                         of warrant
                                                                                                                         at $0.10
                                                                                                                         per share
                                                                                                                         and 1,000,000
                                                                                                                         shares
                                                                                                                         of common
                                                                                                                         stock
                                                                                                                         issuable
                                                                                                                         upon
                                                                                                                         the exercise
                                                                                                                         of warrant
                                                                                                                         at $0.20
                                                                                                                         per share
                                                                                                                         by Spirits
                                                                                                                         Management
                                                                                                                         Inc.,
                                                                                                                         an entity
                                                                                                                         in which
                                                                                                                         Mr. Brookstein
                                                                                                                         is a
                                                                                                                         100%
                                                                                                                         shareholder.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | This
                                                                                                                         amount
                                                                                                                         includes
                                                                                                                         125,000
                                                                                                                         shares
                                                                                                                         of common
                                                                                                                         stock
                                                                                                                         issuable
                                                                                                                         upon
                                                                                                                         the exercise
                                                                                                                         of warrant
                                                                                                                         currently
                                                                                                                         exercisable
                                                                                                                         at $0.20
                                                                                                                         per share
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | This
                                                                                                                         amount
                                                                                                                         includes
                                                                                                                         options
                                                                                                                         to purchase
                                                                                                                         4,513,250
                                                                                                                         shares
                                                                                                                         of common
                                                                                                                         stock.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|ITEM |  | 13.
                                                                                       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS,
                                                                                       AND DIRECTOR INDEPENDENCE
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On
October 17, 2011, we entered into a $400,000 convertible multi-draw term loan facility with an entity owned by Barry Brookstein,
our Chief Financial Officer. The loan bears interest at 21% and has a maturity date of the earlier of an event of default or April
17, 2012. At the time of any new debt or equity financing by our company, the note balance of principal and interest may be converted
into the securities issued in the financing. In addition, the lender received a three-year warrant to purchase 1,000,000 shares
of our common stock at an exercise price of $.10 per share. In 2012, the note was amended to remove the conversion right and to
extend the due date to June 30, 2012, and the warrant was amended to remove certain anti-dilution provisions. In consideration
for such amendment, we granted the lender a warrant to purchase 1,000,000 shares of our common stock, exercisable at $0.20 per
share. As of June 3, 2013, we have been advanced $400,000 on the loan.



On
February 28, 2012, we issued a $50,000 promissory note to a related party. The loan bears interest at 21% and has a maturity date
of the earlier of an event of default or August 28, 2012. During December 2012, we amended the note to extend the due date to
June 30, 2013. For consideration, the holder was granted a warrant to purchase 125,000 shares of our common stock equal to two
and a half times the principal amount of the note amended, exercisable at $0.20 per share.



-26-

---









Table of Contents

ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES



Audit
Fees

The
aggregate fees billed to us by Marcum LLP, our principal accountant, for professional services rendered during the years ended
December 31, 2012 and 2011 are set forth in the table below:



|Fee
    Category           |  | Year
                                                                                    ended
        December
        31, 2012 |         |  | Year
                                                                                    ended
        December
        31, 2011 |  
|-------------------------- |  | -------------------------------------------------------------------------------------------------------------------------------- | ------- |  | -------------------------------------------------------------------------------------------------------------------------------- | -
|                           |  |                                                                                                                                  |         |  |                                                                                                                                  |  
|Audit fees (1)             |  | $                                                                                                                                | 111,000 |  |                                                                                                                                  | $
|Audit-related
    fees (2) |  |                                                                                                                                  | –       |  |                                                                                                                                  |  
|Tax fees (3)               |  |                                                                                                                                  | –       |  |                                                                                                                                  |  
|All other fees
    (4)     |  |                                                                                                                                  | –       |  |                                                                                                                                  |  
|Total fees                 |  | $                                                                                                                                | 111,000 |  |                                                                                                                                  | $





|(1) |  | Audit
                                                                                                                                            fees
                                                                                                                                            consist
                                                                                                                                            of
                                                                                                                                            fees
                                                                                                                                            incurred
                                                                                                                                            for
                                                                                                                                            professional
                                                                                                                                            services
                                                                                                                                            rendered
                                                                                                                                            for
                                                                                                                                            the
                                                                                                                                            audit
                                                                                                                                            of
                                                                                                                                            consolidated
                                                                                                                                            financial
                                                                                                                                            statements,
                                                                                                                                            for
                                                                                                                                            reviews
                                                                                                                                            of
                                                                                                                                            our
                                                                                                                                            interim
                                                                                                                                            consolidated
                                                                                                                                            financial
                                                                                                                                            statements
                                                                                                                                            included
                                                                                                                                            in
                                                                                                                                            our
                                                                                                                                            quarterly
                                                                                                                                            reports
                                                                                                                                            on
                                                                                                                                            Form
                                                                                                                                            10-Q
                                                                                                                                            and
                                                                                                                                            for
                                                                                                                                            services
                                                                                                                                            that
                                                                                                                                            are
                                                                                                                                            normally
                                                                                                                                            provided
                                                                                                                                            in
                                                                                                                                            connection
                                                                                                                                            with
                                                                                                                                            statutory
                                                                                                                                            or
                                                                                                                                            regulatory
                                                                                                                                            filings
                                                                                                                                            or
                                                                                                                                            engagements.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Audit-related
                                                                                                                                            fees
                                                                                                                                            consist
                                                                                                                                            of
                                                                                                                                            fees
                                                                                                                                            billed
                                                                                                                                            for
                                                                                                                                            professional
                                                                                                                                            services
                                                                                                                                            that
                                                                                                                                            are
                                                                                                                                            reasonably
                                                                                                                                            related
                                                                                                                                            to
                                                                                                                                            the
                                                                                                                                            performance
                                                                                                                                            of
                                                                                                                                            the
                                                                                                                                            audit
                                                                                                                                            or
                                                                                                                                            review
                                                                                                                                            of
                                                                                                                                            our
                                                                                                                                            consolidated
                                                                                                                                            financial
                                                                                                                                            statements,
                                                                                                                                            but
                                                                                                                                            are
                                                                                                                                            not
                                                                                                                                            reported
                                                                                                                                            under
                                                                                                                                            “Audit
                                                                                                                                            fees.”
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) |  | Tax
                                                                                                                                            fees
                                                                                                                                            consist
                                                                                                                                            of
                                                                                                                                            fees
                                                                                                                                            billed
                                                                                                                                            for
                                                                                                                                            professional
                                                                                                                                            services
                                                                                                                                            relating
                                                                                                                                            to
                                                                                                                                            tax
                                                                                                                                            compliance,
                                                                                                                                            tax
                                                                                                                                            planning,
                                                                                                                                            and
                                                                                                                                            tax
                                                                                                                                            advice.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) |  | All
                                                                                                                                            other
                                                                                                                                            fees
                                                                                                                                            consist
                                                                                                                                            of
                                                                                                                                            fees
                                                                                                                                            billed
                                                                                                                                            for
                                                                                                                                            all
                                                                                                                                            other
                                                                                                                                            services.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Pre-Approval
Policies and Procedures

Our
board of directors pre-approves all services provided by our independent auditors. All of the above services were reviewed and
approved by our board of directors before such services were rendered.

PART
IV



ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

|Number | Exhibit                                                                                                                                       
|------ | ----------------------------------------------------------------------------------------------------------------------------------------------
|3.1    | Articles of Incorporation1                                                                                                                    
|3.2    | Bylaws1                                                                                                                                       
|31.1   | Rule 13a-14(a)
    Certification of Chief Executive Officer.                                                                                  
|31.2   | Rule 13a-14(a)
    Certification of Chief Financial Officer.                                                                                  
|32.1   | Certification
    of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|32.2   | Certification
    of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

1Filed with our Form S-1 filed on August 8, 2008, and incorporated herein by reference.

-27-

---









Table of Contents

SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant caused this Form 10-K to be signed on its behalf
by the undersigned, thereunto duly authorized.



|                       | ORGANIC
        ALLIANCE, INC.
|---------------------- | ------------------------------
|                       |                               
|Date: June 3,
    2013 | By:
    /s/ Parker Booth      



| | Parker
    Booth                        
| | ----------------------------------------
| | Chief Executive
    Officer and Director
| | (Principal Executive
    Officer)       





|Date:
    June 3, 2013 | By:
    /s/ Barry Brookstein
|---------------------- | ----------------------------



| | Barry
    Brookstein                                                                                        
| | ------------------------------------------------------------------------------------------------------------
| | Chief
                                      Financial Officer
        (Principal
        Accounting Officer)
| |                                                                                                             



Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.



|Signature             |  | Title                                    | Date        
|--------------------- |  | ---------------------------------------- | ------------
|                      |  |                                          |             
|/s/ Parker Booth      |  |                                          | June 3, 2013
|Parker Booth          |  | Chief Executive
    Officer and Director |             
|                      |  |                                          |             
|/s/ Barry Brookstein  |  |                                          | June 3, 2013
|Barry Brookstein      |  | Chief Financial
    Officer and Director |             
|                      |  |                                          |             
|/s/ Michael Rosenthal |  |                                          | June 3, 2013
|Michael Rosenthal     |  | Director                                 |             
|                      |  |                                          |             
|/s/ Mark Klein        |  |                                          | June 3, 2013
|Mark Klein            |  | Director                                 |             
|                      |  |                                          |             



-28-

---









Organic
Alliance Inc. and Subsidiary



Index
to Consolidated Financial Statements



|Report
        of Independent Registered Public Accounting Firm | F-2                                                    
|--------------------------------------------------------------- | -------------------------------------------------------
|                                                                |                                                        
|Consolidated
        Financial Statements                       |                                                        
|                                                                |                                                        
|                                                                | Consolidated
    Balance Sheets                        
|                                                                |                                                        
|                                                                | Consolidated
    Statements of Operations              
|                                                                |                                                        
|                                                                | Consolidated
    Statements of Stockholders’ Deficiency
|                                                                |                                                        
|                                                                | Consolidated
    Statements of Cash Flows              
|                                                                |                                                        
|Notes
    to Consolidated Financial Statements                  | F-7                                                    
|                                                                |                                                        



F-1

---









REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To
the Board of Directors and Shareholders

of
Organic Alliance, Inc.



We
have audited the accompanying consolidated balance sheets of Organic Alliance, Inc. (the “Company”) as of December
31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ deficiency and cash flows for the
years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.



We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Organic
Alliance, Inc., as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States of America.



The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company’s recurring losses from operations and stockholders’
deficiency raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these
matters are also discussed in Note 3 to the consolidated financial statements. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.



/s/
Marcum LLP

Marcum
llp

New
York, NY

June
3, 2013



F-2

---









Table of Contents



|Organic Alliance Inc.                                                   |  |                 |             |     
|----------------------------------------------------------------------- |  | --------------- | ----------- | ----
|Consolidated Balance Sheet                                              |  |                 |             |     
|                                                                        |  | As December 31,
|                                                                        |  | 2012            |             | 2011
|                                                                        |  |                 |             |     
|Assets                                                                  |  |                 |             |     
|Current assets:                                                         |  |                 |             |     
|Cash                                                                    |  | $               | 159,346     |     
|Accounts receivable,
    net                                            |  |                 | 211,288     |     
|Inventory                                                               |  |                 | 139,888     |     
|Prepaid
    expenses and other current assets                           |  |                 | 98,074      |     
|Total
    current assets                                                |  |                 | 608,596     |     
|                                                                        |  |                 |             |     
|Total
    Assets                                                        |  | $               | 608,596     |     
|                                                                        |  |                 |             |     
|Liabilities and Stockholders'
    Deficiency                            |  |                 |             |     
|                                                                        |  |                 |             |     
|Current liabilities:                                                    |  |                 |             |     
|Accounts payable                                                        |  | $               | 993,240     |     
|Due to factor                                                           |  |                 | 213,778     |     
|Accrued expenses and
    other current liabilities                      |  |                 | 1,734,863   |     
|Derivative liabilities                                                  |  |                 | 432,030     |     
|Notes
    payable to related parties and others, net of discounts       |  |                 | 3,936,955   |     
|Total
    current liabilities                                           |  |                 | 7,310,866   |     
|                                                                        |  |                 |             |     
|Commitments and contingencies                                           |  |                 |             |     
|                                                                        |  |                 |             |     
|Stockholders' Deficiency:                                               |  |                 |             |     
|Preferred stock, no stated value;                                       |  |                 |             |     
|10,000,000 shares authorized; -0- shares issued                         |  |                 |             |     
|and outstanding as
    of December 31, 2012 and December 31, 2011       |  |                 | —           |     
|Common stock, $.0001 par value, 100,000,000 shares                      |  |                 |             |     
|authorized, 17,795,376 and 11,032,593
    shares issued and outstanding |  |                 |             |     
|as of December 31,
    2012 and December 31, 2011, respectively         |  |                 | 1,780       |     
|Additional paid-in capital                                              |  |                 | 13,872,597  |     
|Accumulated deficit                                                     |  |                 | (20,576,647 | )   
|Total
    stockholders' deficiency                                      |  |                 | (6,702,270  | )   
|                                                                        |  |                 |             |     
|Total
    Liabilities and Stockholders' Deficiency                      |  | $               | 608,596     |     
|                                                                        |  |                 |             |     
|                                                                        |  |                 |             |     





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



F-3

---







Table of Contents

|Organic Alliance Inc.                            |  |                       |            |                      
|------------------------------------------------ |  | --------------------- | ---------- | ---------------------
|Consolidated Statements of Operations            |  |                       |            |                      
|                                                 |  |                       |            |                      
|                                                 |  |                       |            |                      
|                                                 |  | For the Year Ended   
|                                                 |  | December
    31, 2012 |            | December
    31, 2011
|                                                 |  |                       |            |                      
|Revenue                                          |  | $                     | 1,855,391  |                      
|Cost of sales                                    |  |                       | 1,611,686  |                      
|                                                 |  |                       |            |                      
|Gross margin                                     |  |                       | 243,705    |                      
|                                                 |  |                       |            |                      
|General and administrative
    expenses          |  |                       | 3,204,403  |                      
|                                                 |  |                       |            |                      
|Operating loss                                   |  |                       | (2,960,698 | )                    
|                                                 |  |                       |            |                      
|Other expense (income) :                         |  |                       |            |                      
|Interest expense                                 |  |                       | 2,268,862  |                      
|Change
    in fair value of derivative liability |  |                       | 1,892,355  |                      
|Total
    other expense (income)                 |  |                       | 4,161,217  |                      
|                                                 |  |                       |            |                      
|Net loss                                         |  | $                     | (7,121,915 | )                    
|                                                 |  |                       |            |                      
|Basic and diluted
    loss per share             |  | $                     | (0.41      | )                    
|                                                 |  |                       |            |                      
|Weighted average number of common                |  |                       |            |                      
|shares outstanding
    - basic and diluted       |  |                       | 17,479,841 |                      
|                                                 |  |                       |            |                      
|                                                 |  |                       |            |                      

