UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, DC 20549





FORM 10-K





(Mark One)


X                                   Annual Report under Section 13 or 15 (d) of The Securities Exchange Act of 1934





For the fiscal year ended December 31, 2009





Transition Report under Section 14 or 15 (d) of The Securities Exchange Act of 1934





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


Commission File Number:  000-53545





ORGANIC ALLIANCE, INC.


(Name of small business issuer specified in its charter)





Nevada
20-0853334State of incorporation
I.R.S. Employer Identification No.





401 Monterey Street, Suite 202


Salinas, CA 93901


(Address of principal executive offices)





(831) 240-0295


(Issuer’s telephone number)





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


None





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





Common Stock, $0.0001 par value per share.


(Title of Class)








Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.


 Yes    X No





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


 Yes    X No





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  No X








Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):





Large accelerated filer  

Non-accelerated filer  
Accelerated filer  

Small Business Issuer  X





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




As of June 30, 2009, the aggregate market value of the shares of Common Stock held by non-affiliates of the Registrant was approximately $3,826,000. Such aggregate market value was computed by reference to the closing price of the Common Stock as reported on the Pink Sheets on June 30, 2009. For purposes of making this calculation only, the Registrant has defined affiliates as including all directors and executive officers.






The number of outstanding shares of the Registrant's Common Stock, par value $.0001 per share, on May 18, 2010 was 29,649,943.




DOCUMENTS INCORPORATED BY REFERENCE-None























ORGANIC ALLIANCE, INC.


FORM 10-K ANNUAL REPORT


TABLE OF CONTENTS








PART I

PageITEM 1.
DESCRIPTION OF BUSINESS
1ITEM 1A.
RISK FACTORS
5ITEM 1B.
UNRESOLVED STAFF COMMENTS
10ITEM 2.
DESCRIPTION OF PROPERTY
10ITEM 3.
LEGAL PROCEEDINGS
10ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
10PART IIITEM 5.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
10ITEM 6.
SELECTED FINANCIAL DATA
12ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
12ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
18ITEM 8.
FINANCIAL STATEMENTS
18





ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
18ITEM 9A.
CONTROLS AND PROCEDURES
19ITEM 9B.
OTHER INFORMATION
21PART IIIITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEES, AND CORPORATE GOVERNANCE
21ITEM 11.
EXECUTIVE COMPENSATION
23ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
27ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
28ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
28PART IVITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
29SIGNATURES

30





CERTIFICATION PURSUANT TO SECTION 302 (A) OF THE SARBANES-OXLEY ACT OF 2002





CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002











EXPLANATORY NOTE





Unless otherwise indicated or the context otherwise requires, all references in this Annual Report on Form 10-K to “we,” “us,” “our,” and the “Company” are to Organic Alliance Inc., a Nevada corporation.





In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars.





Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.





CAUTIONARY NOTICE REGARDING FORWARD LOOKING STATEMENTS





We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This Annual Report on Form 10-K contains a number of forward-looking statements that reflect management’s current views and expectations with respect to our business, strategies, products, future results and events and financial performance. All statements other than statements of historical fact, including future results of operations or financial position, made in this Annual Report on Form 10-K are forward looking. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” “will,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.





PART I





ITEM I:  DESCRIPTION OF BUSINESS





History





NB Design & Licensing, Inc., (“NB Design”) was organized in September 2001.  The former parent, New Bridge Products, Inc., was originally incorporated in August 1995 as a manufacturer of minivans and 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 we were 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.





On April 29, 2008, NB Design a Nevada corporation, acquired all 10,916,917 issued and outstanding shares of common stock and assumed all liabilities of Organic Texas for 9,299,972 shares of the NB Design’s shares of 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 acquisition of Organic Texas by NB Design on April 29, 2008 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”. The reverse capitalization was the acquisition of a private operating company (Organic Texas) into a non-operating public shell corporation (NB Design) with nominal net assets and as such is treated as a capital transaction, rather than a business combination. As a result no goodwill is recorded.  In this situation, NB Design is the legal acquirer because it issued its equity interests, and Organic Texas is the legal acquiree because its equity interests were acquired.  However, NB Design is the acquiree and Organic Texas as 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.  Pursuant to the Exchange Agreement, NB Design issued 9,299,972 shares of our Common Stock for all of the issued and outstanding Common Stock of Organic Texas and assumed all assets and liabilities. NB Design also had outstanding 1,000,028 each of Class A, Class B, Class C, Class D, Class E and Class F warrants prior to April 29, 2008.  The warrants were exercisable at $2.00, $2.00, $4.00, $4.00, $6.00 and $6.00, respectively, at any time until December 31, 2008.  As a condition to closing the Exchange Agreement, the exercise prices of the warrants were subsequently reduced to $1.00 per share for all classes of Warrants and the expiration date was extended to December 31, 2011.  In exchange for the exercise price reduction, the holders of at least 80% of the Warrants agreed to a call provision by us on 10 days notice to them if (i) the bid price of our common stock is quoted at $1.25 per share or higher and the average share volume exceeds 300,000 shares for at least one day, and (ii) the shares underlying the warrants are subject to a current registration statement on file with the Securities and Exchange Commission (SEC).  Both the share price and volume must be met on the same day for the call provision to be effective.   As of date of this Form 10-K the common shares are unregistered with the SEC.




1




We completed the Exchange Agreement in order to merge with an operating company and thereby provide our shareholders with the potential to realize liquidity in their stockholdings.





On June 2, 2008, the name NB Design was changed to Organic Alliance, Inc.  On August 29, 2008, the name of Organic Texas was changed to Organic Texas, Inc.  All references throughout this Annual Report to “Organic Alliance, Inc.,” or the “Company” refer to the combined operations of Organic Alliance, Inc., a Nevada corporation, and our wholly-owned subsidiary, Organic Texas, Inc.





On December 31, 2008, registration of 2,638,250 shares of our .0001 par value Common Stock filed on Form S-1 was declared effective by the United States Securities and Exchange Commission.





We recorded our first sale in March 2009 and emerged from a development stage company during the second quarter of 2009.





Business





Organic Alliance, Inc. brings together a unique alliance of respected growers, packers and shippers from around the world in order to source, market and distribute best-quality certified-organic, conventional, and certified Fair Trade food products.  Crops are grown, packed and shipped under Organic Alliance supervision using advanced quality, food safety and sustainable agriculture practices. In the case of our certified Fair Trade program, we work directly with the growers to develop the structures and standards to be certified under the Fair Trade Labeling Organization (FLO) standards. The Company’s Approved OriginsTM Program delivers not only on-demand traceability through a partnership with Yottamark’s Harvestmark technology, but transparency in all business-critical practices, including leading-edge food safety practices, continuous improvement and work force fairness.





While we offer conventional fresh food products to our customers, our focus is on growing our certified organic and certified Fair Trade markets as these are areas we believe offer the most opportunity for growth and support.





Our primary go-to-market segments for supplying our products are the grocery channel, food service distribution, fresh processors, consumer package goods companies, and the overseas markets focusing on those grocery chains and their importer partners. We currently supply product to most of these market segments with overseas markets in Europe and Asia being served.





We were a development stage company from inception (February 19, 2008) through March 2009.  We began in April 2009 to establish supplies of organic fresh fruits and vegetables from several regions globally. We have made significant strides as we have established long-term relationships with growers in Mexico, USA, Argentina, Peru, and Costa Rica that will help ensure a continuous year round supply to our customers. We are continuing to expand our sourcing areas from other Latin America countries as well as from the Asia continent in 2010 and beyond.