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



F-4

---









Table of Contents



|Organic
    Alliance Inc.                                                     
|------------------------------------------------------------------------------
|Consolidated
    Statement of Stockholders' Deficiency                        
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|                                                                              
|Balance at December 31, 2010                                                  
|                                                                              
|Issuance of common stock for
    services                                     
|Issuance of common stock to
    retire debt of related parties and other      
|Conversion of notes payable
    into shares of common stock                   
|Reclassification
    of derivative liability to equity upon conversion of note
|Discount on conversion option                                                 
|Share-based compensation                                                      
|Cancellation
    of common stock                                              
|                                                                              
|Net loss                                                                      
|                                                                              
|Balance at December 31, 2011                                                  
|                                                                              
|Issuance of common stock for
    services                                     
|Conversion of notes payable
    into shares of common stock                   
|Issuance of common stock upon
    exercise of warrants                        
|Reclassification
    of derivative liability to equity upon conversion of note
|Reclassification
    of derivative liability to equity upon amendments        
|Discount on shares issued
    for notes payable                               
|Share-based compensation                                                      
|                                                                              
|Net loss                                                                      
|                                                                              
|Balance at December 31, 2012                                                  
|                                                                              





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

F-5

---









Table of Contents

|Organic
    Alliance Inc.                                                      
|-------------------------------------------------------------------------------
|Consolidated
    Statements of Cash Flows                                      
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|                                                                               
|Cash flows from operating activities:                                          
|Net loss                                                                       
|Adjustments to reconcile net loss to net cash used in operating
    activities:
|Common stock issued
    for services                                           
|Share-based compensation                                                       
|Non-cash interest                                                              
|Change in fair value
    of derivative liability                               
|Provision for doubtful
    accounts                                            
|Amortization on discount
    of note payable                                   
|Changes in operating
    assets and liabilities:                               
|Accounts receivable                                                            
|Inventory                                                                      
|Prepaid expenses and
    other current assets                                  
|Accounts payable                                                               
|Accrued expenses and
    other current liabilities                             
|Net cash used in operating activities                                          
|                                                                               
|Cash flows from financing activities                                           
|Proceeds from notes
    and loans payable                                      
|Proceeds from issuance
    of common stock                                     
|Principal payments
    on note payable                                         
|Due to factor - net
    of repayment                                           
|Net cash provided by financing activities                                      
|                                                                               
|Net increase in cash                                                           
|Cash - beginning of the year                                                   
|Cash - end of the year                                                         
|                                                                               
|Supplemental disclosures:                                                      
|Interest paid                                                                  
|                                                                               
|Supplemental disclosure for non-cash financing activities:                     
|Discount on notes payable                                                      
|                                                                               
|Reclassification of derivative liabilities upon conversion of note             
|                                                                               
|Common stock to be issued                                                      
|                                                                               
|Issuance of common stock to settle notes payable                               
|                                                                               
|Issuance of common stock to convert notes payable                              
|                                                                               
|Issuance of common stock to settle liability                                   
|                                                                               



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

F-6

---













Table of Contents

---

Organic
Alliance Inc. and Subsidiary

Notes to Consolidated Financial Statements



|1. | NATURE
    OF BUSINESS AND OTHER MATTERS
|-- | ----------------------------------------



Organic
Alliance, Inc. is a global grower and marketer of organic, Fair Trade and conventional fresh fruits and vegetables. By establishing
collaborative relationships with key growers, the Company has built a vertically integrated supply chain that enables it to support
its customers with an increasing variety of certified sustainable products, sensible pricing, steady supply and inspiring multi-media
stories from our many producing communities.

History-NB Design & Licensing, Inc. (“NB Design”), a Nevada corporation, was organized in September 2001.
Its former parent, New Bridge Products, Inc., incorporated in August 1995 as a manufacturer of minivans, filed a petition in bankruptcy
under Chapter 11 of the U.S. Bankruptcy Code. Its Plan of Reorganization was approved by the U.S. Bankruptcy Court for the District
of Arizona in September 2002, and NB Design was discharged from bankruptcy in October 2002. NB Design was inactive from October
2002 to April 29, 2008.

Organic
Alliance, Inc., a Texas corporation (“Organic Texas”) was organized on February 19, 2008 to sell organically grown
fruits and vegetables. During the second quarter of 2009, it ceased being a development stage company when it commenced its operations.

On
April 29, 2008, NB Design acquired all 10,916,917 issued and outstanding shares of common stock of Organic Texas for 464,999 shares
of the NB Design’s common stock. Organic Texas thereupon became a wholly-owned subsidiary of NB Design. The business of
Organic Texas is the only business of NB Design. The Company operates in California.

The
acquisition of Organic Texas, a private operating company, by NB Design, a non-operating public shell corporation with nominal
net assets, was accounted for as a reverse capitalization in accordance with the Securities and Exchange Commission’s (“SEC”)
Division of Corporate Financial Reporting manual Topic 12 “Reverse Acquisition and Reverse Capitalization”. As such,
the acquisition was treated as a capital transaction rather than a business combination, and no goodwill was recorded. NB Design
was the legal acquirer because it issued its equity interests, and Organic Texas was the legal acquiree because its equity interests
were acquired. However, NB Design was the acquiree and Organic Texas was the acquirer for accounting purposes. Organic Texas is
treated as the continuing reporting entity that acquired the registrant, NB Design. The pre-acquisition financial statements of
Organic Texas are treated as the historical financial statements of the consolidated companies.

On
June 2, 2008, NB Design changed its name to Organic Alliance, Inc. On August 29, 2008, Organic Texas changed its name to Organic
Texas, Inc. All references throughout this report to “Organic Alliance, Inc.” or the “Company” refers
to Organic Alliance, Inc. and its wholly-owned subsidiary, Organic Texas, except where the context makes clear that the reference
is only to Organic Alliance, Inc.

During
November 2010, the Company increased the number of authorized shares of common stock from 60 million shares to 2 billion shares.

On
February 14, 2011, the Company executed a 20:1 reverse split and decreased the number of authorized shares of common stock from
2 billion shares to 100 million shares.



F-7

---







Table of Contents

|2. | SUMMARY
    OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ----------------------------------------------



Basis
of Presentation - The Company's consolidated financial statements have been prepared on an accrual basis of accounting, in
conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information
and with the rules and regulations for the SEC.



Use
of Estimates - The preparation of consolidated financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.
Significant estimates that are particularly sensitive to change in the near term include, but are not limited to, realization
of deferred tax assets, allowance for doubtful accounts, and assumptions used in derivative valuations and share based payment
transactions. Actual results could differ from those estimates.



Principles
of Consolidation-The consolidated financial statements include the accounts of Organic Alliance, Inc. and its wholly-owned
subsidiary, Organic Texas, Inc. (collectively, the “Company”). All significant inter-company transactions and balances
have been eliminated in consolidation.



Allowance
for Doubtful Accounts- An allowance for uncollectible accounts receivable is recorded based on a combination of aging analysis,
past practices and any specific troubled accounts. The Company’s produce is sold to the Company’s customers for cash
or on credit terms which are established in accordance with local and industry practices and typically require payment within
10 to 30 days of delivery. Accounts are written off when uncollectibility is confirmed. Subsequent recoveries, if any, are credited
to the allowance account. The allowance for doubtful accounts amounted to $5,000 and $77,969 at December 31, 2012 and December
31, 2011, respectively.



In
addition, the Company factors its receivables with full recourse and, as a result, accounts for the factoring akin to a secured
borrowing, maintaining the gross receivable asset and due to factor liability on its books and records. In connection with the
factoring of its receivables, the Company estimates an allowance for factoring fees associated with the collections. These fees
range from 3% to 5% depending on the actual timing of the collection. The actual recognition and amount of such fees may differ
from the estimates depending upon the timing of collections.



Inventory
- Inventory is stated at the lower of cost (first-in, first-out) or market, and includes principally produce the Company purchases
from growers ($41,547) and packaging materials ($98,341). The Company held $139,888 and $0 of inventory as of December 31, 2012
and December 31, 2011, respectively.



Income
Taxes - The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income
Taxes”. Under this method, income tax expense is recognized for the amount of (i) taxes payable or refundable for the current
year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s
financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the
enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available
positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.



Fair
Value of Financial Instruments- The carrying amounts of financial instruments, including cash, receivables, accounts payable
and accrued expenses approximated fair value as of the balance sheet date presented, because of the relatively short maturity
dates on these instruments. The carrying amounts of the notes payable issued approximate fair value as of the balance sheet date
presented, because interest rates and other terms on these instruments approximate terms currently available on similar instruments.



Derivative
Financial Instruments- The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign
currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the
derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the
fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified
in the balance sheet as current or non-current based on whether or not net-cash settlement of the instrument could be required
within 12 months of the balance sheet date.



F-8

---







Table of Contents

The
accounting treatment of derivative financial instruments requires that the Company record the conversion option and related warrants
at their fair values as of the inception date of the agreements, and at fair value as of each subsequent balance sheet date. As
a result of entering into the convertible notes, the Company is required to classify all other non-employee warrants as derivative
liabilities and record them at their fair values at each balance sheet date. Any change in fair value was recorded as a change
in the fair value of derivative liabilities for each reporting period at each balance sheet date. The Company reassesses the classification
at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified
as of the date of the event that caused the reclassification.



The
fair value of conversion options at a fixed number of shares are recorded using the intrinsic value method. Conversion options
at variable rates and any options and warrants with ratchet provisions are deemed to contain a “down-round protection”.
Accordingly, they do not meet the scope exception for treatment as a derivative under ASC 815 since “down-round protection”
is not an input into the calculation of the fair value of the equity instruments and cannot be considered “indexed to the
Company’s own stock”, which is a requirement for the scope exception as outlined under ASC 815. The Company determined
the fair value of the Binomial Lattice Model and the Black-Scholes Method to be materially the same. Warrants that had been reclassified
to derivative liability that did not contain “down-round protection” were valued using the black-scholes model.



For
the Black-Scholes pricing model, which approximates the binomial lattice model, the Company used the following assumptions and
weighted average fair value ranges for the years ended December 31:



|                                      |  |  | 2012                     |  |  |  | 2011                   | 
|------------------------------------- |  |  | ------------------------ |  |  |  | ---------------------- | 
|Risk-free
    interest rate           |  |  | 0.17%
    - 0.71%        |  |  |  | 0.06%
    - 0.30%      | 
|Dividend
    yield                    |  |  | N/A                      |  |  |  | N/A                    | 
|Expected
    volatility               |  |  | 37.1%-54.7%              |  |  |  | 32.4%
    – 42.8%      | 
|Expected
    life in months and years |  |  | 3
    months – 48 months |  |  |  | 9
    months – 2 years | 



For
the binomial lattice options pricing model, the Company used the following assumptions and weighted average fair value ranges
for the year ended December 31:



|                                      |  |  | 2012                     |  |  |  | 2011                  | 
|------------------------------------- |  |  | ------------------------ |  |  |  | --------------------- | 
|Risk-free
    interest rate           |  |  | 0.14%
    - 0.34%        |  |  |  | 0.01%-2.00%           | 
|Dividend
    yield                    |  |  | N/A                      |  |  |  | N/A                   | 
|Expected
    volatility               |  |  | 31.6%-56.0%              |  |  |  | 33.4%
    - 57.5%     | 
|Expected
    life in months and years |  |  | 3
    months – 4.3 years |  |  |  | 1
    month - 5 years | 



Revenue
Recognition -Revenue is recorded when (1) the customer accepts delivery of the product, title has been transferred, and the
Company has no significant obligations remaining to be performed; (2) a final understanding as to specific nature and terms of
the agreed upon transaction has occurred; (3) price is fixed and (4) collection is reasonably assured.



F-9

---







Table of Contents



Share
Based Compensation – The Company accounts for share-based compensation in accordance with the fair value recognition
provisions of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
No. 718. For employees and directors, the fair value of the award is measured on the grant date, and for non-employees the fair
value of the award is generally re-measured on interim financial reporting dates until the service period is complete.



Option
valuation models require the input of highly subjective assumptions, including the expected life of the option, and such assumptions
can materially affect the fair value estimate. The fair value of share-based payment awards was estimated using the Black-Scholes
option pricing model. The Company uses historical data to estimate option exercise and employee termination within the valuation
model; separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes.
The expected term of options granted is derived from the output of the option valuation model and represents the period of time
that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve in effect at the time of grant.



For
the Black-Scholes pricing model, the Company used the following assumptions and weighted average fair value ranges for the years
ended December 31, 2012, and 2011:



|                            |  | 2012              |  | 2011              | 
|--------------------------- |  | ----------------- |  | ----------------- | 
|Risk-free
    interest rate |  | 0.32%
    - 2.54% |  | 0.39%
    - 2.54%
|Dividend
    yield          |  | N/A               |  | N/A              
|Expected
    volatility     |  | 35.7%
    - 50.2% |  | 50.2%
    - 57.7%
|Expected
    life in years  |  | 2.5
    - 7       |  | 3
    – 7        
|                            |  |                   |  |                   | 



Concentrations



| | · | Credit
                                                                                                                                                         Risk
                                                                                                                                                         -
                                                                                                                                                         The
                                                                                                                                                         Company
                                                                                                                                                         maintains
                                                                                                                                                         cash
                                                                                                                                                         balances
                                                                                                                                                         at
                                                                                                                                                         various
                                                                                                                                                         high
                                                                                                                                                         quality
                                                                                                                                                         federally
                                                                                                                                                         insured
                                                                                                                                                         financial
                                                                                                                                                         institutions,
                                                                                                                                                         with
                                                                                                                                                         balances
                                                                                                                                                         at
                                                                                                                                                         times,
                                                                                                                                                         in
                                                                                                                                                         excess
                                                                                                                                                         of
                                                                                                                                                         federally
                                                                                                                                                         insured
                                                                                                                                                         limits.
                                                                                                                                                         Management
                                                                                                                                                         believes
                                                                                                                                                         that
                                                                                                                                                         the
                                                                                                                                                         financial
                                                                                                                                                         institutions
                                                                                                                                                         that
                                                                                                                                                         hold
                                                                                                                                                         the
                                                                                                                                                         Company’s
                                                                                                                                                         deposits
                                                                                                                                                         are
                                                                                                                                                         financially
                                                                                                                                                         sound
                                                                                                                                                         and
                                                                                                                                                         therefore
                                                                                                                                                         pose
                                                                                                                                                         a
                                                                                                                                                         minimum
                                                                                                                                                         credit
                                                                                                                                                         risk.
                                                                                                                                                         The
                                                                                                                                                         Company
                                                                                                                                                         has
                                                                                                                                                         not
                                                                                                                                                         experienced
                                                                                                                                                         any
                                                                                                                                                         losses
                                                                                                                                                         in
                                                                                                                                                         such
                                                                                                                                                         accounts.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Major
                                                                                                                                                         customers
                                                                                                                                                         -
                                                                                                                                                         The
                                                                                                                                                         Company
                                                                                                                                                         has
                                                                                                                                                         two
                                                                                                                                                         major
                                                                                                                                                         customers,
                                                                                                                                                         which
                                                                                                                                                         accounted
                                                                                                                                                         for
                                                                                                                                                         approximately
                                                                                                                                                         25%
                                                                                                                                                         and
                                                                                                                                                         22%
                                                                                                                                                         of
                                                                                                                                                         sales
                                                                                                                                                         for
                                                                                                                                                         the
                                                                                                                                                         years
                                                                                                                                                         ended
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2012
                                                                                                                                                         and
                                                                                                                                                         2011,
                                                                                                                                                         respectively.
                                                                                                                                                         For
                                                                                                                                                         the
                                                                                                                                                         year
                                                                                                                                                         ended
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2012,
                                                                                                                                                         the
                                                                                                                                                         total
                                                                                                                                                         sales
                                                                                                                                                         comprised
                                                                                                                                                         of
                                                                                                                                                         customer
                                                                                                                                                         A
                                                                                                                                                         14%,
                                                                                                                                                         customer
                                                                                                                                                         B
                                                                                                                                                         11%
                                                                                                                                                         compared
                                                                                                                                                         to
                                                                                                                                                         the
                                                                                                                                                         year
                                                                                                                                                         ended
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2011,
                                                                                                                                                         comprised
                                                                                                                                                         of
                                                                                                                                                         customer
                                                                                                                                                         C
                                                                                                                                                         12%
                                                                                                                                                         and
                                                                                                                                                         customer
                                                                                                                                                         D
                                                                                                                                                         10%.
                                                                                                                                                         The
                                                                                                                                                         loss
                                                                                                                                                         of
                                                                                                                                                         any
                                                                                                                                                         of
                                                                                                                                                         these
                                                                                                                                                         customers
                                                                                                                                                         could
                                                                                                                                                         adversely
                                                                                                                                                         affect
                                                                                                                                                         the
                                                                                                                                                         Company's
                                                                                                                                                         operations.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Major
                                                                                                                                                         receivables
                                                                                                                                                         -
                                                                                                                                                         The
                                                                                                                                                         Company
                                                                                                                                                         has
                                                                                                                                                         four
                                                                                                                                                         major
                                                                                                                                                         receivables
                                                                                                                                                         at
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2012
                                                                                                                                                         comprised
                                                                                                                                                         of
                                                                                                                                                         customer
                                                                                                                                                         E
                                                                                                                                                         20%,
                                                                                                                                                         customer
                                                                                                                                                         F
                                                                                                                                                         17%,
                                                                                                                                                         customer
                                                                                                                                                         G
                                                                                                                                                         15%
                                                                                                                                                         and
                                                                                                                                                         customer
                                                                                                                                                         H
                                                                                                                                                         13%
                                                                                                                                                         compared
                                                                                                                                                         to
                                                                                                                                                         three
                                                                                                                                                         major
                                                                                                                                                         receivables
                                                                                                                                                         at
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2011,
                                                                                                                                                         comprised
                                                                                                                                                         of
                                                                                                                                                         customer
                                                                                                                                                         I
                                                                                                                                                         36%,
                                                                                                                                                         customer
                                                                                                                                                         C
                                                                                                                                                         33%
                                                                                                                                                         and
                                                                                                                                                         customer
                                                                                                                                                         J
                                                                                                                                                         13%.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Major
                                                                                                                                                         suppliers
                                                                                                                                                         -
                                                                                                                                                         The
                                                                                                                                                         Company
                                                                                                                                                         has
                                                                                                                                                         two
                                                                                                                                                         and
                                                                                                                                                         four
                                                                                                                                                         major
                                                                                                                                                         suppliers,
                                                                                                                                                         which
                                                                                                                                                         accounted
                                                                                                                                                         for
                                                                                                                                                         approximately
                                                                                                                                                         44%
                                                                                                                                                         and
                                                                                                                                                         54%
                                                                                                                                                         of
                                                                                                                                                         purchases
                                                                                                                                                         for
                                                                                                                                                         the
                                                                                                                                                         years
                                                                                                                                                         ended
                                                                                                                                                         December
                                                                                                                                                         31,
                                                                                                                                                         2012
                                                                                                                                                         and
                                                                                                                                                         2011,
                                                                                                                                                         respectively.
                                                                                                                                                         The
                                                                                                                                                         loss
                                                                                                                                                         of
                                                                                                                                                         any
                                                                                                                                                         of
                                                                                                                                                         these
                                                                                                                                                         suppliers
                                                                                                                                                         could
                                                                                                                                                         adversely
                                                                                                                                                         affect
                                                                                                                                                         the
                                                                                                                                                         Company's
                                                                                                                                                         operations.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



F-10

---







Table of Contents

Net
Loss Per Share -Basic loss per share was computed using the weighted average number of outstanding common shares. Diluted
loss per share includes the effect of dilutive common stock equivalents from the assumed exercise of options, warrants and convertible
notes. Common stock equivalents were excluded in the computation of diluted loss per share since their inclusion would be anti-dilutive.



In
accordance with ASC 260 “Earnings per Share”, the Company has given effect to the issuance of warrants to purchase
1,100,000 and 2,795,538 shares of the Company’s common stock as of December 31, 2012 and 2011, respectively, exercisable
at $0.01. These warrants have been included in computing the basic net loss per share for the years ended December 31, 2012 and
2011. Additionally, included in the Company’s weighted average shares outstanding are 234,367 and 3,529,897 shares earned,
but not issued, as at December 31, 2012 and 2011, respectively.



Total
common stock equivalents which were excluded (since their inclusion would be anti-dilutive) are those shares issuable upon the
exercise of warrants, options and the conversion of convertible notes, as of December 31, 2012 and 2011 were as follows:

|                                   |  | December
    31,
|---------------------------------- |  | ----------------
|                                   |  | 2012            
|Options                            |  |                 
|Warrants                           |  |                 
|Convertible notes                  |  |                 
|Total Common stock
    equivalents |  |                 



Recently
Issued Accounting Standards



Management
does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material
effect on the Company’s financial statements.



F-11

---









|3. | GOING
    CONCERN
|-- | -----------------



The
consolidated financial statements have been prepared using accounting principles generally accepted in the United States of America
applicable for a going concern which assumes that the Company will realize its assets and discharge its liabilities in the ordinary
course of business. As of December 31, 2012, the Company had limited cash, a working capital deficit of approximately $6,702,000,
accumulated losses of approximately $20,577,000 since its inception, and has withheld $286,027 of payroll tax liabilities including
penalties and interest from wages paid which have yet to be remitted to the taxing authorities and are delinquent. The Company
currently is delinquent with its payroll tax filings since December 31, 2008; however, since April 1, 2012 the Company has been
remitting payroll tax on a current basis. The Company’s accounts receivable are pledged per a factoring agreement. At December
31, 2012, the Company was not compliant with the repayments terms of various notes payable for an aggregate of approximately $1,292,000
including accrued interest. Its ability to continue as a going concern is dependent upon the ability of the Company to obtain
the necessary financing to meet its obligations and pay its liabilities arising from normal business operations when they come
due, and increasing its revenue in order to achieve profitable operations. The outcome of these matters cannot be predicted with
any certainty at this time and raises substantial doubt that the Company will be able to continue as a going concern. These consolidated
financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary
should the Company be unable to continue as a going concern.

The
Company intends to overcome the circumstances that impact its ability to remain a going concern through a combination of growing
high margin revenues, with interim cash flow deficiencies being addressed through additional equity and debt financing. The Company
anticipates raising additional funds through public or private financing, strategic relationships or other arrangements in the
near future to support its business operations; however the Company do not have commitments from third parties for a sufficient
amount of additional capital, the Company cannot be certain that any such financing will be available on acceptable terms, or
at all, and its failure to raise capital when needed could limit its ability to continue its operations. The Company’s ability
to obtain additional funding will determine its ability to continue as a going concern. Furthermore, additional equity financing
may be dilutive to the holders of the Company’s common stock, and debt financing, if available, may involve restrictive
covenants or may require that the Company relinquish valuable rights.



|4. | DUE
    TO FACTOR
|-- | -----------------



On
November 1, 2010, the Company signed a one year agreement with a financial services company for the purchase and sale of accounts
receivables which expired on October 31, 2011. The agreement is continuing on a month to month basis. The financial services company
commenced funding during February 2011. The financial services company advances up to 80% of qualified customer invoices, less
applicable discount fees, and holds the remaining 20% as a reserve until the customer pays the financial services company. The
released reserves are used to fund other vendor purchases or returned to the Company. The Company is charged 3% for the first
30 days outstanding plus 1/10 of 1% daily for funds outstanding over 30 days. Uncollectable customer invoices are charged back
to us. At December 31, 2012 the advances from the factor, inclusive of fees, amounted to $266,506 which was offset against due
from factor of $52,728. Advances from the factor are collateralized by substantially all assets of the Company.



F-12

---









|5. | INCOME
    TAXES
|-- | ----------------



The
income tax provision (benefit) consists of the following:

|                                   |  |                 
|---------------------------------- |  | ----------------
|                                   |  | December
    31,
|                                   |  | 2012            
|Federal                            |  |                 
|Current                            |  | $               
|Deferred                           |  |                 
|                                   |  |                 
|State
    and local                |  |                 
|Current                            |  |                 
|Deferred                           |  |                 
|                                   |  |                 
|Change
    in valuation allowance  |  |                 
|Income
    tax provision (benefit) |  | $               



The
provision (benefit) for income taxes using the federal statutory rate as compared to the Company’s effective rate is as
follows:





|                                              | December
    31,
|--------------------------------------------- | ----------------
|                                              | 2012            
|                                              |                 
|U.S.
    Statutory federal rate               |                 
|State
    income tax, net of federal benefits |                 
|Other
    permanent differences               |                 
|Section
    382 impairment                    |                 
|Bad
    Debt Deferred True Up                 |                 
|Accrued
    Compensation                      |                 
|Deferred
    True Up                         
|Change
    in valuation allowance             |                 
|Income
    tax provision (benefit)            |                 









The
Company’s deferred tax assets (liabilities) consisted of the effects of temporary differences attributable to the following:

|                                                   |  | December
    31, |            
|-------------------------------------------------- |  | ---------------- | -----------
|                                                   |  | 2012             |            
|Share
    based compensation                       |  | $                | 3,359,742  
|Start-up
    costs                                 |  |                  | 255,673    
|Federal
    net operating loss carryovers          |  |                  | 2,837,275  
|State
    net operating loss carryovers            |  |                  | 803,497    
|Bad
    debt reserve                               |  |                  | 1,992      
|Related
    party interest expense                 |  |                  | 10,948     
|Accrued
    compensation                           |  |                  | 557,303    
|Charitable
    contributions                       |  |                  | 4,227      
|Derivative
    liability                           |  |                  | 16,745     
|                                                   |  |                  |            
|                                                   |  |                  |            
|Total
    deferred tax assets                      |  |                  | 7,847,402  
|Less:
    valuation allowance                      |  |                  | (7,830,657)
|Deferred
    tax asset, net of valuation allowance |  |                  | 16,745     
|                                                   |  |                  |            
|Deferred
    tax liabilities                       |  |                  |            
|Discount
    on convertible debt                   |  |                  | (16,745    
|Total
    deferred tax liabilities                 |  |                  | (16,745    
|Net
    deferred tax asset (liabilities)           |  | $                | 0          



F-13

---









Table of Contents

As
of December 31, 2012 and 2011, the Company had approximately $8,340,000 and $3,430,000, respectively, of U.S. federal net operating
loss carryovers (“NOL’s”). As of December 31, 2012 and 2011, the Company had approximately $9,090,000 and $3,700,000
of state NOL’s, respectively. These net operating losses which, if not utilized, begin to expire in 2028. In accordance
with Section 382 of the Internal Revenue Code, deductibility of the Company’s net operating loss carryovers may be subject
to an annual limitation in the event of a change of control.

The
Company has conducted a preliminary Section 382 analysis and has determined that there was a change of ownership on February 23,
2011 when the Company issued shares of the Company’s common stock to settle notes payable with an executive officer and
a director. The Company’s NOLs through the date of ownership change are subject to an annual limitation of $116,571. The
Company has not filed its federal and state tax returns since December 31, 2008 and therefore, the NOL’s for periods subsequent
to 2008 will not be available to offset future taxable income until the tax returns are filed with the respective federal and
state tax authorities.



In
assessing the realization of deferred tax assets, Management considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled
reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
After consideration of all the information available, Management believes that significant uncertainty exists with respect to
future realization of its deferred tax assets and has, therefore, established a valuation allowance of $7,830,657 and $4,796,149
at December 31, 2012 and 2011, respectively. For the year ended December 31, 2012 and 2011, the change in the valuation allowance
was 3,034,508 and 926,143, respectively.

As
of December 31, 2012 and 2011, no liability for unrecognized tax benefits was required to be reported.



The
guidance also discusses the classification of related interest and penalties on income taxes. The Company’s policy is to
record interest and penalties incurred in connection with income taxes as a component of income tax expense. No interest or penalties
were recorded during the years ended December 31, 2012 and 2011.



The
Company files U.S. federal and state income tax returns in California. These tax returns are subject to examination by tax authorities
for years beginning in December 31, 2008.



|6. | PREFERRED
    STOCK
|-- | -------------------



The
Company’s articles of incorporation authorize its Board of Directors to issue up to 10,000,000 shares of preferred stock
in one or more series without stockholder approval. Each such series of preferred stock may have such number of shares, designations,
preferences, voting powers, qualifications, and special or relative rights or privileges as are determined by The Company’s
Board of Directors. At December 31, 2012 and 2011, no shares of preferred stock were issued or outstanding.

In
August 2010, the Company signed a one year consulting agreement with a consultant to provide investor and public relation services.
The consultant’s compensation includes convertible preferred stock which, at the final determination date, will be converted
into shares of the Company’s common stock equivalent to 25% of outstanding common shares, as defined in the agreement. The
consultant elected to receive the common stock equivalent directly as compensation. The Company calculated the fair value of the
award to be $868,724 or 4,169,638 shares of common stock. The Company accrued $506,680 of stock-based compensation for these services
during the year ended December 31, 2011, which has been included in accrued expenses and other current liabilities. During March
2011, 695,930 shares of common stock valued at $173,982 were issued to the consultant for the settlement of a portion of the accrued
compensation, with the remaining 3,473,708 shares of common stock valued at $694,742. The 3,473,708 shares of common stock were
issued to the consultant on July 23, 2012 and valued at $0.33 per share, according to the closing price from NASDAQ.com. The final
valuation resulted in $451,581 recorded as an additional component of stock-based compensation expense in the accompanying consolidated
statement of operations.



F-14

---







Table of Contents

|7. | EQUITY
    TRANSACTIONS
|-- | -----------------------





During
April 2010, the Company issued 25,000 shares of common stock to a consultant for investor relations services to be provided over
a one year term beginning April 18, 2010. The fair value of the award on the date of issuance was $20,000 and was amortized ratably
over a one year term. The Company recorded a charge of $6,000 for the year ended December 31, 2011.

On
February 14, 2011, the Company executed a 20:1 reverse split and decreased the number of authorized shares of common stock from
2 billion shares to 100 million shares.

During
February 2011, the Company issued to Alicia Kriese, former director and Mark Klein, director, in the aggregate 50,000 shares of
common stock for services. The fair value of the award was fully vested on the date of issuance and accordingly the Company recorded
a charge for stock based compensation of $17,000 for the year ended December 31, 2011.

During
February 2011, the Company issued in the aggregate to three employees 528,811 shares of common stock for services. The fair value
of the award was fully vested on the date of issuance and accordingly the Company recorded a charge for stock based compensation
of $179,796 for the year ended December 31, 2011.

During
June 2011, the Company issued to Parker Booth, CEO, and Michael Rosenthal, director, 478,681 and 382,944, shares of common stock,
respectively for services. The fair value of the award was fully vested on the date of issuance and accordingly the Company recorded
a charge for stock based compensation of $172,325 for the year ended December 31, 2011.

During
June 2011, the Company issued to three employees an aggregate of 45,604 shares of common stock for services. The fair value of
the award was fully vested on the date of issuance and accordingly the Company recorded a charge for stock based compensation
of $9,121 for the year ended December 31, 2011.

During
July 2011, the Company issued 600,000 shares of common stock to a consultant for investor and public relations services. The fair
value of the award was fully vested on the date of issuance and accordingly the Company recorded a charge for stock based compensation
of $192,000 for the year ended December 31, 2011.