We have added several sourcing areas that are Fair Trade certified and we have several projects in line for 2010 that will establish new products grown and packed by growers who have not had market access prior to the establishment of their cooperatives. This is the essence of our Company mission of helping improve the lives of growers and those in their community as well as providing our customers with this unique product so they can sell to those consumers who want to make a social and ecological difference.





Based on 2008 data from the Organic Monitor, the global organic food market grew by 13.7% in 2008 to reach a value of $52 billion.   In 2013, the market is forecast to have a value of $85.1 billion, an increase of 63.6% since 2008.   The sale of fruit and vegetables accounts for 36% of the market's value.  Based on 2008 data from FLO, Fair Trade certified sales amounted to approximately $4 billion worldwide, a 22% year-to-year increase. This leaves room for other innovative organizations like Organic Alliance to develop new solutions and build a leading position in this young and growing industry.





Development Stage and Going Concern





We emerged from a development stage company during the second quarter of calendar 2009 and realized substantial sales for the year ended December 31, 2009. Beginning in March 2009 the Company began selling conventional and organically grown fruits and vegetables.  We have an account receivable factoring financing facility in place, however we will need to raise additional capital through private equity placements and, or other financing means.





2


The consolidated financial statements contained 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 that we will realize our assets and discharge our liabilities in the ordinary course of business. As of December 31, 2009, we had working capital deficit of approximately $1,610,000 and had accumulated losses of approximately $8,263,000 since our inception on February 19, 2008. Our ability to continue as a going concern is dependent upon achieving production or sale of goods, 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 upon profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern.




Competitive Differentiation and Synergy





As the food industry develops, there is a well-established trend of buyers working to purchase products closer to product origin and moving past intermediary sellers. This trend has been strengthened by the global movement toward “knowing where your food comes from” evidenced by Fair Trade, Organic and Local movements. In general, the shorter a supply chain is, the more profitable, safe and sustainable trade becomes.





Several of the world’s larger trading companies are adept marketers, importers and distributors but they have historically been unable to work directly with growers and packers outside of isolated, small-scale projects. To take advantage of this rapidly evolving market and maintain profitability, traders will need to migrate their activities closer to the field and execute the following tactics:





1)
Develop Organic and Fair Trade certified production according to market demand to alleviate supply shortages





2)
Install leading edge food-safety, traceability and quality control technology to comply with evolving international standards





3)
Make equity investments in production to increase control, lower costs and improve profitability





4)
Create promotional media in producing communities that supermarkets seek to communicate value and generate consumer loyalty





Organic Alliance, Inc. (OAI) is positioned to be a global leader in working directly with growers to invest in production, develop certified origins and shorten supply chains. By executing our grower-direct strategy, OAI supports our targeted market segments with more certified products, sensible pricing and informational stories about our growers from the many producing communities in Latin America, Asia and Africa. OAI’s business model capitalizes on these emerging trends to create win-win solutions for consumers and the industry.





Sales and Marketing





Due to the continued increase in demand for certified organic and Fair Trade products, procurement departments in corporations are seeking additional sources of organic products.  However, the challenge continues to be attaining a reliable, year round supply for their buying programs, in part due to the fractionalized nature of the organic farm supply.





We believe there is strong demand for a company that has a dependable, reliable source of organic food products production with access to the key market segments to enter this market.  We believe that offering our products at reasonable and sensible prices will allow our customers to fulfill their program needs while increasing store sales volume as a result. Our initial sales and marketing efforts will be aimed at these primary channels of distribution: the grocery channel, food service distribution, fresh processors,


consumer produced goods, and the overseas markets focusing on those grocery chains and their importer partners.





We have developed key relationships that enables our Company to compete globally. The Company is dedicated to providing market-guided, sustainability focused technical support and infrastructure development to small and medium-sized producers in Latin America. Our work aims to build capacity in producing communities for increasing production efficiency, human capital, export value and ability to enter high-value international markets.





Our market-guided approach leverages global buyer networks to develop projects that are driven by demand, thus increasing the efficiency and economic viability of our work.  The Organic Alliance buyer network is complemented by a committed alliance of regional development professionals, production technicians and certification bodies that allow us to efficiently mobilize experts in executing leading-edge development solutions.





3


This model puts forward a new paradigm for hybrid social enterprise—each entity acting in its own interest while supporting one another other to reinforce the overarching goal of sustainable economic development in Latin America.





Key Impact Goals:






Increase Export Value of Production






Improve Competitiveness and Market Access






Capture Higher Supply-Chain Value






Develop Human Capacity






Diversify Income in the Green Economy






Link Projects to High-Value Markets





For the year ended December 31, 2009, our revenue was $4,268,680.







Government Regulation





All organic production is regulated by the United States Department of Agriculture ("USDA") under the 2002 Federal NOP (Title 7 CFR205) which regulates organic producers and organic handlers. Requirements for organic producers (growers) are:





Organic crops must be grown without the use of:●
synthetic fertilizers;●
synthetic pesticides;●
sewage sludge;●
genetically modified organisms (“GMOs”); or●
treated seeds.Any applied materials must be allowed on the National List of Allowed and Prohibited Substances of the Organic Materials Review Institute (“OMRI”);Must use organic seeds if “commercially available”; and





Must be certified by a USDA accredited certifying organization as complying with NOP regulations.







4


Intellectual Property





The Company has no intellectual properly at December 31, 2009.





Employees





As of December 31, 2009 we had five employees, including our two executive officers.





Where You Can Find More Information





You are advised to read this Form 10-K in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.





ITEM IA:  RISK FACTORS





Going Concern Risk





We emerged from a development stage company during the second quarter of calendar 2009 and realized substantial sales for the year ended December 31, 2009. Beginning in March 2009 the Company began selling conventional and organically grown fruits and vegetables.  We had an account receivable factoring financing facility in place at December 31, 2009, however we will need to raise additional capital through private equity placements and, or other financing means.





The consolidated financial statements contained 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 that we will realize our assets and discharge our liabilities in the ordinary course of business. As of December 31, 2009, we had working capital deficit of approximately $1,610,000 and had accumulated substantial losses of approximately $8,263,000 since our inception on February 19, 2008. Our ability to continue as a going concern is dependent upon achieving production or sale of goods, 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 upon profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern.





Risks Related to Our Company





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





In order to generate revenue, we will be required to source organic food products from growers and sell the food products to our customers.  We are building an extensive network of suppliers that will mitigate the risk of not having ample supply to meet our customers’ needs.





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





Our organic food 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 end user consumer.  Any such recall or harm to a consumer would subject us to significant financial liability.  We place a high emphasis on adherence to meeting our food safety standards from our grower base. We have regular audits performed that meet or exceed the USDA standards and we work closely with each grower regularly to ensure compliance.




5




We do carry liability insurance for any food safety event both to cover the Company against liability as well as covering our major customers through indemnification on our certificate.





We have no written agreements with retailers or growers.





We seek to sell products using purchase orders, and we always generate a purchase order from our customers with agreed to quality specifications, quantity, and price prior to packing the product. We will establish written agreements with many of our suppliers and many of our customers prior to the start of the new season.





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 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 is also possible those alliances among competitors may develop and 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.





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 will help mitigate the affect of economic downturn. Our development into the European and Asian markets is a result of planned strategy to grow in these markets but also to mitigate our risk overall.





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





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





•
demand for organic products;•
changes in our operating expenses;•
changes in customer preferences and changing demands for organic products, including levels of enthusiasm for health, fitness and environmental issues;•
fluctuation of organic product prices due to competitive pressures;•
personnel changes;•
supply shortages;•
general economic conditions;•
lack of an adequate supply of high-quality agricultural products due to poor growing conditions, natural disasters or otherwise; and•
volatility in prices of high-quality agricultural products resulting from poor growing conditions, natural disasters or otherwise.








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.