During
August 2011, Tom Morrison, former CEO, returned and the Company cancelled 75,000 shares of the Company's common stock for no consideration.

During
July 2012, the Company issued 150,000 shares of common stock to a consultant for public and investor relation services. The shares
were valued at $0.315 per share and accordingly, the Company recorded a charge for stock based compensation of $47,235 for the
year ended December 31, 2012.

During
July 2012, the Company issued 3,473,708 shares of common stock to a consultant for investor and public relation services. These
shares were earned in August 2010.

The
3,473,708 shares of common stock were valued at $0.33 per share, according to the closing price from NASDAQ.com. The final valuation
resulted in $451,581 recorded as an additional component of stock-based compensation expense in the accompanying consolidated
statement of operations.

During
August 2012, a banker that provides investment banking services to the Company exercised a warrant for 899,672 shares of our common
stock, at an exercise price of $0.10, on a cashless basis. The Company issued 747,185 shares of common stock based on the market
value of $0.59 per share on the date of exercise.

During
October 2012, a group of five investors exercised warrants from the Company’s March 2012 offering of secured promissory
notes into 821,211 shares of our common stock, at the exercise price of $0.10 per share, on a cashless basis. The shares were
issued in December 2012.

During
October and November 2012, a group of five investors exercised warrants from the Company’s March 2012 offering of secured
promissory notes into 115,678 shares of our common stock, at the exercise price of $0.10 per share, on a cashless basis. The shares
were issued in January 2013.

During
November 2012, an investor converted a warrant from the Company’s March 2012 offering of secured promissory notes into 62,500
shares of our common stock, at the exercise price of $0.10 per share. The shares were issued in February 2013.

F-15

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Table of Contents

8.
NOTES PAYABLE, LOANS AND DERIVATIVE LIABILITES



Notes
payable to related parties and others, net of discounts consists of the following:



|                                                                                                                                |  | December
    31, |           | December
    31,
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | --------- | ----------------
|                                                                                                                                |  | 2012             |           | 2011            
|                                                                                                                                |  |                  |           |                 
|                                                                                                                                |  |                  |           |                 
|Notes
    Payable (net of debt discount of $133,827 at December 31, 2012 and $63,114 at December 31, 2011) (A)                  |  | $                | 2,512,753 |                 
|Notes
    Payable – Related Parties (net of debt discount of $47,673 at December 31, 2012 and $50,053 at December 31, 2011) (B) |  |                  | 509,696   |                 
|Convertible
    Notes Payable (net of debt discount of $217,535 at December 31, 2012 and $41,469 at December 31, 2011) (C)      |  |                  | 914,506   |                 
|Total                                                                                                                           |  | $                | 3,936,955 |                 
|                                                                                                                                |  |                  |           |                 

| | (A) | Notes
                                                                                                                                               Payable
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



|i. |  | In
                                                                                                                   May 2010, an
                                                                                                                   individual
                                                                                                                   advanced to
                                                                                                                   the Company
                                                                                                                   $20,000 bearing
                                                                                                                   interest at
                                                                                                                   6% per annum.
                                                                                                                   As a financing
                                                                                                                   incentive,
                                                                                                                   the individual
                                                                                                                   received a
                                                                                                                   warrant to
                                                                                                                   purchase 20,000
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   at $1.00 per
                                                                                                                   share. The
                                                                                                                   warrants expired
                                                                                                                   in November
                                                                                                                   2011. The gross
                                                                                                                   proceeds of
                                                                                                                   the note were
                                                                                                                   recorded net
                                                                                                                   of a debt discount
                                                                                                                   of $9,200.
                                                                                                                   The debt discount
                                                                                                                   consisted of
                                                                                                                   the relative
                                                                                                                   fair value
                                                                                                                   of the warrant
                                                                                                                   of $9,200 and
                                                                                                                   is accreted
                                                                                                                   to interest
                                                                                                                   expense ratably
                                                                                                                   over the term
                                                                                                                   of the note.
                                                                                                                   The promissory
                                                                                                                   note matured
                                                                                                                   on November
                                                                                                                   17, 2011. The
                                                                                                                   unpaid balance,
                                                                                                                   including accrued
                                                                                                                   interest, was
                                                                                                                   $23,046 and
                                                                                                                   $21,846 at
                                                                                                                   December 31,
                                                                                                                   2012 and 2011,
                                                                                                                   respectively.
                                                                                                                   The Company
                                                                                                                   is not compliant
                                                                                                                   with the repayment
                                                                                                                   terms of the
                                                                                                                   note.
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| |  | 
| |  | 

|ii. |  | On
                                                                                                                    February 3,
                                                                                                                    2011, the
                                                                                                                    Company signed
                                                                                                                    a $500,000
                                                                                                                    promissory
                                                                                                                    note with
                                                                                                                    a maturity
                                                                                                                    date of August
                                                                                                                    2, 2012, and
                                                                                                                    has a stated
                                                                                                                    interest rate
                                                                                                                    of 15% per
                                                                                                                    annum. As
                                                                                                                    a financing
                                                                                                                    incentive,
                                                                                                                    the lender
                                                                                                                    received a
                                                                                                                    three-year
                                                                                                                    warrant vesting
                                                                                                                    on January
                                                                                                                    31, 2011,
                                                                                                                    to purchase
                                                                                                                    452,354 shares
                                                                                                                    of common
                                                                                                                    stock at an
                                                                                                                    exercise price
                                                                                                                    of $0.01 per
                                                                                                                    share, and
                                                                                                                    also received
                                                                                                                    a five-year
                                                                                                                    warrant, vesting
                                                                                                                    on June 30,
                                                                                                                    2011, to purchase
                                                                                                                    452,354 shares
                                                                                                                    at an exercise
                                                                                                                    price of $0.01
                                                                                                                    per share.
                                                                                                                    The gross
                                                                                                                    proceeds from
                                                                                                                    the sale of
                                                                                                                    the note of
                                                                                                                    $500,000 were
                                                                                                                    recorded net
                                                                                                                    of a discount
                                                                                                                    of $137,703.
                                                                                                                    The debt discount
                                                                                                                    consisted
                                                                                                                    of $137,703
                                                                                                                    related to
                                                                                                                    the fair value
                                                                                                                    of the warrants
                                                                                                                    and is accreted
                                                                                                                    to interest
                                                                                                                    expense ratably
                                                                                                                    over the term
                                                                                                                    of the note
                                                                                                                    which amounted
                                                                                                                    to $63,114
                                                                                                                    and $74,589
                                                                                                                    for the years
                                                                                                                    ended December
                                                                                                                    31, 2012 and
                                                                                                                    2011, respectively,
                                                                                                                    and is included
                                                                                                                    as a component
                                                                                                                    of interest
                                                                                                                    expense in
                                                                                                                    the accompanying
                                                                                                                    consolidated
                                                                                                                    statement
                                                                                                                    of operations.
                                                                                                                    The Company
                                                                                                                    has not made
                                                                                                                    any note payments
                                                                                                                    and received
                                                                                                                    a waiver from
                                                                                                                    the lender
                                                                                                                    on September
                                                                                                                    1, 2011 that
                                                                                                                    deferred payment
                                                                                                                    until September
                                                                                                                    1, 2012 and
                                                                                                                    increased
                                                                                                                    the interest
                                                                                                                    rate to 21%
                                                                                                                    beginning
                                                                                                                    April 4, 2011,
                                                                                                                    the date of
                                                                                                                    the first
                                                                                                                    event of default.
                                                                                                                    The unpaid
                                                                                                                    balance, including
                                                                                                                    accrued interest,
                                                                                                                    was $698,534
                                                                                                                    and $593,247
                                                                                                                    at December
                                                                                                                    31, 2012 and
                                                                                                                    2011, respectively.
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| |  | 
| |  | 

During
December 2012 the Company amended the note to extend the due date to June 30, 2013. For executing the agreement, the holder was
granted a three-year warrant to purchase 438,144 shares of the Company’s common stock, at an exercise price of $0.18 per
share. In addition, the amendment set the warrant expiration date at April 28th2016 for both the three-year and the
five-year warrants issued with the original note. The Company evaluated the change in cash flows in connection with the December
amendment and determined that there was a less than 10% change between the present value of the existing debt and the amended
debt. As a result, the fair value of the new three-year warrants of $39,798 was expensed on the date of the amendment.

| |  | 
| |  | 

|iii. |  | On
                                                                                                                     August 1,
                                                                                                                     2012, the
                                                                                                                     Company issued
                                                                                                                     a $60,000
                                                                                                                     promissory
                                                                                                                     note with
                                                                                                                     an original
                                                                                                                     issue discount
                                                                                                                     of 20%. The
                                                                                                                     promissory
                                                                                                                     note is due
                                                                                                                     on the earlier
                                                                                                                     of (i) the
                                                                                                                     closing by
                                                                                                                     the Company
                                                                                                                     of a financing
                                                                                                                     or series
                                                                                                                     of financings
                                                                                                                     for aggregate
                                                                                                                     cash proceeds
                                                                                                                     of at least
                                                                                                                     $1,850,000,
                                                                                                                     or, (ii)
                                                                                                                     July 31,
                                                                                                                     2013. As
                                                                                                                     a financing
                                                                                                                     incentive,
                                                                                                                     the lender
                                                                                                                     received
                                                                                                                     a three-year
                                                                                                                     warrant,
                                                                                                                     vesting immediately,
                                                                                                                     to purchase
                                                                                                                     50,000 shares
                                                                                                                     of common
                                                                                                                     stock at
                                                                                                                     an exercise
                                                                                                                     price of
                                                                                                                     $0.50 per
                                                                                                                     share. The
                                                                                                                     gross proceeds
                                                                                                                     from the
                                                                                                                     sale of the
                                                                                                                     note of $60,000
                                                                                                                     were recorded
                                                                                                                     net of a
                                                                                                                     discount
                                                                                                                     of $11,088.
                                                                                                                     The debt
                                                                                                                     discount
                                                                                                                     consisted
                                                                                                                     of $11,088
                                                                                                                     related to
                                                                                                                     the fair
                                                                                                                     value of
                                                                                                                     the warrant
                                                                                                                     and is accreted
                                                                                                                     to interest
                                                                                                                     expense ratably
                                                                                                                     over the
                                                                                                                     term of the
                                                                                                                     note which
                                                                                                                     amounted
                                                                                                                     to $11,088
                                                                                                                     for the year
                                                                                                                     ended December
                                                                                                                     31, 2012,
                                                                                                                     and is included
                                                                                                                     as a component
                                                                                                                     of interest
                                                                                                                     expense in
                                                                                                                     the accompanying
                                                                                                                     consolidated
                                                                                                                     statement
                                                                                                                     of operations.
                                                                                                                     Since the
                                                                                                                     Company satisfied
                                                                                                                     the requirement
                                                                                                                     of item (i)
                                                                                                                     and raised
                                                                                                                     $1,875,000
                                                                                                                     after August
                                                                                                                     1, 2012,
                                                                                                                     the discount
                                                                                                                     was recognized
                                                                                                                     over the
                                                                                                                     shorter maturity
                                                                                                                     term. The
                                                                                                                     carrying
                                                                                                                     value of
                                                                                                                     the unpaid
                                                                                                                     balance was
                                                                                                                     $60,000 at
                                                                                                                     December
                                                                                                                     31, 2012.
                                                                                                                     The Company
                                                                                                                     is not compliant
                                                                                                                     with the
                                                                                                                     repayment
                                                                                                                     terms of
                                                                                                                     the note.
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F-16

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Table of Contents

| |  | 
| |  | 

|iv. |  | On
                                                                                                                    August 7,
                                                                                                                    2012, the
                                                                                                                    Company issued
                                                                                                                    a $30,000
                                                                                                                    promissory
                                                                                                                    note with
                                                                                                                    an original
                                                                                                                    issue discount
                                                                                                                    of 20%. The
                                                                                                                    promissory
                                                                                                                    note is due
                                                                                                                    on the earlier
                                                                                                                    of (i) the
                                                                                                                    closing by
                                                                                                                    the Company
                                                                                                                    of a financing
                                                                                                                    or series
                                                                                                                    of financings
                                                                                                                    for aggregate
                                                                                                                    cash proceeds
                                                                                                                    of at least
                                                                                                                    $1,850,000,
                                                                                                                    or, (ii) August
                                                                                                                    6, 2013. As
                                                                                                                    a financing
                                                                                                                    incentive,
                                                                                                                    the lender
                                                                                                                    received a
                                                                                                                    three-year
                                                                                                                    warrant, vesting
                                                                                                                    immediately,
                                                                                                                    to purchase
                                                                                                                    25,000 shares
                                                                                                                    of common
                                                                                                                    stock at an
                                                                                                                    exercise price
                                                                                                                    of $0.50 per
                                                                                                                    share. The
                                                                                                                    gross proceeds
                                                                                                                    from the sale
                                                                                                                    of the note
                                                                                                                    of $30,000
                                                                                                                    were recorded
                                                                                                                    net of a discount
                                                                                                                    of $3,406.
                                                                                                                    The debt discount
                                                                                                                    consisted
                                                                                                                    of $3,406
                                                                                                                    related to
                                                                                                                    the fair value
                                                                                                                    of the warrant
                                                                                                                    and is accreted
                                                                                                                    to interest
                                                                                                                    expense ratably
                                                                                                                    over the term
                                                                                                                    of the note
                                                                                                                    which amounted
                                                                                                                    to $3,406
                                                                                                                    for the year
                                                                                                                    ended December
                                                                                                                    31, 2012,
                                                                                                                    and is included
                                                                                                                    as a component
                                                                                                                    of interest
                                                                                                                    expense in
                                                                                                                    the accompanying
                                                                                                                    consolidated
                                                                                                                    statement
                                                                                                                    of operations.
                                                                                                                    Since the
                                                                                                                    Company satisfied
                                                                                                                    the requirement
                                                                                                                    of item (i)
                                                                                                                    and raised
                                                                                                                    $1,875,000
                                                                                                                    after August
                                                                                                                    7, 2012, the
                                                                                                                    discount was
                                                                                                                    recognized
                                                                                                                    over the shorter
                                                                                                                    maturity term.
                                                                                                                    The carrying
                                                                                                                    value of the
                                                                                                                    unpaid balance
                                                                                                                    was $30,000
                                                                                                                    at December
                                                                                                                    31, 2012.
                                                                                                                    The Company
                                                                                                                    is not compliant
                                                                                                                    with the repayment
                                                                                                                    terms of the
                                                                                                                    note.
|--- |  | 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| |  | 
| |  | 