6


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 our trucking operations or those of our contractors; and•
our 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.





We are dependent for success on Parker Booth our Chief Executive Officer.  Our inability to retain Mr. Booth’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.  The loss of Mr. Booth would have a material adverse effect upon our growth strategy, operations and future business development, and therefore the value of your investment.  We do not maintain key man life insurance on any executive officers nor do we have an employment agreement with Mr. Booth.  Additionally, any failure to attract and retain qualified employees in the future could also negatively impact our business strategy.





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.





We will need to raise additional funds in the future in order to take advantage of opportunities for sourcing organic food products or for potential acquisitions.  Given this funding, we do not believe there is a strong enough risk from international competition as we are building strong partnerships with our international grower base. If additional funds are raised through the issuance of equity or convertible debt securities, the percentage ownership of the current stockholders of the Company will be reduced, stockholders may experience additional dilution and such securities may have rights, preferences and privileges senior to those of the Common Stock and may have covenants which impose restrictions on the Company’s operations.





Risks Relating to Our Securities





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





As of the date of this Form 10-K, our executive officer, directors and 10% or greater stockholders own 8,914,750 shares of our Common Stock or approximately 30% 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.





7


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 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 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 stock are suitable for that person and that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stock.





The broker or dealer must also 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 stock 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 account and information on the limited market in penny stock.





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, which 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, if and when our securities become publicly traded. 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.




The market price of our Common Stock may be volatile.





The market price of our Common Stock may be highly volatile, as is the stock market in general, and the market for Pink Sheets quoted stocks in particular. 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.





8


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 value of our stock. We plan to retain any future earnings to finance growth.





Future sales of our Common Stock may depress our stock price.





Sales of a substantial number of shares of our Common Stock, including shares registered hereby, by significant stockholders into the public market could cause a decrease in the market price of our Common Stock.





Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could prevent the Company from producing reliable financial reports or identifying fraud.  In addition, shareholders could lose confidence in the Company’s financial reporting, which could have an adverse effect on its 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 annual management assessments of the effectiveness of our internal controls over financial reporting. We intend to hire a full time Chief Financial Officer to augment our internal controls procedures and expand our accounting staff, but there is no guarantee that these efforts will be adequate.





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 it 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 additional preferred stock.  This reduced probability could deprive our investors of the opportunity to otherwise sell our stock in an acquisition of us 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.





9


ITEM 1B. UNRESOLVED STAFF COMMENTS





Not applicable to small business filers.





ITEM 2. DESCRIPTION OF PROPERTY





We do not own any real property.  Beginning in December 2008, the Company leased approximately 1250 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.  The Company is currently paying rent on a month to month basis.





ITEM 3. LEGAL PROCEEDINGS





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, 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 April 2010, the Company was served with two lawsuits for past due liabilities of the Company.  The first lawsuit was Executive Dynamics Search, Inc., plaintiff, vs. Organic Alliance, Inc., defendant, for approximately $97,000 plus attorney fees and interest. The suit was filed in the Superior Count of California, case number 37-2010-00053560-CU-BC-NC.  Executive Dynamics Search, Inc. provided executive placement services to the Company.  The second lawsuit was Full Circle Sales, Inc, plaintiff, vs. Organic Alliance, Inc., defendant, for approximately $257,000 plus attorney fees and interest. The suit was filed in the United States District Count for the Northern District of California, case number CV10-01615. Full Circle Sales, Inc. is a produce supplier of the Company.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





No matters were submitted to a vote of security holders since inception on February 19, 2008 through the date of this Form 10-K.





PART II





ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS.





Market Information





Our Common Stock is currently quoted for sale on Pink Sheets of the National Quotation Service under the symbol ORGC.  The high and low closing prices of our common stock since April 29, 2008 are set forth below. These closing prices do not reflect retail mark-up, markdown or commissions.







High


Low2008Second quarter

$
1.01


$
0.40Third quarter

$
1.06


$
0.51Fourth quarter

$
0.70


$
0.10





2009First quarter

$
0.29


$
0.06Second quarter

$
0.30


$
0.09Third quarter

$
0.19


$
0.05Fourth quarter

$
0.14


$
0.05


10


Holders





As of the May 18, 2010, we had approximately 550 stockholders of record of our common stock.  None of our preferred stock was outstanding.





Dividends





The Company has not paid any dividends since its inception. The Company currently intends to retain any earnings for use in its business, and therefore does not anticipate paying dividends in the foreseeable future.





Recent Sales of Securities





Since February 19, 2008, the Company has issued the following shares of its 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. All of the purchasers were friends or business associates of our management, had access to all information related to us, were experienced in making speculative investments, understood the risks associated with investments, and could afford a loss of the entire investment.





All Organic Texas common shares issued prior to April 29, 2008 for services provided are retroactively shown below based on the ratio of 0.8435 NB Design common share issued for one Organic Texas common share.  All Organic Texas common shares issued prior to April 29, 2008 for cash are shown below based on one NB Design common share issued for one Organic Texas common share.  All disclosures of fair value per share for issuances prior to April 29, 2008 represent the fair value of Organic Texas common stock issued on that date.





(i)
During March and April 2008 we sold 601,667 shares of our unregistered common stock to nine investors at the fair value of $0.30 per share.





(ii)
In March 2008, officers, directors and related parties were issued 4,217,500 unregistered shares of the Company’s common stock for director, officer and administrative services compensation.  These shares were valued at $0.30 per share.





(iii)
On May 8, 2008, the Company sold 16,250 registered shares of the Company’s common stock for $0.40 to an investor. On the same date, the Company sold 2,483,750 registered shares of the Company’s common stock for $0.40 per share to an investor, for a 90 day promissory note that bore interest at 8% per annum on any unpaid balance.  The unpaid balance of $750,630 including accrued interest of $22,657 was deemed uncollectable and written off at December 31, 2008.





The shares above were issued pursuant to the provisions of Rule 504 of Regulation D promulgated under the Securities Act.




11





(iv)
During 2008, we issued 5,112,772 unregistered shares of the Company’s common stock to a group of 61 consultants for investor relations, public relations, legal, web design, accounting, medical advisory and other administrative services.  These shares were valued from $0.30 to $1.03 per share.





(v)
As a condition to close the April 29, 2008 Exchange Agreement, the Company’s 1,000,028 of Class A, Class B, Class C, Class D, Class E and Class F warrants that were exercisable at $2.00, $2.00, $4.00, $4.00, $6.00 and $6.00, respectively, at any time until December 31, 2008, were subsequently reduced to $1.00 per share for all classes of Warrants and the expiration date was extended to December 31, 2011.





(vi)
During 2009, officers, directors and related parties were issued 8,234,000 unregistered shares of the Company’s common stock for director, officer and administrative services compensation.  These shares were valued from $0.09 to $0.22 per share





(vii)
During 2009, we issued 440,500 unregistered share of the Company’s common stock to a group of five consultants for investor relations, medical advisory and for a financing incentive.  These shares were valued from $0.08 to $0.22 per share.





(viii)
During January 2009 and March 2009, the Company exchanged a total of 1,747,071 shares of our registered common stock from a group of investors and related parties for two shares of the Company’s unregistered common stock (3,493,476 shares).  The registered shares were transferred to a group of financing partners in an unsuccessful attempt to obtain capital.  As part of this transaction, an additional 2,000,000 unregistered shares of the Company’s common stock were transferred to this group in January 2009.





(ix)
During March 2010, directors were issued 1,850,000 unregistered shares of the Company’s common stock for director compensation and financing incentive.  These shares were valued from $0.08 to $0.13 per share.(x)
During April 2010, a consultant was issued 500,000 unregistered shares of the Company’s common stock for Investor relations.  These shares were valued at $0.04 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.





ITEM 6.  SELECTED FINANCIAL DATA





Not required under Regulation S-K for “smaller reporting companies”.





ITEM 7:  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION





The following discussion includes forward looking statements and uncertainties, including plans, objectives, goals, strategies, financial projections as well as known and unknown uncertainties. The actual results of our future performance may differ materially from the results anticipated in these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievement.  Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.





12


Overview





Organic Alliance, Inc. brings together a unique alliance of respected growers, packers and shippers from around the world in order to source, market and distribute best-quality certified-organic, conventional, and certified Fair Trade food products.  Crops are grown, packed and shipped under Organic Alliance supervision using advanced quality, food safety and sustainable agriculture practices. In the case of our certified Fair Trade program, we work directly with the growers to develop the structure and standards to be certified under the FLO standards. The Company’s Approved OriginsTM Program delivers not only on-demand traceability through a partnership with Yottamark’s Harvestmark technology, but transparency in all business-critical practices, including leading-edge food safety practices, continuous improvement and work force fairness.





While we offer conventional fresh food products to our customers, our focus is on growing our certified organic and certified Fair Trade markets as these are areas we believe offer the most opportunity for growth and support.





Our primary go-to-market segments for supplying our products are the grocery channel, food service distribution, fresh processors, CPG, and the overseas markets focusing on those grocery chains and their importer partners. We currently supply product to these market segments with overseas markets in Europe and Asia being served.





Since we began marketing products in June 2009, we have been establishing supplies of organic fresh fruits and vegetables from several regions globally. We have made significant strides as we have established long-term relationships with growers in Mexico, USA, Argentina, Peru, and Costa Rica that will help ensure a continuous year round supply to our customers. We are continuing to expand our sourcing areas from other Latin America countries as well as from the Asia continent in 2010 and beyond.





We have added several sourcing areas that are Fair Trade certified and we have several projects in line for 2010 that will establish new products grown and packed by growers who have not had market access prior to the establishment of their cooperatives. This is the essence of our Company mission of helping improve the lives of growers and those in their community as well as providing our customers with this unique product so they can sell to those consumers who want to make a social and ecological difference.





Based on 2008 data from the Organic Monitor, the global organic food market grew by 13.7% in 2008 to reach a value of $52 billion.   In 2013, the market is forecast to have a value of $85.1 billion, an increase of 63.6% since 2008.   The sale of fruit and vegetables accounts for 36% of the market's value.  Based on 2008 data from FLO (Fair Trade Labeling Organization), Fair Trade certified sales amounted to approximately $4 billion worldwide, a 22% year-to-year increase. This leaves room for other innovative organizations like Organic Alliance to develop new solutions and build a leading position in this young and growing industry.





NB Design & Licensing, Inc., (“NB Design”) was organized in September 2001.  The former parent, New Bridge Products, Inc., was originally incorporated in August 1995 as a manufacturer of minivans and 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 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.




On April 29, 2008, NB Design a Nevada corporation, acquired all 10,916,917 issued and outstanding shares of common stock and assumed all liabilities of Organic Texas for 9,299,972 shares of the NB Design’s shares of 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.




13


The acquisition of Organic Texas by NB Design on April 29, 2008 was accounted for as a reverse capitalization in accordance with the SEC’s Division of Corporate Financial Reporting manual Topic 12 “Reverse Acquisition and Reverse Capitalization”. The reverse capitalization was the acquisition of a private operating company (Organic Texas) into a non-operating public shell corporation with nominal net assets and as such is treated as a capital transaction, rather than a business combination. As a result no goodwill is recorded.  In this situation, NB Design is the legal acquirer because it issued its equity interests, and Organic Texas is the legal acquiree because its equity interests were acquired.  However, NB Design is the acquiree and Organic Texas as 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.  Pursuant to the Securities Exchange, NB Design issued 9,299,972 shares of our Common Stock for all of the issued and outstanding Common Stock of Organic Texas and assumed all assets and liabilities. NB Design also had outstanding 1,000,028 each of Class A, Class B, Class C, Class D, Class E and Class F warrants prior to April 29, 2008.  The warrants were exercisable at $2.00, $2.00, $4.00, $4.00, $6.00 and $6.00, respectively, at any time until December 31, 2008.  As a condition to close the Exchange Agreement, the exercise prices of the warrants were subsequently reduced to $1.00 per share for all classes of Warrants and the expiration date was extended to December 31, 2011.  In exchange for the exercise price reduction, the holders of at least 80% of the Warrants agreed to a call provision by us on 10 days notice to them if (i) the bid price of our common stock is quoted at $1.25 per share or higher and the average share volume exceeds 300,000 shares for at least one day, and (ii) the shares underlying the warrants are subject to a current registration statement on file with the Securities and Exchange Commission (SEC).  Both the share price and volume must be met on the same day for the call provision to be effective.   As of the date of this Form 10-K the common shares are unregistered with the SEC.





On June 2, 2008, the name NB Design was changed to Organic Alliance, Inc.  On August 29, 2008, the name of Organic Texas was changed to Organic Texas, Inc.





We recorded our first sale in March 2009 and emerged from a development stage company during the second quarter of calendar year 2009.





Critical Accounting Estimates and Policies





Revenue Recognition





Starting in March 2009, our produce are sold to distributors and retailers (collectively the “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.  Revenue is recorded when (1) the customer accepts delivery of the product and 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.  Sales are presented net of discounts and allowances.





Allowance for Doubtful Accounts





An allowance for uncollectible accounts receivable is recorded based on a combination of aging analysis and any specific troubled accounts. Starting in 2009, our products are sold to our 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.





Share-Based Compensation





The Company expenses the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of such instruments. The Company uses the Black-Sholes model to calculate the fair value of the common stock equivalents on the grant date.





14


Impairment of Long-Lived and Intangible Assets





Intangible assets are comprised of AvocadoMan brand and an order processing web software system. The Company evaluates long-lived assets, including property and equipment and intangible assets, for impairment in accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”) (primarily codified into Topic 360), “Accounting for the Impairment or Disposal of Long-Lived Assets” whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.




When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows.





Deferred Tax Assets





In assessing the realization of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. As a result of uncertainty of achieving sufficient taxable income in the future a full valuation allowance against its deferred tax asset has been recorded. If these estimates and assumptions change in the future, the Company may be required to reverse the valuation allowance against deferred tax assets, which could result in additional income tax income.





Debt Discount





Costs incurred with parties who are providing the actual long-term financing, which generally include the value of shares of the Company’s common stock are reflected as a debt discount. These discounts are amortized over the life of the related debt interest expense.








Results of Operations





Results of operations for the year ended December 31, 2009 compared to the period from inception (February 19, 2008) to December 31, 2008





For the period from inception (February 19, 2008) until March 31, 2009, we were a development stage company with little revenues. We began to earn revenues during March 2009 and recorded substantial revenues during the second quarter of 2009 and therefore we are no longer reporting as a development stage company.





For the year ended December 31, 2009, net sales of $4,268,680 were recorded compared to no revenue for the period from inception (February 19, 2008) to December 31, 2008.  During March 2009, we began selling organically and non-organically grown fruit and vegetables to our customers.




15


For the year ended December 31, 2009, cost of goods sold was $4,265,201 compared to no cost of goods sold for the period from inception (February 19, 2008) to December 31, 2008.




For the year ended December 31, 2009, gross margin was $3,479 compared to no gross profit for the period from inception (February 19, 2008) to December 31, 2008.  Until such time as we have sufficient capital to efficiently purchase our products we will continue to experience higher costs and such costs will not necessarily correlate directly to revenue.