|v. |  | On
                                                                                                                   August 22,
                                                                                                                   2012, the Company
                                                                                                                   issued a $60,000
                                                                                                                   promissory
                                                                                                                   note with an
                                                                                                                   original issue
                                                                                                                   discount of
                                                                                                                   20%. The promissory
                                                                                                                   note is due
                                                                                                                   on the earlier
                                                                                                                   of (i) the
                                                                                                                   closing by
                                                                                                                   the Company
                                                                                                                   of a financing
                                                                                                                   or series of
                                                                                                                   financings
                                                                                                                   for aggregate
                                                                                                                   cash proceeds
                                                                                                                   of at least
                                                                                                                   $1,850,000,
                                                                                                                   or, (ii) August
                                                                                                                   21, 2013. As
                                                                                                                   a financing
                                                                                                                   incentive,
                                                                                                                   the lender
                                                                                                                   received a
                                                                                                                   three-year
                                                                                                                   warrant, vesting
                                                                                                                   immediately,
                                                                                                                   to purchase
                                                                                                                   50,000 shares
                                                                                                                   of common stock
                                                                                                                   at an exercise
                                                                                                                   price of $0.50
                                                                                                                   per share.
                                                                                                                   The gross proceeds
                                                                                                                   from the sale
                                                                                                                   of the note
                                                                                                                   of $60,000
                                                                                                                   were recorded
                                                                                                                   net of a discount
                                                                                                                   of $9,495.
                                                                                                                   The debt discount
                                                                                                                   consisted of
                                                                                                                   $9,495 related
                                                                                                                   to the fair
                                                                                                                   value of the
                                                                                                                   warrant and
                                                                                                                   is accreted
                                                                                                                   to interest
                                                                                                                   expense ratably
                                                                                                                   over the term
                                                                                                                   of the note
                                                                                                                   which amounted
                                                                                                                   to $9,495 for
                                                                                                                   the year ended
                                                                                                                   December 31,
                                                                                                                   2012, and is
                                                                                                                   included as
                                                                                                                   a component
                                                                                                                   of interest
                                                                                                                   expense in
                                                                                                                   the accompanying
                                                                                                                   consolidated
                                                                                                                   statement of
                                                                                                                   operations.
                                                                                                                   Since the Company
                                                                                                                   satisfied the
                                                                                                                   requirement
                                                                                                                   of item (i)
                                                                                                                   and raised
                                                                                                                   $1,875,000
                                                                                                                   after August
                                                                                                                   22, 2012, the
                                                                                                                   discount was
                                                                                                                   recognized
                                                                                                                   over the shorter
                                                                                                                   maturity term.
                                                                                                                   The carrying
                                                                                                                   value of the
                                                                                                                   unpaid balance
                                                                                                                   was $60,000
                                                                                                                   at December
                                                                                                                   31, 2012. The
                                                                                                                   Company is
                                                                                                                   not compliant
                                                                                                                   with the repayment
                                                                                                                   terms of the
                                                                                                                   note.
|-- |  | 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| |  | 
| |  | 

|vi. |  | On
                                                                                                                    August 23,
                                                                                                                    2012, the
                                                                                                                    Company issued
                                                                                                                    a $30,000
                                                                                                                    promissory
                                                                                                                    note with
                                                                                                                    an original
                                                                                                                    issue discount
                                                                                                                    of 20%. The
                                                                                                                    promissory
                                                                                                                    note is due
                                                                                                                    on the earlier
                                                                                                                    of (i) the
                                                                                                                    closing by
                                                                                                                    the Company
                                                                                                                    of a financing
                                                                                                                    or series
                                                                                                                    of financings
                                                                                                                    for aggregate
                                                                                                                    cash proceeds
                                                                                                                    of at least
                                                                                                                    $1,850,000,
                                                                                                                    or, (ii) August
                                                                                                                    22, 2013.
                                                                                                                    As a financing
                                                                                                                    incentive,
                                                                                                                    the lender
                                                                                                                    received a
                                                                                                                    three-year
                                                                                                                    warrant, vesting
                                                                                                                    immediately,
                                                                                                                    to purchase
                                                                                                                    25,000 shares
                                                                                                                    of common
                                                                                                                    stock at an
                                                                                                                    exercise price
                                                                                                                    of $0.50 per
                                                                                                                    share. The
                                                                                                                    gross proceeds
                                                                                                                    from the sale
                                                                                                                    of the note
                                                                                                                    of $30,000
                                                                                                                    were recorded
                                                                                                                    net of a discount
                                                                                                                    of $4,038.
                                                                                                                    The debt discount
                                                                                                                    consisted
                                                                                                                    of $4,038
                                                                                                                    related to
                                                                                                                    the fair value
                                                                                                                    of the warrant
                                                                                                                    and is accreted
                                                                                                                    to interest
                                                                                                                    expense ratably
                                                                                                                    over the term
                                                                                                                    of the note
                                                                                                                    which amounted
                                                                                                                    to $4,038
                                                                                                                    for the year
                                                                                                                    ended December
                                                                                                                    31, 2012,
                                                                                                                    and is included
                                                                                                                    as a component
                                                                                                                    of interest
                                                                                                                    expense in
                                                                                                                    the accompanying
                                                                                                                    consolidated
                                                                                                                    statement
                                                                                                                    of operations.
                                                                                                                    The note was
                                                                                                                    repaid in
                                                                                                                    full on December
                                                                                                                    14, 2012.
|--- |  | 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| |  | 
| |  | 

|i. |  | In
                                                                                                                   December 2012,
                                                                                                                   we commenced
                                                                                                                   an offering
                                                                                                                   of secured
                                                                                                                   promissory
                                                                                                                   notes for an
                                                                                                                   aggregate principal
                                                                                                                   amount of $2,500,000
                                                                                                                   with three-year
                                                                                                                   warrants to
                                                                                                                   purchase an
                                                                                                                   aggregate of
                                                                                                                   5,000,000 shares
                                                                                                                   our common
                                                                                                                   stock (two
                                                                                                                   shares for
                                                                                                                   each $1 of
                                                                                                                   the principal
                                                                                                                   amount of the
                                                                                                                   notes purchased)
                                                                                                                   exercisable
                                                                                                                   at $0.50 per
                                                                                                                   share. The
                                                                                                                   notes bear
                                                                                                                   interest at
                                                                                                                   18% and have
                                                                                                                   a maturity
                                                                                                                   date of June
                                                                                                                   30, 2013. Notes
                                                                                                                   in the aggregate
                                                                                                                   principal amount
                                                                                                                   of 1,000,000
                                                                                                                   and warrants
                                                                                                                   to purchase
                                                                                                                   an aggregate
                                                                                                                   of 2,000,000
                                                                                                                   were sold in
                                                                                                                   the offering.
                                                                                                                   In addition,
                                                                                                                   the investment
                                                                                                                   banker who
                                                                                                                   facilitated
                                                                                                                   the sale of
                                                                                                                   the notes and
                                                                                                                   warrants received
                                                                                                                   a three-year
                                                                                                                   warrant to
                                                                                                                   purchase 200,000
                                                                                                                   shares of our
                                                                                                                   common stock
                                                                                                                   (10% of the
                                                                                                                   number of shares
                                                                                                                   of common stock
                                                                                                                   issuable upon
                                                                                                                   exercise of
                                                                                                                   the warrants
                                                                                                                   sold in the
                                                                                                                   offering) exercisable
                                                                                                                   at $0.50 per
                                                                                                                   share. The
                                                                                                                   fair value
                                                                                                                   of the three-year
                                                                                                                   warrants issued
                                                                                                                   in connection
                                                                                                                   with the notes
                                                                                                                   on the date
                                                                                                                   of issuance
                                                                                                                   aggregated
                                                                                                                   $32,202, and
                                                                                                                   was recorded
                                                                                                                   as debt discount.
                                                                                                                   The debt discount
                                                                                                                   was amortized
                                                                                                                   through the
                                                                                                                   term of the
                                                                                                                   notes and amounted
                                                                                                                   to $3,944 for
                                                                                                                   the year ended
                                                                                                                   December 31,
                                                                                                                   2012. The unpaid
                                                                                                                   balance on
                                                                                                                   the notes was
                                                                                                                   $1,000,000
                                                                                                                   at December
                                                                                                                   31, 2012.
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| |  | 
| |  | 

|(B) | Notes
    Payable – Related Parties
|--- | -----------------------------------



|i. |  | In
                                                                                                                   September 2008,
                                                                                                                   Earnest Mathis,
                                                                                                                   a former shareholder,
                                                                                                                   advanced to
                                                                                                                   the Company
                                                                                                                   $15,000. The
                                                                                                                   advance is
                                                                                                                   evidenced by
                                                                                                                   a promissory
                                                                                                                   note bearing
                                                                                                                   interest at
                                                                                                                   10% per annum.
                                                                                                                   The promissory
                                                                                                                   note matured
                                                                                                                   on September
                                                                                                                   13, 2009. The
                                                                                                                   unpaid balance,
                                                                                                                   including accrued
                                                                                                                   interest, was
                                                                                                                   $21,446 and
                                                                                                                   $19,942 at
                                                                                                                   December 31,
                                                                                                                   2012 and 2011,
                                                                                                                   respectively.
                                                                                                                   The Company
                                                                                                                   is not compliant
                                                                                                                   with the repayment
                                                                                                                   terms of the
                                                                                                                   note.
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| |  | 
| |  | 

|ii. |  | In
                                                                                                                    November 2009
                                                                                                                    and February
                                                                                                                    2010, Morrison
                                                                                                                    Partners,
                                                                                                                    LLC (an affiliate
                                                                                                                    of Thomas
                                                                                                                    Morrison,
                                                                                                                    former CEO
                                                                                                                    and Chairman
                                                                                                                    of the Board
                                                                                                                    of Directors
                                                                                                                    of the Company),
                                                                                                                    advanced to
                                                                                                                    the Company
                                                                                                                    $10,000 and
                                                                                                                    $15,000, respectively.
                                                                                                                    The advances
                                                                                                                    are evidenced
                                                                                                                    by promissory
                                                                                                                    notes bearing
                                                                                                                    interest at
                                                                                                                    5% per annum.
                                                                                                                    The November
                                                                                                                    advance provides
                                                                                                                    for the issuance
                                                                                                                    of 2,770 shares
                                                                                                                    of the Company’s
                                                                                                                    common stock
                                                                                                                    as a financing
                                                                                                                    incentive.
                                                                                                                    The Company
                                                                                                                    recorded a
                                                                                                                    debt discount
                                                                                                                    of $2,935
                                                                                                                    for the relative
                                                                                                                    fair value
                                                                                                                    of the common
                                                                                                                    stock. The
                                                                                                                    discount was
                                                                                                                    accreted over
                                                                                                                    the life of
                                                                                                                    the note.
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| |  | 
| |  | 

The
November 2009 and February 2010 notes were due on June 30, 2010 and September 30, 2010, respectively. The unpaid balance, including
accrued interest, was $28,726 and $27,472 at December 31, 2012 and, 2011, respectively. The shares have not been issued to Morrison
Partners, LLC, and the Company is not in compliance with the repayment terms of the notes.



F-17

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Table of Contents

|iii. |  | During
                                                                                                                     March, 2010
                                                                                                                     through October
                                                                                                                     2011, an
                                                                                                                     employee
                                                                                                                     of the Company
                                                                                                                     loaned to
                                                                                                                     us $65,958,
                                                                                                                     of which
                                                                                                                     $16,000 and
                                                                                                                     $49,958 was
                                                                                                                     advanced
                                                                                                                     during 2011
                                                                                                                     and 2010,
                                                                                                                     respectively.
                                                                                                                     The loans
                                                                                                                     are evidenced
                                                                                                                     by promissory
                                                                                                                     notes payable
                                                                                                                     with interest
                                                                                                                     at 5% and
                                                                                                                     are due on
                                                                                                                     demand. The
                                                                                                                     Company repaid
                                                                                                                     $9,000 during
                                                                                                                     2010 and
                                                                                                                     $8,000 during
                                                                                                                     April 2012.
                                                                                                                     In addition,
                                                                                                                     the employee
                                                                                                                     will be issued
                                                                                                                     47,690 shares
                                                                                                                     of the Company’s
                                                                                                                     common stock
                                                                                                                     upon repayment
                                                                                                                     of the promissory
                                                                                                                     notes as
                                                                                                                     additional
                                                                                                                     consideration.
                                                                                                                     The Company
                                                                                                                     will record
                                                                                                                     a fair value
                                                                                                                     for these
                                                                                                                     shares on
                                                                                                                     the measurement
                                                                                                                     date as a
                                                                                                                     charge to
                                                                                                                     interest
                                                                                                                     expense.
                                                                                                                     The unpaid
                                                                                                                     balance,
                                                                                                                     including
                                                                                                                     accrued interest,
                                                                                                                     was $54,550
                                                                                                                     and $59,974
                                                                                                                     at December
                                                                                                                     31, 2012
                                                                                                                     and 2011,
                                                                                                                     respectively.
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| |  | 
| |  | 

|iv. |  | On
                                                                                                                    October 17,
                                                                                                                    2011, the
                                                                                                                    Company entered
                                                                                                                    into a $400,000
                                                                                                                    convertible
                                                                                                                    multi-draw
                                                                                                                    term loan
                                                                                                                    facility with
                                                                                                                    an entity
                                                                                                                    owned by a
                                                                                                                    related party.
                                                                                                                    The loan bears
                                                                                                                    interest at
                                                                                                                    21% and has
                                                                                                                    a maturity
                                                                                                                    date of the
                                                                                                                    earlier of
                                                                                                                    an event of
                                                                                                                    default or
                                                                                                                    April 17,
                                                                                                                    2012. The
                                                                                                                    Company has
                                                                                                                    not made a
                                                                                                                    note payment
                                                                                                                    and is currently
                                                                                                                    negotiating
                                                                                                                    an extension
                                                                                                                    of such loan.
                                                                                                                    At the time
                                                                                                                    of any new
                                                                                                                    debt or equity
                                                                                                                    financing
                                                                                                                    of the Company,
                                                                                                                    the loan balance,
                                                                                                                    including
                                                                                                                    principal
                                                                                                                    and interest,
                                                                                                                    may be converted
                                                                                                                    into the number
                                                                                                                    of fully paid
                                                                                                                    and non-assessable
                                                                                                                    debt instruments,
                                                                                                                    shares/or
                                                                                                                    units to be
                                                                                                                    issued in
                                                                                                                    the financing.
                                                                                                                    In addition,
                                                                                                                    with each
                                                                                                                    drawdown the
                                                                                                                    related party
                                                                                                                    received a
                                                                                                                    three-year
                                                                                                                    warrant to
                                                                                                                    purchase 2.5
                                                                                                                    shares of
                                                                                                                    the Company’s
                                                                                                                    common stock
                                                                                                                    for each $1.00
                                                                                                                    of principal
                                                                                                                    loaned at
                                                                                                                    such time,
                                                                                                                    up to 1,000,000
                                                                                                                    shares in
                                                                                                                    the aggregate
                                                                                                                    for all drawdowns.
                                                                                                                    Each warrant
                                                                                                                    has an exercise
                                                                                                                    price of $0.10
                                                                                                                    per share,
                                                                                                                    is vested
                                                                                                                    upon issuance,
                                                                                                                    and expires
                                                                                                                    on October
                                                                                                                    17, 2014.
                                                                                                                    The Company
                                                                                                                    received $125,000
                                                                                                                    and $275,000
                                                                                                                    in gross proceeds
                                                                                                                    during the
                                                                                                                    years ended
                                                                                                                    December 31,
                                                                                                                    2012 and December
                                                                                                                    31, 2011,
                                                                                                                    respectively.
                                                                                                                    The Company
                                                                                                                    issued warrants
                                                                                                                    to purchase
                                                                                                                    an aggregate
                                                                                                                    of 312,500
                                                                                                                    and 687,500
                                                                                                                    shares of
                                                                                                                    the Company’s
                                                                                                                    common stock
                                                                                                                    during the
                                                                                                                    years ended
                                                                                                                    December 31,
                                                                                                                    2012 and December
                                                                                                                    31, 2011,
                                                                                                                    respectively.
                                                                                                                    The unpaid
                                                                                                                    balance of
                                                                                                                    the loan,
                                                                                                                    including
                                                                                                                    accrued interest,
                                                                                                                    was $400,000
                                                                                                                    and $283,993
                                                                                                                    at December
                                                                                                                    31, 2012 and
                                                                                                                    2011, respectively.
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| |  | 
| |  | 

The
conversion price of the outstanding loan amounts was not fixed and determinable on the date of issuance and, as such in accordance
with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion option on the
date of issuance was valued using the binomial lattice options pricing model and recorded as derivative liabilities. The fair
value of the three-year warrants on the date of issuance aggregated $105,363, and was recorded as debt discount. The debt discount
was fully amortized through the term of the loan and amounted to $85,342 and $20,021 for the years ended December 31, 2012 and
2011, respectively.

| |  | 
| |  | 

During
December 2012 the Company amended the notes to remove the conversion right and extend the due date to June 30, 2013, and to amend
the warrants to remove certain anti-dilution provisions. For executing the agreement, the holder was granted a three-year warrant
to purchase 1,000,000 shares of the Company’s common stock, equal to two and one-half times the principal amount of the
note amended, exercisable at $0.20 per share. The Company evaluated the change in cash flows in connection with the December amendment
and determined that there was a greater than 10% change between the present value of the existing debt and the amended debt. As
a result, the fair value of the three-year warrants aggregated $49,439 and were recorded as a discount to the modified debt and
will be accreted over the remaining term of the modified debt and recognized as interest expense. The debt discount on the modified
debt amounted to $3,944 for the year ended December 31, 2012.

| |  | 
| |  | 

|v. |  | On
                                                                                                                   February 28,
                                                                                                                   2012, Michael
                                                                                                                   Rosenthal,
                                                                                                                   Chairman of
                                                                                                                   the Company’s
                                                                                                                   Board of Directors,
                                                                                                                   advanced the
                                                                                                                   Company $50,000.
                                                                                                                   The advance
                                                                                                                   is evidenced
                                                                                                                   by a promissory
                                                                                                                   note bearing
                                                                                                                   interest at
                                                                                                                   21% and has
                                                                                                                   a maturity
                                                                                                                   date of the
                                                                                                                   earlier of
                                                                                                                   an event of
                                                                                                                   default or
                                                                                                                   August 28,
                                                                                                                   2012. In addition,
                                                                                                                   Mr. Rosenthal
                                                                                                                   received a
                                                                                                                   three-year
                                                                                                                   warrant to
                                                                                                                   purchase 125,000
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   at an exercise
                                                                                                                   price of $0.10
                                                                                                                   per share.
                                                                                                                   The Company
                                                                                                                   recorded a
                                                                                                                   debt discount
                                                                                                                   of $7,997 to
                                                                                                                   the face value
                                                                                                                   of the note
                                                                                                                   based upon
                                                                                                                   the fair values
                                                                                                                   of the warrants.
                                                                                                                   The discount
                                                                                                                   was being accreted
                                                                                                                   over the life
                                                                                                                   of the note
                                                                                                                   which amounted
                                                                                                                   to $7,997 for
                                                                                                                   the year ended
                                                                                                                   December 31,
                                                                                                                   2012 and is
                                                                                                                   included as
                                                                                                                   a component
                                                                                                                   of interest
                                                                                                                   expense in
                                                                                                                   the accompanying
                                                                                                                   consolidated
                                                                                                                   statement of
                                                                                                                   operations.
                                                                                                                   The unpaid
                                                                                                                   balance, including
                                                                                                                   accrued interest,
                                                                                                                   was $52,647
                                                                                                                   at December
                                                                                                                   31, 2012.
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| |  | 
| |  | 

During
December 2012 the Company amended the note to extend the due date to June 30, 2013. For executing the agreement, the holder was
granted a three-year warrant to purchase 125,000 shares of the Company’s common stock, equal to two and one-half times the
principal amount of the note amended, exercisable at $0.20 per share. The Company evaluated the change in cash flows in connection
with the December amendment and determined that there was a greater than 10% change between the present value of the existing
debt and the amended debt. As a result, the fair value of the three-year warrants aggregated $6,180 and were recorded as a discount
to the modified debt and will be accreted over the remaining term of the modified debt and recognized as interest expense. The
debt discount on the modified debt amounted to $882 for the year ended December 31, 2012.

| |  | 
| |  | 

F-18

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Table of Contents

|(C) | Convertible
    Notes Payable
|--- | -----------------------------



|i. |  | On
                                                                                                                   July 14, 2010,
                                                                                                                   the Company
                                                                                                                   issued a $52,380
                                                                                                                   convertible
                                                                                                                   promissory
                                                                                                                   note with a
                                                                                                                   maturity date
                                                                                                                   of September
                                                                                                                   13, 2012, and
                                                                                                                   with an interest
                                                                                                                   rate of 20%
                                                                                                                   per annum.
                                                                                                                   The note can
                                                                                                                   be converted
                                                                                                                   into the Company’s
                                                                                                                   common stock
                                                                                                                   by the holder
                                                                                                                   based on a
                                                                                                                   variable conversion
                                                                                                                   price. The
                                                                                                                   variable conversion
                                                                                                                   price is defined
                                                                                                                   in the note
                                                                                                                   as 45% multiplied
                                                                                                                   by the average
                                                                                                                   of the five
                                                                                                                   lowest intraday
                                                                                                                   prices for
                                                                                                                   the Company’s
                                                                                                                   stock during
                                                                                                                   the 20 trading
                                                                                                                   days prior
                                                                                                                   to the date
                                                                                                                   of conversion.
                                                                                                                   The total conversion
                                                                                                                   may not exceed
                                                                                                                   4.99% of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   issued and
                                                                                                                   outstanding.
                                                                                                                   In addition,
                                                                                                                   the Company
                                                                                                                   placed 250,000
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   in escrow to
                                                                                                                   secure our
                                                                                                                   conversion
                                                                                                                   obligations
                                                                                                                   under the note.
                                                                                                                   During September
                                                                                                                   2010, the lender
                                                                                                                   converted $7,500
                                                                                                                   of the debt
                                                                                                                   into 75,758
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   for $0.099
                                                                                                                   per share.
                                                                                                                   During December
                                                                                                                   2010, the lender
                                                                                                                   converted $7,500
                                                                                                                   of the debt
                                                                                                                   into 53,419
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   for $0.14 per
                                                                                                                   share. During
                                                                                                                   March 2011,
                                                                                                                   the lender
                                                                                                                   converted $5,000
                                                                                                                   of the debt
                                                                                                                   to 198,413
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   for $0.0252
                                                                                                                   per share.
                                                                                                                   During September
                                                                                                                   2011, the lender
                                                                                                                   converted $20,000
                                                                                                                   of the debt
                                                                                                                   to 444,444
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   for $0.045
                                                                                                                   per share.
                                                                                                                   During March
                                                                                                                   2012, the lender
                                                                                                                   converted the
                                                                                                                   remaining principle
                                                                                                                   amount of $12,380
                                                                                                                   into 305,679
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   for $0.0405
                                                                                                                   per share.
                                                                                                                   On September
                                                                                                                   28, 2012, the
                                                                                                                   Company paid
                                                                                                                   the remaining
                                                                                                                   outstanding
                                                                                                                   interest of
                                                                                                                   $9,526 to fully
                                                                                                                   satisfy the
                                                                                                                   promissory
                                                                                                                   note.
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| |  | 
| |  | 

The
conversion price of the note was not fixed and determinable on the date of issuance and as such in accordance with ASC Topic 815
“Derivatives and Hedging” (“ASC 815”), the embedded conversion option of the note on the date of issuance
were valued using the Black-Scholes pricing model, which approximates the binomial lattice options pricing model and recorded
as derivative liabilities. The fair value of the conversion option in connection with the note on the date of issuance aggregated
$52,380, and was recorded as debt discount. The debt discount was amortized through the term of the notes and amounted to $18,552
and $26,190 for the years ended December 31, 2012 and 2011, respectively.

| |  | 
| |  | 

|ii. |  | On
                                                                                                                    July 30, 2010,
                                                                                                                    an individual
                                                                                                                    advanced the
                                                                                                                    Company $8,000.
                                                                                                                    The advance
                                                                                                                    is evidenced
                                                                                                                    by a promissory
                                                                                                                    note bearing
                                                                                                                    interest at
                                                                                                                    6% per annum
                                                                                                                    and maturing
                                                                                                                    on March 2,
                                                                                                                    2011. The
                                                                                                                    holder, at
                                                                                                                    any time,
                                                                                                                    may convert
                                                                                                                    the promissory
                                                                                                                    note into
                                                                                                                    shares of
                                                                                                                    the Company’s
                                                                                                                    common stock
                                                                                                                    at $0.05 per
                                                                                                                    share. The
                                                                                                                    Company calculated
                                                                                                                    the fair value
                                                                                                                    of the beneficial
                                                                                                                    conversion
                                                                                                                    feature using
                                                                                                                    the Black-Scholes
                                                                                                                    pricing model
                                                                                                                    on the date
                                                                                                                    of issuance.
                                                                                                                    The fair value
                                                                                                                    of the conversion
                                                                                                                    option in
                                                                                                                    connection
                                                                                                                    with the note
                                                                                                                    on the date
                                                                                                                    of issuance
                                                                                                                    aggregated
                                                                                                                    $8,000, and
                                                                                                                    was recorded
                                                                                                                    as debt discount.
                                                                                                                    The debt discount
                                                                                                                    was amortized
                                                                                                                    through the
                                                                                                                    term of the
                                                                                                                    note and amounted
                                                                                                                    to $1,333
                                                                                                                    for the year
                                                                                                                    ended December
                                                                                                                    31, 2011.
                                                                                                                    The unpaid
                                                                                                                    balance, including
                                                                                                                    accrued interest,
                                                                                                                    was $9,164
                                                                                                                    and $8,683
                                                                                                                    at December
                                                                                                                    31, 2012 and
                                                                                                                    2011, respectively.
                                                                                                                    The Company
                                                                                                                    is not compliant
                                                                                                                    with the repayment
                                                                                                                    terms of the
                                                                                                                    note.
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| |  | 
| |  | 

|iii. |  | On
                                                                                                                     April 28,
                                                                                                                     2011, the
                                                                                                                     Company issued
                                                                                                                     a $70,588
                                                                                                                     convertible
                                                                                                                     promissory
                                                                                                                     note with
                                                                                                                     an original
                                                                                                                     issue discount
                                                                                                                     of 15%. The
                                                                                                                     convertible
                                                                                                                     promissory
                                                                                                                     note has
                                                                                                                     a maturity
                                                                                                                     date of the
                                                                                                                     earlier of
                                                                                                                     (i) the Company
                                                                                                                     raising debt
                                                                                                                     or equity
                                                                                                                     financing
                                                                                                                     of $600,000
                                                                                                                     or more,
                                                                                                                     or (ii) May
                                                                                                                     31, 2011.
                                                                                                                     The note
                                                                                                                     may be converted
                                                                                                                     into the
                                                                                                                     Company’s
                                                                                                                     common stock
                                                                                                                     by the holder
                                                                                                                     at $0.05
                                                                                                                     per share.
                                                                                                                     As a financing
                                                                                                                     incentive,
                                                                                                                     the lender
                                                                                                                     received
                                                                                                                     a five-year
                                                                                                                     warrant,
                                                                                                                     vesting April
                                                                                                                     28, 2011,
                                                                                                                     to purchase
                                                                                                                     705,882 shares
                                                                                                                     of the Company’s
                                                                                                                     common stock
                                                                                                                     at an exercise
                                                                                                                     price of
                                                                                                                     $0.25 per
                                                                                                                     share. The
                                                                                                                     Company has
                                                                                                                     not made
                                                                                                                     a note payment,
                                                                                                                     and the Company
                                                                                                                     received
                                                                                                                     a waiver
                                                                                                                     from the
                                                                                                                     lender on
                                                                                                                     September
                                                                                                                     1, 2011 that
                                                                                                                     defers payment
                                                                                                                     until May
                                                                                                                     31, 2012
                                                                                                                     and waives
                                                                                                                     the provision
                                                                                                                     for payment
                                                                                                                     upon the
                                                                                                                     Company’s
                                                                                                                     closing a
                                                                                                                     debt or equity
                                                                                                                     financing
                                                                                                                     of $600,000
                                                                                                                     or more.
                                                                                                                     The unpaid
                                                                                                                     balance on
                                                                                                                     the note
                                                                                                                     was $70,588
                                                                                                                     at December
                                                                                                                     31, 2012
                                                                                                                     and December
                                                                                                                     31, 2011.
|---- |  | 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---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

The
conversion price of the note and five-year warrants was not fixed and determinable on the date of issuance and as such in accordance
with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion options of the
note and warrants on the date of issuance were valued using the binomial lattice options pricing model and recorded as derivative
liabilities. The fair value of the conversion option and five-year warrants issued in connection with the note on the date of
issuance aggregated $60,000, and were recorded as debt discount. The debt discount was amortized through the term of the notes
and amounted to $60,000 for the year ended December 31, 2011.

| |  | 
| |  | 

During
December 2012 the Company amended the note to remove the conversion right and extend the due date to June 30, 2013, and to amend
the warrants to remove certain anti-dilution provisions. For executing the agreement, the holder was granted a three-year warrant
to purchase 61,856 shares of the Company’s common stock, exercisable at $0.18 per share. The Company evaluated the change
in cash flows in connection with the December amendment and determined that there was a less than 10% change between the present
value of the existing debt and the amended debt. As a result, the fair value of the new three-year warrants of $4,923 was expensed
on the date of the amendment.