For the year ended December 31, 2009, general and administrative (G&A) expenses of $3,150,800 compared to $4,239,484 for the period from inception (February 19, 2008) to December 31, 2008.  The decrease in G&A expenses of $1,088,684 is primarily attributable to decreased stock compensation costs of approximately $1,930,000.  Despite issuing 13,167,976 shares and 9,330,272 shares, respectively for 2009 and the period from inception (February 19, 2008) to December 31, 2008, our declining stock price resulted in decreased stock compensation costs.  A decrease of approximately $221,000 of professional fees primarily related to decreased investor relations’ spending was offset by increased expenses for moving from a development stage to an operating company.   These increased operating expenses include approximately $799,000 for payroll expense, $67,000 for travel and entertainment expense, $40,000 for director and officer, general liability and other insurance expense, $53,000 for bad debt expense, $15,000 for rent expense, $15,000 for phone expense and $73,000 for other expenses.




For the year ended December 31, 2009, operating loss was $3,147,321 compared to $4,239,484 for the period from inception (February 19, 2008) to December 31, 2008.





For the year ended December 31, 2009, other expense was $165,892 compared to $710,493 for the period from inception (February 19, 2008) to December 31, 2008.  The Company accrued interest expense of $18,362 on promissory notes payable to related parties and other for the year ended December 31, 2009, compared to $770 for the period from inception (February 19, 2008) to December 31, 2008.   During 2009 the Company recorded $61,827 as amortization of notes payable discount related to a financing incentive.  The Company recorded interest expense related to factor fees of $55,703 for the year ended December 31, 2009. Also During 2009 the Company wrote-off a deposit related to an intangible asset that was deemed impaired. During the period from inception (February 19, 2008) to December 31, 2008 a note receivable for $750,630 including accrued interest of $22,657 was deemed uncollectable and written off.





For the year ended December 31, 2009, net loss was $3,313,213 or $0.13 basic and basic and diluted loss per share compared to $4,949,977 or $0.41 basic and basic and diluted loss per share for the period from inception (February 19, 2008) to December 31, 2008. The $1,636,764 decrease in net loss was primarily attributable to the decreased operating and other expenses described above.




Liquidity and Capital Resources




Our operations to date have generated substantial losses that have been funded through the issuance of common stock and loans from related parties and other. We will require additional sources of outside capital to continue our operations. We expect that our primarily source of cash in the future will be from the issuance of common stock, loans, accounts receivable factoring and a line of credit.  During April 2010, we terminated our account receivable factoring facility with a financial services company. We are presently negotiating a factoring facility with a new financial services company.  As a result, we are presently experiencing cash flow difficulties.





Our financial statements contained within have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As of December 31, 2009, we had working capital deficit of approximately $1,610,000 and had accumulated substantial losses of approximately $8,263,000 since our inception on February 19, 2008..Our ability to continue as a going concern is dependent upon achieving sales, profitability and our ability to obtain the necessary financing to meet our obligations and pay our liabilities arising from normal business operations when they come due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. The financial statements contained in this Form 10-K 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. We anticipate that additional funding may be generated from the sale of common shares and/or debt with an equity feature and from asset based financing or factoring.





16


Generally, we have primarily financed operations to date through the proceeds of the private placement of equity securities and the issuance of promissory notes.





For the period from inception (February 19, 2008) to December 31, 2008 we sold 617,917 shares of our common stock for $187,000





During May 2008, we also sold 2,483,750 shares of our common stock for $0.40 per share to an investor for a 90 day promissory note that bore interest at 8% per annum on any unpaid balance.  The unpaid balance of $750,630 including accrued interest of $22,657 was deemed uncollectable and written off as of December 31, 2008.





In September 2008, Earnest Mathis, a related party, advanced the Company $15,000. The advance is evidenced by a promissory note bearing interest at 10% per annum.  The unpaid balance including accrued interest was $16,942 at December 31, 2009.





During the fourth quarter of 2008 through December 31, 2009, Parker Booth, Chief Executive Officer, advanced the Company $493,905. The advances are evidenced by a promissory note bearing interest at 5% per annum.  The unpaid balance including accrued interest was $508,293 at December 31, 2009. The promissory note also includes the issuance of 2,668,747 shares of the Company’s common stock to Mr. Booth as a financing incentive. These shares have not been issued to Mr. Booth.








In July 2009, an unrelated party advanced the Company $50,000. The advance is evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $51,171 at December 31, 2009.





In October and December 2009, Mike Rosenthal, Director, advanced the Company $130,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $131,123 at December 31, 2009.





In November 2009, Morrison Partners, LLC, Thomas Morrison, the Company's former CEO and Chairman is President, advanced the Company $10,000. The advance is evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $10,042 at December 31, 2009. The promissory note also includes the issuance of 55,400 shares of the Company’s common stock as a financing incentive.  These shares have not been issued to Morrison Partners, LLC.





In December 2009, Corey Ruth, Director, advanced the Company $50,000. The advance is evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $50,137 at December 31, 2009.





During 2009, two directors of the Company advanced $45,000, which was paid off by the Company with accrued interest thereon during August 2009.





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





Our contractual obligation consists of current notes payable to an officer, directors, related parties and other.  Our total obligation was $767,708 including accrued interest of $18,803 for the notes at December 31, 2009.  As of May 18, 2010, we repaid only one of the notes payable for $50,000.





17


Net Cash Flows





For the year ended December 31, 2009, net cash used in operating activities was $661,924 compared to $325,777 for the period from inception (February 19, 2008) to December 31, 2008.  The increase of $336,147 was primarily attributable to higher general and administrative spending for salaries, insurance, travel , entertainment and other operating expense plus our initial account receivable balance as we moved from a development stage company during the second quarter of 2009.





For the year ended December 31, 2009, cash used in investing activities was $8,500 compared to $30,000 for the period from inception (February 19, 2008) to December 31, 2008.  During 2009, the Company purchased $8,500 of property and equipment  compared to payment made of $30,000 during 2008 to purchase AvacodoMan Brand and related software system.  Our purchase of these assets closed on January 9, 2009 and was deemed impaired by March 31, 2009.





For the year ended December 31, 2009, net cash provided by financing activities was $670,405 compared to $356,027 for the period from inception (February 19, 2008) to December 31, 2008.  The increase of $314,378 was related to increases in loans and advances from officer, directors and others.




At December 31, 2009 and December 31 2008, we had 675,000 stock options and 6,000,128 common stock purchase warrants outstanding. The outstanding stock options have a weighted average exercise price of $0.51 per share. The outstanding warrants have a weighted average exercise price of $1 per share. Accordingly, at December 31, 2009, the outstanding options and warrants represented a total of 6,675,128 shares issuable for a maximum of $6,344,378 if these options and warrants were exercised in full. The exercise of these options and warrants is at the discretion of the holder while the holders of at least 80% of the Warrants agreed to a call provision by us on 10 days’ notice to them if (i) the bid price of our common stock is quoted at $1.25 per share or higher and the average share volume exceeds 300,000 shares for at least one day, and (ii) the shares underlying the warrants are subject to a current registration statement on file with the SEC. The 6,000,128 warrants have not been registered with the SEC as of the date of this Form 10-K.  There is no assurance that any of these options or any additional warrants will be exercised.





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





Not applicable to smaller reporting companies.





ITEM 8. FINANCIAL STATEMENTS





The information required by this Item 8 is incorporated by reference to the Index to Consolidated Financial Statements beginning at page F-1 at the end of this Form 10-K.





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





On November 5, 2009, the Company notified Weaver & Martin, LLC (“W&M”) that they would be dismissed effective immediately as the Company’s independent registered public accounting firm, as reported on Current Report 8-K dated November 30, 2009.   This action was approved by our Board of Directors. On November 30, 2009, the Company’s Board of Directors appointed MHM Mahoney Cohen CPAs (The New York Practice of Mayer Hoffman McCann P.C.) as its independent registered accounting firm, detailed as follows.