F-19

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Table of Contents

| | iv. | On
                                                                                                                                                  June
                                                                                                                                                  15,
                                                                                                                                                  2011,
                                                                                                                                                  the
                                                                                                                                                  Company
                                                                                                                                                  issued
                                                                                                                                                  a
                                                                                                                                                  $57,500
                                                                                                                                                  convertible
                                                                                                                                                  promissory
                                                                                                                                                  note
                                                                                                                                                  with
                                                                                                                                                  an
                                                                                                                                                  original
                                                                                                                                                  issue
                                                                                                                                                  discount
                                                                                                                                                  of
                                                                                                                                                  15%.
                                                                                                                                                  The
                                                                                                                                                  convertible
                                                                                                                                                  promissory
                                                                                                                                                  note
                                                                                                                                                  had
                                                                                                                                                  a
                                                                                                                                                  maturity
                                                                                                                                                  date
                                                                                                                                                  of
                                                                                                                                                  the
                                                                                                                                                  earlier
                                                                                                                                                  of
                                                                                                                                                  (i)
                                                                                                                                                  the
                                                                                                                                                  Company
                                                                                                                                                  raising
                                                                                                                                                  debt
                                                                                                                                                  or
                                                                                                                                                  equity
                                                                                                                                                  financing
                                                                                                                                                  of
                                                                                                                                                  $600,000
                                                                                                                                                  or
                                                                                                                                                  more,
                                                                                                                                                  or
                                                                                                                                                  (ii)
                                                                                                                                                  June
                                                                                                                                                  14,
                                                                                                                                                  2012.
                                                                                                                                                  The
                                                                                                                                                  note
                                                                                                                                                  may
                                                                                                                                                  be
                                                                                                                                                  converted
                                                                                                                                                  into
                                                                                                                                                  the
                                                                                                                                                  Company’s
                                                                                                                                                  common
                                                                                                                                                  stock
                                                                                                                                                  by
                                                                                                                                                  the
                                                                                                                                                  holder
                                                                                                                                                  at
                                                                                                                                                  $0.05
                                                                                                                                                  per
                                                                                                                                                  share.
                                                                                                                                                  The
                                                                                                                                                  Company
                                                                                                                                                  received
                                                                                                                                                  a
                                                                                                                                                  waiver
                                                                                                                                                  from
                                                                                                                                                  the
                                                                                                                                                  lender
                                                                                                                                                  on
                                                                                                                                                  September
                                                                                                                                                  1,
                                                                                                                                                  2011
                                                                                                                                                  that
                                                                                                                                                  waives
                                                                                                                                                  the
                                                                                                                                                  provision
                                                                                                                                                  for
                                                                                                                                                  payment
                                                                                                                                                  upon
                                                                                                                                                  the
                                                                                                                                                  Company’s
                                                                                                                                                  closing
                                                                                                                                                  a
                                                                                                                                                  debt
                                                                                                                                                  or
                                                                                                                                                  equity
                                                                                                                                                  financing
                                                                                                                                                  of
                                                                                                                                                  $600,000
                                                                                                                                                  or
                                                                                                                                                  more.
                                                                                                                                                  As
                                                                                                                                                  a
                                                                                                                                                  financing
                                                                                                                                                  incentive,
                                                                                                                                                  the
                                                                                                                                                  lender
                                                                                                                                                  received
                                                                                                                                                  a
                                                                                                                                                  five-year
                                                                                                                                                  warrant,
                                                                                                                                                  vesting
                                                                                                                                                  June
                                                                                                                                                  15,
                                                                                                                                                  2011,
                                                                                                                                                  to
                                                                                                                                                  purchase
                                                                                                                                                  575,000
                                                                                                                                                  shares
                                                                                                                                                  of
                                                                                                                                                  the
                                                                                                                                                  Company’s
                                                                                                                                                  common
                                                                                                                                                  stock
                                                                                                                                                  at
                                                                                                                                                  an
                                                                                                                                                  exercise
                                                                                                                                                  price
                                                                                                                                                  of
                                                                                                                                                  $0.25
                                                                                                                                                  per
                                                                                                                                                  share.
                                                                                                                                                  On
                                                                                                                                                  October
                                                                                                                                                  10,
                                                                                                                                                  2012,
                                                                                                                                                  the
                                                                                                                                                  note
                                                                                                                                                  was
                                                                                                                                                  converted
                                                                                                                                                  into
                                                                                                                                                  1,265,000
                                                                                                                                                  shares
                                                                                                                                                  of
                                                                                                                                                  the
                                                                                                                                                  Company’s
                                                                                                                                                  common
                                                                                                                                                  stock
                                                                                                                                                  to
                                                                                                                                                  fully
                                                                                                                                                  pay
                                                                                                                                                  off
                                                                                                                                                  the
                                                                                                                                                  promissory
                                                                                                                                                  note.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
conversion price of the note and five-year warrants were not fixed and determinable on the date of issuance and as such in accordance
with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion options of the
note and warrants on the date of issuance were valued using the binomial lattice options pricing model and recorded as derivative
liabilities. The fair value of the conversion option and five-year warrants issued in connection with the note on the date of
issuance aggregated $50,000, and were recorded as debt discount. The debt discount was amortized through the term of the notes
and amounted to $22,917 and $27,083 for the years ended December 31 2012 and 2011, respectively.



|v. |  | On
                                                                                                                   July 15, 2011,
                                                                                                                   the Company
                                                                                                                   issued a $109,822
                                                                                                                   convertible
                                                                                                                   promissory
                                                                                                                   note with an
                                                                                                                   original issue
                                                                                                                   discount of
                                                                                                                   15% that consolidated
                                                                                                                   various demand
                                                                                                                   notes from
                                                                                                                   September 2010
                                                                                                                   through July
                                                                                                                   2011. The convertible
                                                                                                                   promissory
                                                                                                                   note has a
                                                                                                                   maturity date
                                                                                                                   of the earlier
                                                                                                                   of (i) the
                                                                                                                   Company raising
                                                                                                                   debt or equity
                                                                                                                   financing of
                                                                                                                   $600,000 or
                                                                                                                   more, or (ii)
                                                                                                                   August 31,
                                                                                                                   2011. The note
                                                                                                                   may be converted
                                                                                                                   into the Company’s
                                                                                                                   common stock
                                                                                                                   by the holder
                                                                                                                   at $0.05 per
                                                                                                                   share. As a
                                                                                                                   financing incentive,
                                                                                                                   the lender
                                                                                                                   received a
                                                                                                                   five-year warrant,
                                                                                                                   vesting July
                                                                                                                   15, 2011, to
                                                                                                                   purchase 1,098,220
                                                                                                                   shares of the
                                                                                                                   Company’s
                                                                                                                   common stock
                                                                                                                   at an exercise
                                                                                                                   price of $0.25
                                                                                                                   per share.
                                                                                                                   The Company
                                                                                                                   repaid $1,783
                                                                                                                   during 2012.
                                                                                                                   The unpaid
                                                                                                                   balance was
                                                                                                                   $109,789 at
                                                                                                                   December 31,
                                                                                                                   2012 and 2011.
                                                                                                                   The Company
                                                                                                                   is not compliant
                                                                                                                   with the repayment
                                                                                                                   terms of the
                                                                                                                   note.
|-- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The
conversion price of the note and five-year warrants were not fixed and determinable on the date of issuance and as such in accordance
with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion options of the
note and warrants on the date of issuance were valued using the binomial lattice options pricing model and recorded as derivative
liabilities. The fair value of the conversion option and five-year warrants issued in connection with the note on the date of
issuance aggregated $95,497, and were recorded as debt discount. The debt discount was amortized through the term of the notes
and amounted to $95,497 for the year ended December 31, 2011.



|vi. |  | In
                                                                                                                    March 2012,
                                                                                                                    the Company
                                                                                                                    commenced
                                                                                                                    an offering
                                                                                                                    of secured
                                                                                                                    promissory
                                                                                                                    notes for
                                                                                                                    an aggregate
                                                                                                                    principal
                                                                                                                    amount of
                                                                                                                    $1,000,000
                                                                                                                    with three-year
                                                                                                                    warrants to
                                                                                                                    purchase an
                                                                                                                    aggregate
                                                                                                                    of 2,500,000
                                                                                                                    shares the
                                                                                                                    Company’s
                                                                                                                    common stock
                                                                                                                    (2.5 shares
                                                                                                                    for each $1
                                                                                                                    of the principal
                                                                                                                    amount of
                                                                                                                    the notes
                                                                                                                    purchased)
                                                                                                                    exercisable
                                                                                                                    at $0.10 per
                                                                                                                    share. The
                                                                                                                    notes bear
                                                                                                                    interest at
                                                                                                                    18% and have
                                                                                                                    various maturity
                                                                                                                    dates beginning
                                                                                                                    September
                                                                                                                    2, 2012. At
                                                                                                                    the time of
                                                                                                                    any new debt
                                                                                                                    or equity
                                                                                                                    financing
                                                                                                                    by the Company,
                                                                                                                    the principal
                                                                                                                    and interest
                                                                                                                    then due under
                                                                                                                    the notes
                                                                                                                    may be converted
                                                                                                                    into the number
                                                                                                                    of fully paid
                                                                                                                    and non-assessable
                                                                                                                    debt instruments,
                                                                                                                    shares/or
                                                                                                                    units issued
                                                                                                                    in the financing.
                                                                                                                    Notes in the
                                                                                                                    aggregate
                                                                                                                    principal
                                                                                                                    amount of
                                                                                                                    850,000 and
                                                                                                                    warrants to
                                                                                                                    purchase an
                                                                                                                    aggregate
                                                                                                                    of 2,125,000
                                                                                                                    were sold
                                                                                                                    in the offering.
                                                                                                                    In addition,
                                                                                                                    the investment
                                                                                                                    banker who
                                                                                                                    facilitated
                                                                                                                    the sale of
                                                                                                                    the notes
                                                                                                                    and warrants
                                                                                                                    received a
                                                                                                                    three-year
                                                                                                                    warrant to
                                                                                                                    purchase 212,500
                                                                                                                    shares of
                                                                                                                    the Company’s
                                                                                                                    common stock
                                                                                                                    (10% of the
                                                                                                                    number of
                                                                                                                    shares of
                                                                                                                    common stock
                                                                                                                    issuable upon
                                                                                                                    exercise of
                                                                                                                    the warrants
                                                                                                                    sold in the
                                                                                                                    offering)
                                                                                                                    exercisable
                                                                                                                    at $0.10 per
                                                                                                                    share. The
                                                                                                                    unpaid balance
                                                                                                                    on the notes
                                                                                                                    was $850,000
                                                                                                                    at December
                                                                                                                    31, 2012.
                                                                                                                    The Company
                                                                                                                    is not compliant
                                                                                                                    with of the
                                                                                                                    repayment
                                                                                                                    terms of the
                                                                                                                    note for an
                                                                                                                    aggregate
                                                                                                                    of $75,000.
|--- |  | 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-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

|vii. |  | The
                                                                                conversion price of the note and three-year warrants
                                                                                were not fixed and determinable on the date of
                                                                                issuance and as such in accordance with ASC Topic
                                                                                815 “Derivatives and Hedging”
                                                                                (“ASC 815”), the embedded conversion
                                                                                options of the note and warrants on the date of
                                                                                issuance were valued using the binomial lattice
                                                                                options pricing model and recorded as derivative
                                                                                liabilities. The fair value of the conversion
                                                                                option and three-year warrants issued in connection
                                                                                with the note on the date of issuance aggregated
                                                                                $789,073, and were recorded as debt discount.
                                                                                The debt discount was fully amortized through
                                                                                the term of the notes and amounted to $789,073
                                                                                for the year ended December 31, 2012.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



During
October 2012 the Company amended the notes to remove the conversion right and extend the due date to June 30, 2013, and to amend
the warrants to remove certain anti-dilution provisions. Holders of an aggregate of $775,000 agreed to such amendments and were
granted a warrant to purchase 1,550,000 shares of our common stock equal to two times the principal amount of the note amended,
exercisable at $0.50 per share.



The
Company evaluated the change in cash flows in connection with the October amendment and determined that there was a greater than
10% change between the present value of the existing debt and the amended debt. As a result, the fair value of the three-year
warrants aggregated $140,759 and were recorded as a discount to the modified debt and will be accreted over the remaining term
of the modified debt and recognized as interest expense. The debt discount on the modified debt amounted to $35,190 for the year
ended December 31, 2012.



F-20

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Table of Contents

|viii. |  | In
                                                                                                                      August 2012,
                                                                                                                      the Company
                                                                                                                      commenced
                                                                                                                      an offering
                                                                                                                      of secured
                                                                                                                      promissory
                                                                                                                      notes for
                                                                                                                      an aggregate
                                                                                                                      principal
                                                                                                                      amount of
                                                                                                                      $3,000,000
                                                                                                                      with three-year
                                                                                                                      warrants
                                                                                                                      to purchase
                                                                                                                      an aggregate
                                                                                                                      of 6,000,000
                                                                                                                      shares of
                                                                                                                      the Company’s
                                                                                                                      common stock
                                                                                                                      (two shares
                                                                                                                      for each
                                                                                                                      $1 of the
                                                                                                                      principal
                                                                                                                      amount of
                                                                                                                      the notes
                                                                                                                      purchased)
                                                                                                                      exercisable
                                                                                                                      at $0.50
                                                                                                                      per share.
                                                                                                                      The notes
                                                                                                                      bear interest
                                                                                                                      at 18% and
                                                                                                                      have various
                                                                                                                      maturity
                                                                                                                      dates beginning
                                                                                                                      March 13,
                                                                                                                      2013. At
                                                                                                                      the time
                                                                                                                      of any new
                                                                                                                      debt or
                                                                                                                      equity financing
                                                                                                                      by the Company,
                                                                                                                      the principal
                                                                                                                      and interest
                                                                                                                      then due
                                                                                                                      under the
                                                                                                                      notes may
                                                                                                                      be converted
                                                                                                                      into the
                                                                                                                      number of
                                                                                                                      fully paid
                                                                                                                      and non-assessable
                                                                                                                      debt instruments,
                                                                                                                      shares/or
                                                                                                                      units issued
                                                                                                                      in the financing.
                                                                                                                      During year
                                                                                                                      ended December
                                                                                                                      31, 2012,
                                                                                                                      notes in
                                                                                                                      the aggregate
                                                                                                                      principal
                                                                                                                      amount of
                                                                                                                      $875,000
                                                                                                                      and warrants
                                                                                                                      to purchase
                                                                                                                      an aggregate
                                                                                                                      of 1,750,000
                                                                                                                      shares of
                                                                                                                      the Company’s
                                                                                                                      common stock
                                                                                                                      were sold
                                                                                                                      in the offering.
                                                                                                                      In addition,
                                                                                                                      the investment
                                                                                                                      banker who
                                                                                                                      facilitated
                                                                                                                      the sale
                                                                                                                      of the notes
                                                                                                                      and warrants
                                                                                                                      received
                                                                                                                      a three-year
                                                                                                                      warrant
                                                                                                                      to purchase
                                                                                                                      175,000
                                                                                                                      shares of
                                                                                                                      the Company’s
                                                                                                                      common stock
                                                                                                                      (10% of
                                                                                                                      the number
                                                                                                                      of shares
                                                                                                                      of common
                                                                                                                      stock issuable
                                                                                                                      upon exercise
                                                                                                                      of the warrants
                                                                                                                      sold in
                                                                                                                      the offering)
                                                                                                                      exercisable
                                                                                                                      at $0.50
                                                                                                                      per share.
                                                                                                                      The unpaid
                                                                                                                      balance
                                                                                                                      on the notes
                                                                                                                      was $875,000
                                                                                                                      at December
                                                                                                                      31, 2012.
                                                                                                                      The Company
                                                                                                                      is not compliant
                                                                                                                      with the
                                                                                                                      repayment
                                                                                                                      terms of
                                                                                                                      the note.
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The
conversion price of the note and three-year warrants were not fixed and determinable on the date of issuance and as such in accordance
with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion options of the
note and warrants on the date of issuance were valued using the binomial lattice options pricing model and recorded as derivative
liabilities. The fair value of the conversion option and three-year warrants issued in connection with the note on the date of
issuance aggregated $499,186, and were recorded as debt discount. The debt discount was amortized through the term of the notes
and amounted to $281,651 for the year ended December 31, 2012.



9.
FAIR VALUE MEASURES



ASC
820 “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value
and requires enhanced disclosures about fair value measurements. As defined in ASC 820, fair value is the price that would be
received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The Standard clarifies that the exchange price is the price in an orderly transaction between market participants to sell
an asset or transfer a liability at the measurement date, and emphasizes that fair value is a market-based measurement and not
an entity-specific measurement.



ASC
820 establishes the following hierarchy used in fair value measurements and expands the required disclosures of assets and liabilities
measured at fair value:



| | · | Level
    1 – Inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability
    to access.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| | · | Level
    2 – Inputs use other inputs that are observable, either directly or indirectly. These inputs include quoted prices for
    similar assets and liabilities in active markets as well as other inputs such as interest rates and yield curves that are
    observable at commonly quoted intervals.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Level
    3 – Inputs are unobservable inputs, including inputs that are available in situations where there is little, if any,
    market activity for the related asset or liability.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In
instances where inputs used to measure fair value fall into different levels in the above fair value hierarchy, fair value measurements
in their entirety are categorized based on the lowest level input that is significant to the valuation. The Company’s assessment
of the significance of particular inputs to these fair measurements requires judgment and considers factors specific to each asset
or liability.