The reports of W&M on the consolidated financial statements of the Company and its subsidiary as of and for the years ended December 31, 2006 and December 31, 2007 did not contain an adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principle with the exception of the following “going concern” paragraph:





18


“The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.





During the Company’s two most recent fiscal years ended December 31, 2006 and December 31, 2007 and through November 5, 2009, there were no disagreements with W&M on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to W&M satisfaction, would have caused W&M to make reference thereto in its reports on the Company’s financial statements for such years.





The Company has provided W&M with a copy of the Form 8-K dated November 30, 2009 prior to its filing with the SEC to which W&M furnished a letter addressed to the SEC stating that it agreed with the statements made above.





On November 30, 2009, the Company’s Board of Directors engaged MHM Mahoney Cohen CPAs (The New York Practice of Mayer Hoffman McCann P.C.) to serve as the Company’s principal independent registered public accounting firm for the year ending December 31, 2008.





ITEM 9A. CONTROLS AND PROCEDURES





Disclosure Controls and Procedures





The Company's management evaluated, with the participation of its Chief Executive Officer/Chief Financial Officer , the effectiveness of the design/operation of its disclosure controls and procedures (as defined in Rules 13a-15(c) and 15d-15(c) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) as of December 31, 2009.





Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.




Management conducted its evaluation of disclosure controls and procedures under the supervision of our principal executive officer.  Based on that evaluation, management concluded that our financial disclosure controls and procedures were not effective related to the preparation of the 10-K filing as of December 31, 2009.





The controls designed were adequate for financial disclosures required for the preparation of the 10-K filing; however due to lack of resources in the company’s accounting department the controls were not operating effectively. The remediation plan for improving the effectiveness over financial disclosure controls, which caused the material weakness over financial disclosures required in the 10-K, include the creation of a financial disclosures roll-forward model in accordance with the disclosures contained in the audited 10-K report.  This model will be maintained and updated by Company staff and management as new business transactions require additional financial disclosures. As the Company obtains 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.  We intend to hire a full time Chief Financial Officer to augment our internal controls procedures and expand our accounting staff.





19


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 principals, and that receipts and expenditures of the Company 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.





Under the supervision and with the participation of our management, including our Chief Executive Officer, we conducted an assessment of the effectiveness of our internal control over financial reporting based on criteria established in “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as of December 31, 2009.





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 identified the following control deficiency that represents material weaknesses at December 31, 2009:






Due to the limited number of Company personnel, a lack of segregation of duties exists.   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.





As a result of this material weakness described above, management has concluded that, as of December 31, 2009, our internal control over financial reporting was not effective based on the criteria in “Internal Control-Integrated Framework” issued by COSO.   We intend to hire a full time Chief Financial Officer to augment our internal controls procedures and expand our accounting staff.  We intend to initiate measures to remediate and refine our internal controls to address this identified material weakness as the Company grows and we obtain a stronger cash position that would justify additional expenditures.




20


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 SEC Act of 1934 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.





Auditor Attestation





This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.





ITEM 9B. OTHER INFORMATION





None.





PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEESS AND CORPORATE GOVERNANCE





As of December 31, 2009, the names, ages and positions of our directors and executive officers are as follows:





Name of Director

Age

Position(s) with the Company

Director/Officer SinceThomas Morrison

61

Chairman of the Board of Directors

2008Parker Booth

54

Chief Executive Officer, Chief Financial Officer

2008Alicia Smith Kriese

45

Director

2008Dr. Corey Ruth

53

Director

2009Michael Rosenthal

66

Director

2009Mark Klein

36

Director

2009





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





Thomas Morrison – Non-Executive Chairman of the Board of Directors





On April 22, 2010, Mr. Morrison resigned as the Non-Executive Chairman of the Board of Directors of the Company.





Parker Booth – Chief Executive Officer, Chief Financial Officer and Director





Mr. Booth has over 30 years of sales and operation experience in the fresh foods and international transportation industries. From May 2007 to November 2008 he 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, from August 2000 to May 2007 he was employed by Fresh Express, most recently there 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. Mr. Booth has extensive international business and sales experience as a result of his work in Asia, Europe and South America when he was employed by TransFresh Corp and 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.




21


James Haworth – Director





On March 5, 2009, Mr. Haworth resigned as Director of the Company.





Alicia Smith Kriese – Director





Ms. Kriese spent 18 years from 1988 until 2005 with Austin-based advertising agency GSD&M (an Omnicom Company) as executive vice president, where she led the development of national brand strategies, corporate messaging and customer marketing campaigns for Wal-Mart Stores Inc. Since 2005 she has been the president of Perspectives, an Austin-based marketing consulting firm.





Dr. Corey Ruth – Director





On March 11, 2010, Dr. Ruth resigned as Director of the Company.





Michael Rosenthal – Director





On August 10, 2009, Michael Rosenthal joined our Board of Directors.  Mr. Rosenthal has served since 1986 as Chairman and President of M.J. Rosenthal and Associates, Inc., and investment and consulting firm. Mr. Rosenthal has been Chairman of Skins, Inc., since 2005, and 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 Chairman through November 2008. From 1984 to 1986, Mr. Rosenthal served 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 Mergers and Acquisitions Department of Donaldson, Lufkin, and Jenrette, Inc., an investment banking firm. Mr. Rosenthal has also served as Chairman, a 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 began working on the business concept behind the predecessor of Skins Footwear Inc. in 2002 and was appointed President and Chief Executive Officer of Skins Footwear Inc. on May 18, 2004. He has served in this capacity of President and CEO of both Skins Inc. and Skins Footwear inc. from 2004 to Present. From 2001, 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.





Board of Directors and Committees





Board Meetings





During calendar 2009, the Board of Directors of the Company held two meetings. Each director attended the meetings of the Board of Directors. We expect each of our directors to attend our Annual Meeting every year, unless extenuating circumstances prevent their attendance.




22


Committees





Currently we have no board committees. Our board acts as our Audit, Compensation and Nominating and Governance Committee although we intend to appoint such committees in the future comprised of a majority of members who will be independent directors.





Director Compensation





We have not paid our directors fees for attending any meetings of our Board of Directors. We reimburse each director for reasonable travel expenses related to such director’s attendance at Board of Directors’ meetings. Our directors were given stock for joining the Company. See “Executive Compensation” below.





Director Independence





As the Company’s common stock is traded using Pink Sheets and not listed on one of the national securities exchanges, it is not subject to any director independence requirements.





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, to the best of our knowledge:




Thomas Morrison, Director, filed his initial Form 3 late, on March 24, 2009.





Parker Booth, President, filed his initial Form 3 late, on March 25, 2009.  We did not filed a Form 4 for the additional 1,500,000 shares he received from the Company in June 2009.  He filed a Form 5 for these shares on March 10, 2010.





James Haworth, former Director, filed his initial Form 3 late, on March 18, 2010.





Alicia Smith Kriese, Director, filed her initial Form 3 late, on March 20, 2009. She did not file a Form 4 for the additional 231,000 shares she received from the Company in September 2009.  She filed a Form 5 for these shares on March 9, 2010.





Michael Rosenthal, Director, filed his initial Form 3 late, on March 25, 2010.





Mark Klein, Director, filed his initial Form 3 late, on March 25, 2010.





Code of Ethics





The Company has not adopted a Code of Ethics policy. The Company is in the process of establishing such policy.