The
following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2012
and December 31, 2011, respectively:



|                            |  | Fair
    Value Measurements
|--------------------------- |  | ---------------------------
|                            |  |                            
|                            |  |                            
|Derivative
    liabilities: |  |                            
|December
    31, 2012       |  | $                          
|December
    31, 2011       |  | $                          



F-21

---







Table of Contents

The
2012 and 2011 derivative liabilities are measured at fair value using the binomial lattice options pricing model, and are classified
within Level 3 of the valuation hierarchy. The following table sets forth a summary of the changes in the fair value of the Company’s
Level 3 financial liabilities that are measured at fair value on a recurring basis:

10.
STOCK OPTIONS AND WARRANTS



Stock
Options – Employment Letter Agreement:

On
July 3, 2011, in conjunction with Chris White’s employment as the Company’s Vice President of Global Supply Chain,
the Company granted Mr. White a seven-year option to purchase 2,950,000 shares of the Company’s common stock at $0.20 per
share. The option vested as to 1,180,000 shares on the date of grant, and vests as to 295,000 on each of the first six semi-annual
anniversaries of the grant date. The fair value of the option was approximately $317,400.

On
January 6, 2012, in conjunction with Mark Zeller’s employment as the Company’s North American Director of Sales, the
Company granted Mr. Zeller a five-year option to purchase 1,500,000 shares of the Company’s common stock at $0.20 per share.
The option vested as to 250,000 on the date of grant, and vested as to 416,667 on each of the first three anniversaries of the
grant date. The fair value of the option was approximately $44,000. On May 1, 2012, Mr. Zeller resigned from the Company and the
option terminated in accordance with its terms.

On
April 24, 2012, in conjunction with Roger Zardo’s employment as the Company’s Director of National Procurement, the
Company granted Mr. Zardo a three-year option to purchase 325,000 shares of the Company’s common stock at $0.25 per share.
The option vested as to 100,000 on the date of grant, vested as to 75,000 shares on each of the first two anniversaries of the
grant date, and vested as to 75,000 shares on November 28, 2014. The fair value of the option was approximately $18,400. During
March 2013, Mr. Zardo resigned from the Company.

On
May 18, 2012, in conjunction with Jack Connelly’s employment as the Company’s Director of National Sales, the Company
granted Mr. Connelly a three-year option to purchase 500,000 shares of the Company’s common stock at $0.25 per share. The
option vests as to 100,000 on the date of grant, vests as to 134,000 shares on each of the first two anniversaries of the grant
date, and vests as to the final 132,000 shares on November 29, 2014. The fair value of the option was approximately $33,900.

On
August 31, 2012, in conjunction with George Borzilleri’s employment as the Company’s Manager, National Retail Sales,
the Company granted Mr. Borzilleri a three-year option to purchase 396,427 shares of the Company’s common stock at $0.35
per share. The option vests as to 135,714 shares on the date of grant, vests as to 86,904 shares on each of the first two anniversaries
of the grant date, and vests as to the final 86,905 shares on March 6, 2015. The fair value of the option was approximately $102,524.

On
October 5, 2012, Chris White, the Company’s Vice President of Global Supply was granted a seven year non-qualified stock
option to purchase 3,837,719 shares of the Company’s common stock at $0.62 per share. The fair value of the option was $1,221,493.
The option vests as follows:



| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         immediately.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         upon
                                                                                                                                                         receipt
                                                                                                                                                         of
                                                                                                                                                         certificates
                                                                                                                                                         issued
                                                                                                                                                         by
                                                                                                                                                         IMO
                                                                                                                                                         Control
                                                                                                                                                         (Institute
                                                                                                                                                         for
                                                                                                                                                         Marker
                                                                                                                                                         Ecology)
                                                                                                                                                         certifying
                                                                                                                                                         compliance
                                                                                                                                                         with
                                                                                                                                                         IMO
                                                                                                                                                         Controls
                                                                                                                                                         ‘For
                                                                                                                                                         Life’
                                                                                                                                                         Fair
                                                                                                                                                         Trade
                                                                                                                                                         standards
                                                                                                                                                         for
                                                                                                                                                         three
                                                                                                                                                         key
                                                                                                                                                         Company
                                                                                                                                                         suppliers.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 750,000
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         upon
                                                                                                                                                         the
                                                                                                                                                         launch
                                                                                                                                                         by
                                                                                                                                                         Mr.
                                                                                                                                                         White
                                                                                                                                                         of
                                                                                                                                                         an
                                                                                                                                                         internal
                                                                                                                                                         “alpha”
                                                                                                                                                         demonstration
                                                                                                                                                         website
                                                                                                                                                         that
                                                                                                                                                         contains
                                                                                                                                                         certain
                                                                                                                                                         functionality.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | 198,250
                                                                                                                                                         shares
                                                                                                                                                         vest
                                                                                                                                                         on
                                                                                                                                                         each
                                                                                                                                                         of
                                                                                                                                                         the
                                                                                                                                                         next
                                                                                                                                                         8
                                                                                                                                                         quarter
                                                                                                                                                         dates
                                                                                                                                                         starting
                                                                                                                                                         January
                                                                                                                                                         6,
                                                                                                                                                         2013
                                                                                                                                                         through
                                                                                                                                                         October
                                                                                                                                                         6,2014.
                                                                                                                                                         The
                                                                                                                                                         final
                                                                                                                                                         quarterly
                                                                                                                                                         vesting
                                                                                                                                                         will
                                                                                                                                                         be
                                                                                                                                                         199,969
                                                                                                                                                         shares.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





The
Company recognized stock based compensation expense included in general and administrative expenses on the consolidated statement
of operations of $284,887 for the year ended December 31, 2012 for these awards.



F-22

---









Table of Contents

Options
Summary:



A
summary of option activity during the years ended December 31, 2012 and 2011 is presented below:



| |                                      |        |  |          |            | Weighted    |  |          
| | ------------------------------------ | ------ |  | -------- | ---------- | ----------- |  | ---------
| |                                      |        |  | Weighted |            | Average     |  |          
| |                                      |        |  | Average  |            | Remaining   |  |          
| |                                      |        |  | Exercise |            | Contractual |  | Intrinsic
| |                                      | Shares |  | Price    |            | Term        |  | Value    
| | Balance
    at December 31, 2010     |        |  |          | 33,750     |             |  | $        
| | Granted                              |        |  |          | 2,950,000  |             |  |          
| | Exercised                            |        |  |          | —          |             |  |          
| | Forfeited                            |        |  |          | —          |             |  |          
| | Balance
    at December 31, 2011     |        |  |          | 2,983,750  |             |  |          
| | Granted                              |        |  |          | 6,559,146  |             |  |          
| | Exercised                            |        |  |          | —          |             |  |          
| | Forfeited                            |        |  |          | (1,500,000 | )           |  |          
| | Balance
    at December 31, 2012     |        |  |          | 8,042,896  |             |  | $        
| |                                      |        |  |          |            |             |  |          
| | Exercisable
    at December 31, 2012 |        |  |          | 4,389,464  |             |  | $        



The
Company expects to amortize the remaining stock based compensation expense of approximately $1,350,000 over the life of the options.

Common
Stock Warrants



Warrant
transactions during the years ended December 31, 2012 and 2011 are as follows:





| |                                    |               |  | Weighted |            | Average      |  |          
| | ---------------------------------- | ------------- |  | -------- | ---------- | ------------ |  | ---------
| |                                    |               |  | Average  |            | Remaining    |  |          
| |                                    | Number
    of |  | Exercise |            | Life         |  | Intrinsic
| |                                    | Warrants      |  | Price    |            | In
    Years |  | Value    
| | Balance,
    December 31, 2010     |               |  |          | 394,858    |              |  | $        
| | Granted                            |               |  |          | 5,787,290  |              |  |          
| | Exercised                          |               |  |          | —          |              |  |          
| | Forfeited                          |               |  |          | (320,008   | )            |  |          
| | Balance,
    December 31, 2011     |               |  |          | 5,862,140  |              |  | $        
| | Granted                            |               |  |          | 10,775,000 |              |  |          
| | Exercised                          |               |  |          | (2,039,735 | )            |  |          
| | Forfeited                          |               |  |          | (103,064)  |              |  |          
| | Balance,
    December 31, 2012     |               |  |          | 14,494,341 |              |  | $        
| |                                    |               |  |          |            |              |  |          
| | Exercisable,
    December 31, 2012 |               |  |          | 14,494,341 |              |  | $        
| |                                    |               |  |          |            |              |  |          



The
intrinsic value is calculated on the difference between the fair market value of the Company’s restricted stock, which was
$0.23 per share as of December 31, 2012, and the exercise price of the warrants.



F-23

---







Table of Contents



The
following table presents information related to warrants at December 31, 2012:





|Warrants
    Outstanding |       |  | Warrants
    Exercisable | 
|------------------------ | ----- |  | ------------------------ | 
|                         |       |  |                          | 
|                         |       |  |                          | 
|Exercise                 |       |  | Number
    of            | 
|Price                    |       |  | Warrants                 | 
|                         |       |  |                          | 
|$                        | 0.01  |  |                          | 
|                         | 0.10  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.01  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.001 |  |                          | 
|                         | 0.10  |  |                          | 
|                         | 0.10  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.10  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.50  |  |                          | 
|                         | 0.25  |  |                          | 
|                         | 0.50  |  |                          | 
|                         |       |  |                          | 



|    |                                |  |  |  |  |  |  |  |  |  |  |  |  | 
|--- | ------------------------------ |  |  |  |  |  |  |  |  |  |  |  |  | 
|11. | RELATED
    PARTY TRANSACTIONS
|    |                                |  |  |  |  |  |  |  |  |  |  |  |  | 



Consulting
Agreement



On
July 1, 2008, the Company signed a 16 month consulting agreement with a related party. The consulting services include financial
advisory, investment relations and certain administrative and other services for a $6,250 monthly fee. This contract expired on
October 31, 2009 and was not renewed. As of December 31, 2012 and 2011, the Company owed $100,000 related to above consulting
services, which is included in accrued expenses and other current liabilities in the consolidated balance sheets.



Employee
Warrants



On
February 29, 2012, an employee was granted a three year warrant to purchase 300,000 shares of the Company’s common stock
for services rendered. The warrant vested upon grant, and was exercisable at $0.25 per share. The Company recorded a charge for
$6,149 to stock based compensation for the year ended December 31, 2012.



F-24

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Table
of Contents

|12. | COMMITMENTS
    AND CONTINGENCIES
|--- | ---------------------------------



Agreements



On
September 27, 2010 the Company signed an agreement for investment banking services, including financings and business combinations.
The compensation to the banker includes a flat fee plus other compensation as defined in the agreement. The agreement included
a grant of a three-year warrant to purchase 74,850 shares of the Company’s common stock at an exercise price of $0.001 per
share. The fair value of the award was $19,443 and is amortized over the term of the agreement. Accordingly, the Company recorded
a stock based compensation charge of $14,422 for the year ended December 31, 2011. In August, 2011, the warrant was cancelled
and replaced with a new warrant for 899,672 shares of the Company’s common stock, at an exercise price of $0.10 per share.
This warrant was fully exercised during July 2012. In September 2011, the Company issued to the banker an additional three-year
warrant to purchase 195,291 shares of the Company’s common stock, exercisable at $0.001 per share.



In
2010, the Company granted its corporate law firm a warrant to purchase 460,821 shares of the Company’s common stock, exercisable
at $.01 per share. That warrant was cancelled and, in August, 2011, the Company granted its corporate law firm a five-year warrant
to purchase 692,802 shares of the Company’s common stock at an exercise price of $0.10 per share.



During
October 2012 we leased approximately 1,641 square feet of office space located at 2030 Addison Street, Berkeley, CA for approximately
$4,200 per month under 29month agreement with rental payments commencing on January 1, 2013. The rental fee escalates to approximately
$4,350 on April 1, 2013 and approximately $4,500 on April 1, 2014.



Future
minimum lease payments under all operating leases as of December 31, 2012 are approximately as follows:



|Year
    Ending December 31, | Amount       
|---------------------------- | -------------
|2013                         | $  51,817    
|2014                         | 53,371       
|2015                         | 13,441       
|                             |              
|Total                        | $
    118,629



Legal
matters



In
the normal course of business, the Company is, and in the future may be, subject to various disputes, claims, lawsuits, and administrative
proceedings arising in the ordinary course of business with respect to commercial, product liability, employment, and other matters,
which could involve substantial amounts of damages. In the opinion of management, any liability related to any such known proceedings
would not have a material adverse effect on the business or financial condition of the Company. Additionally, from time to time,
the Company may pursue litigation against third parties to enforce or protect the Company’s rights under the Company’s
trademarks, trade secrets and intellectual property rights generally.



During
2010, the Company was served with a lawsuit for the Company’s past due liabilities. The lawsuit was Peri & Sons, plaintiff,
vs. Organic Alliance, Inc. and Parker Booth, defendants, for past due produce liabilities. An agreement was reached and OAI has
been making payments to the plaintiff. OAI was dismissed from the action and signed a confession of judgment. Over half of the
past due amount has been paid with a balance of approximately $21,000 remaining.



F-25

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Table of Contents

|13. | ACCRUED
    EXPENSES AND OTHER CURRENT LIABILITIES
|--- | --------------------------------------------------

Accrued
expenses and other current liabilities consist of the following:



|                                          |  | December
    31, 2012 |           |  | December
    31, 2011 |  
|----------------------------------------- |  | --------------------- | --------- |  | --------------------- | -
|Due
    to consultant (Note 11)           |  | $                     | 100,000   |  |                       | $
|Accrued
    consulting fees (Note 6)      |  |                       | -0-       |  |                       |  
|Payroll
    and payroll taxes payable (A) |  |                       | 1,399,049 |  |                       |  
|Other
    accrued liabilities             |  |                       | 235,814   |  |                       |  
|                                          |  | $                     | 1,734,863 |  |                       | $



|    | (A)                   | As
                                                                                      of December 31, 2012 and December 31, 2011,
                                                                                      the Company has unpaid payroll taxes including
                                                                                      penalties and interest of  $286,027
                                                                                      and $220,300, respectively, which have yet
                                                                                      to be remitted to the
                                                                                taxing
                                                                                authorities and returns have yet to be filed.
|--- | --------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                      
|14. | SUBSEQUENT
    EVENTS
|    |                       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

During
March 2013, the Company issued 500,000 shares of the Company’s common stock to a consultant for investor and public relations
services. The shares were valued at $0.11 per share or $55,000.

During
May 2013, the Company issued a $30,000 promissory note with an original issue discount of 20%.  The promissory note is due
on the earlier of (i) the closing by the Company of a financing or series of financings for aggregate cash proceeds of at least
$1,850,000, or, (ii) July 5, 2013. As a financing incentive, the lender received a three-year warrant, vesting immediately, to
purchase 25,000 shares of common stock at an exercise price of $0.10 per share.

During
May 2013, the Company issued a $500,000 convertible promissory note with an original issue discount of $50,000. The convertible
promissory note is due on August 13, 2013 and may be converted at any time into fully paid and non-assessable shares of the Company’s
common stock. The conversion price shall be 60% of the average closing price of the stock for the twenty-five (25) business days
preceding the conversion notice. The conversion price of the note was not fixed and determinable on the date of issuance and as
such in accordance with ASC Topic 815 “Derivatives and Hedging” (“ASC 815”), the embedded conversion
options of the note on the date of issuance was valued using the binomial lattice options pricing model and recorded as a derivative
liability.  As of June 3, 2013, the Company has been advanced $25,000 on this note.







F-26

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