ITEM 11.  EXECUTIVE COMPENSATION





The following table sets forth information concerning the compensation for the fiscal year ended December 31, 2009 of the principal executive officer, principal financial officer, in addition to, as applicable, our three most highly compensated officers whose annual compensation exceeded $100,000, and up to two additional individuals for whom disclosure would have been required but for the fact that the individual was not serving as an executive officer of the registrant at the end of the last fiscal year (the “Named Executive Officers”).





23


2009 SUMMARY COMPENSATION TABLE





Name and Principal Position

Year

Salary ($)


Bonus ($)


Stock

Awards

($)


Option

Awards

($)


Non-Equity

Incentive Plan

Compensation

($)


Change in

Pension

Value and

Nonqualified

Deferred

Compensation

Earnings

($)


All Other

Compensation

($)


Total

($)Thomas Morrison

Non-Executive Chairman of the Board (7)2009


-



-



225,000
(8)


-



-



-



-



225,0002008


-



-



450,000
(1)


-



-



-



-



450,000Parker Booth, Chief Executive Officer, Chief Financial Officer & Director  (2)2009


300,000



-



388,050
(9)






-



-



10,800
(4)


698,8502008


37,500



-







100,230
(3)


-



-



1,350
(4)


139,080James Haworth, Director2009






-



-



-



-



-



-



-2008






-



300,000
(5)


-



-



-



-



300,000Alicia Smith Kriese, Director2009






-



18,480
(10)


-



-



-



-



18,480







24


2008






-



300,000
(6)


-


-



-



-



300,000Dr. Corey Ruth, Director

2009










192,720
(11)

















192,7202008Michael Rosenthal, Director2009






-



45,500
(12)2008






-Mark Klein, Director2009






-



45,500
(13)2008






-





_____________________________


(1)
Value of 1,265,250 shares of the Company’s common stock upon joining the Company.(2)
Mr. Booth was promoted to Chief Executive Officer and Chief Financial Officer on December 11, 2009.(3)
Value of 675,000 stock options for shares of the Company’s common stock.(4)
Relates to automobile benefits





(5)
Value of 843,500 shares of the Company’s common stock.(6)
Value 843,500 shares of the Company’s common stock.(7)
Mr. Morrison resigned as Chief Executive Officer and Chief Financial Officer on December 11, 2009 and Retired from the Company on April 22, 2010(8)
Value of 2,500,000 shares of the Company’s common stock received as compensation.(9)
Value of 2,145,000 shares of the Company’s common stock received as compensation.(10)
Value of 231,000 shares of the Company’s common stock received as a financing incentive.(11)
Value of 876,000 shares of the Company’s common stock received as director compensation and for a financing incentive.(12)
Value of 350,000 shares of the Company’s common stock earned as director compensation.  These shares were issued in March 2010.(13)
Value of 350,000 shares of the Company’s common stock earned as director compensation.  These shares were issued in March 2010.





Only Mr. Booth has a formal employment or consulting agreement.




25




2009 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
UnexercisableParker Booth, Chief Executive Officer, Chief Financial Officer & Director  (1)
225,000
450,000
-
0.51
September 30, 2013
-
-
-
-





_________________


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





Employment/Consulting Agreements





On July 1, 2008, we executed a 16 month consulting agreement with William J. Gallagher to provide financial advisory, investor relations and certain administrative services for $6,250 per month. We accrued consulting compensation for Mr. Gallagher beginning on July 1, 2008.  This contract terminated on October 31, 2009 and was not renewed.  Mr. Gallagher contributed approximately $11,500 to the Company during 2009 which was added to his accrued expense balance. The accrued expense for $100,000 has not been paid and remains a liability of the Company at December 31, 2009.





On October 1, 2008 we executed an employment contract with Mr. Booth as our Company President.  Mr. Booth’s employment contract 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 the 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 options to purchase 675,000 shares of the Company stock at $0.51 per share that vest over a three year period beginning:





September 30, 2009 for 1/3 of the options


September 30, 2010 for 1/3 of the options


September 30, 2011 for 1/3 of the options





The options expire five years from the date of the original grant.  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.  The accrued salary of $174,650 through June 1, 2009 has not been paid and remains a liability of the Company at December 31, 2009.





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.





26




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.





ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS





As of the date of this filing, there are 29,649,943 shares of common stock outstanding. The following table sets forth certain information regarding the beneficial ownership of the outstanding shares as of the date of this filing, including any conversion privileges, stock options or warrants exercisable within 60 days of the date of this filing, by (i) each person who is known by us to own beneficially more than 10% 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.  Each such person has investment and voting power with respect to such shares, subject to community property laws where applicable. The address of each owner who is an officer or director is in care of the Company at 401 Monterey Street, Suite 202 Salinas, CA 939010.





Name of Beneficial Owner

Shares

Beneficially

Owned

Percentage

Beneficially

OwnedDirectors and Executive Officers:Parker Booth, Chief Executive Officer

2,370,000
(1)
7.9%Alicia Smith Kriese, Director

1,074,500

3.6%





Michael J. Rosenthal, Director
1,300,000

4.4%Mark Klein, Director
350,000

1.2%Executive Officers and Directors as a group (4 persons)
5,094,500

17.1%10% or more Stockholders:Mathis Family Partners
3,640,000
(2)
11.0%Thomas Morrison, Former Director
3,765,250

12.7%(1)  This amount includes 225,000 shares of common stock purchase options.(2)  This amount includes 3,360,000 shares of common stock purchase warrants.








27


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




In September 2008, Earnest Mathis, a related party, advanced the Company $15,000. The advance is evidenced by a promissory note bearing interest at 10% per annum.  The unpaid balance including accrued interest was $16,942 at December 31, 2009.





During the fourth quarter of 2008 through December 31, 2009, Parker Booth, Chief Executive Officer, advanced the Company $493,905. The advances are evidenced by a promissory note bearing interest at 5% per annum.  The unpaid balance including accrued interest was $508,293 at December 31, 2009.  The promissory note also includes the issuance of 2,668,747 shares of the Company’s common stock to Mr. Booth as a financing incentive.  These shares have not been issued to Mr. Booth.





In October and December 2009, Mike Rosenthal, Director, advanced the Company $130,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $131,123 at December 31, 2009. The promissory notes also include the issuance of 900,000 shares of the Company’s common stock to Mr. Rosenthal as a financing incentive.  These shares were issued in Mr. Rosenthal in March 2010.





In November 2009, Morrison Partners, LLC, (Tom Morrison, former CEO and Chairman of Board of the Company is the President) advanced the Company $10,000. The advance is evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $10,042 at December 31, 2009.  The promissory note also includes the issuance of 55,400 shares of the Company’s common stock as a financing incentive.  These shares have not been issued to Morrison Partners, LLC.





In December 2009, Corey Ruth, Director, advanced the Company $50,000. The advance is evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $50,137 at December 31, 2009.  The loan was paid back in February 2010.  The promissory note also includes the issuance of 200,000 shares of the Company’s common stock to Dr. Ruth as a financing incentive.  These shares were issued in Dr Ruth in March 2010.





ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





Audit Fees:





The aggregate fees billed by MHM Mahoney Cohen CPAs (The New York Practice of Mayer Hoffman McCann P.C.) at December 31, 2009 for professional services rendered for the audit of the Company’s December 31, 2009 consolidated financial statements were $10,000.





Tax Fees:





The aggregate fees billed by August Schneiderheinz CPA, PC. to provide tax compliance, tax advice and tax planning services during the year ended December 31, 2009 were $3,300.





28


PART IV





ITEM 15.    EXHIBITS.





Number
Exhibit3.1
Articles of Incorporation, as amended, of Registrant (1)3.2
Bylaws of Registrant (1)10.1
Exchange Agreement with Organic Alliance, Inc, a Texas corporation (1) (2)10.2
Amendment to Exchange Agreement with Organic Alliance, Inc, a Texas corporation (1) (2)10.3
Consultant Agreement (Gallagher) (3)10.4
Employment Agreement (Booth) (3)10.5
Office Lease Agreement (3)31.1
Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer. (4)32.1
Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (4)





(1) Incorporated by reference to the Registrant’s Registration Statement on Form S-1 declared effective by the Commission on December 31, 2008.





(2) The originally filed Exchange Agreement (Exhibit 10.1) indicated therein that we issued 1,000,000 warrants in connection with our acquisition of Organic Texas.  In fact the actual number of warrants issued was 1,000,028.  Accordingly, to correct this error of 28 warrants, we filed Exhibit 10.2 which shows the correct number of warrants issued in the Exchange Agreement to be 1,000,028.  Exhibit 10.2 represents the accurate and correct Exchange Agreement (2)





(3)  Incorporated by reference to the Registrant’s Form 10-K filed for the year ended December 31, 2008.





(4)  Filed herein.
















29


SIGNATURES





In accordance with 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.By: /s/ Parker Booth





Parker BoothChief Executive Officer, Chief Financial Officer (PrincipalAccounting Officer) and DirectorDate: May 18, 2010





In accordance with 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/s/ Parker BoothParker Booth

Chief Executive Officer, Chief FinancialOfficer (Principal Accounting Officer) and Director/s/ Alicia Smith KrieseAlicia Smith Kriese

Director/s/ Michael RosenthalMichael  Rosenthal

Director/s/ Mark KleinMark Klein

Director















30




Organic Alliance Inc. and Subsidiary





Index to Consolidated Financial Statements





Report of Independent Registered Public Accounting Firm
F-2Consolidated Financial StatementsConsolidated Balance Sheets
F-3Consolidated Statements of Operations
F-4Consolidated Statements of Changes in Stockholders’ Equity (Deficiency)
F-5Consolidated Statements of Cash Flows
F-6Notes to Consolidated Financial Statements
F-7


















F-1


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors and Stockholders


Organic Alliance, Inc. and Subsidiary





We have audited the accompanying consolidated balance sheets of Organic Alliance, Inc. and Subsidiary (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders' equity (deficiency) and cash flows for the year ended December 31, 2009 and the period from February 19, 2008, date of inception, to December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, audits 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 consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Organic Alliance, Inc. and Subsidiary at December 31, 2009 and 2008, and the results of their operations and their cash flows for year ended December 31, 2009 and the period from February 19, 2008, date of inception, to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming that Organic Alliance, Inc. and Subsidiary will continue as a going concern. As more fully described in Note 3, at December 31, 2009, the Company has a working capital deficit of $1,610,131, and has accumulated losses of $8,263,190 since inception. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.





/s/ MHM Mahoney Cohen CPAs


(The New York Practice of Mayer Hoffman McCann P.C.)





New York, New York


May 18, 2010








F-2


Organic Alliance, Inc. and SubsidiaryConsolidated Balance Sheets
  As of December 31,2009


2008AssetsCurrent assets:Cash

$
231


$
250Accounts Receivable, net (Note 2)


104,518



-Due from factor (Note 5)


18,908



-Prepaid expenses and other current assets


7,632



4,461Total current assets


131,289



4,711Property and equipment, net (Note 2)


7,319



-Other assets (Note 4)


-



30,000Total Assets

$
138,608


$
34,711Liabilities and Stockholders' DeficiencyCurrent liabilities:Accounts payable

$
735,828


$
141,898Accrued expenses and other current liabilities


411,236



82,990Notes payable, net of discount (Note 9)


594,356



104,270Total current liabilities


1,741,420



329,158Stockholders' Deficiency:Preferred stock, no stated value authorized;10,000,000 shares; -0- shares issuedand outstanding as of December 31, 2009 and 2008


-



-Common stock, $.0001 par value, 60,000,000 sharesauthorized, 27,299,943 and 13,131,967 shares outstanding as ofDecember 31, 2009 and 2008, respectively


2,730



1,313Additional paid-in capital


6,657,648



4,654,217Accumulated deficit


(8,263,190
)


(4,949,977
)Total stockholders' deficiency


(1,602,812
)


(294,447
)Total Liabilities and Stockholders' Deficiency

$
138,608


$
34,711
  The accompanying notes are an integral part of these consolidated financial statements






F-3




Organic Alliance, Inc. and SubsidiaryConsolidated Statements of Operations  Period from InceptionYear Ended


(February 19, 2008) toDecember 31, 2009


December 31, 2008Revenue

$
4,268,680


$
-Cost of Sales


4,265,201



-Gross profit


3,479



-General and administrative expenses


3,150,800



4,239,484Operating Loss


(3,147,321
)


(4,239,484
)Other (income) expense:Interest expense


135,892



1,273Interest income


-



(41,410
)Loss from write-off on notes receivable (Note 9)


-



750,630Loss from impairment of intangible asset (Note 4)


30,000



-Total net other expenses


165,892



710,493Net loss

$
(3,313,213
)

$
(4,949,977
)Basic and diluted loss per share

$
(0.13
)

$
(0.41
)Weighted average number ofcommon shares outstanding - basic and diluted


25,565,377



12,102,221
  The accompanying notes are an integral part of these consolidated financial statements






F-4




Organic Alliance, Inc. and SubsidiaryConsolidated Statements of Stockholders' Equity (Deficiency)  Common Stock


Additional








TotalPaid-In


Notes


Accumulated


Stockholders'Shares

Amount


Capital


Receivable


Deficit


DeficiencyBeginning Balances, February 19, 2008


-


$
-


$
-


$
-


$
-



--NB Design Inc., net assets assumed


1,200,028



120



(120
)






-



-Shares repurchased and retired


(500,000
)


(50
)


(199,950
)






-



(200,000
)Shares issued based on issuance of promissory note


2,483,750



248



993,252



(993,500
)






-Payments received on note receivable






-



-



265,527







265,527Loss on write-off of note receivable






-



-



727,973







727,973Issuance of common stock for services


9,330,272



933



3,669,739











3,670,672Proceeds from shares issued


617,917



62



186,938











187,000Share based compensation


-



-



4,358











4,358Net loss


-



-



-



-



(4,949,977
)


(4,949,977
)Balance at December 31, 2008


13,131,967



1,313



4,654,217



-



(4,949,977
)


(294,447
)Issuance of common stock for services (Note 9)


9,990,905



999



1,275,063











1,276,062Issuance of common stock related to financing transaction (Note 9)


3,747,071



375



367,369











367,744Common stock granted for services to be issued


-



-



91,000











91,000Discount on shares issued for notes payable (Note 9)


430,000



43



26,225











26,268Discount on notes payables for common stock to

be issued (Note 9)



208,911











208,911Share-based compensation (Note 10)










34,863











34,863-Net loss


-



-



-



-



(3,313,213
)


(3,313,213
)Balance at December 31, 2009


27,299,943


$
2,730


$
6,657,648


$
-


$
(8,263,190
)

$
(1,602,812
)
  The accompanying notes are an integral part of these consolidated financial statements






F-5




Organic Alliance, Inc. and SubsidiaryConsolidated Statements of Cash Flows  Period from InceptionYear Ended


(February 19, 2008) toDecember 31, 2009


December 31, 2008Cash flows from operating activities:Net loss

$
(3,313,213
)

$
(4,949,977
)Adjustments to reconcile net loss to net cash used in operating activities:Common stock issued for services


1,709,806



3,670,672Share-based compensation


34,863



4,358Loss from write-off of note receivable, net of accrued interest income of 22,657


-



727,973Depreciation Expense


1,181



-Bad-debt expense


53,327



-Impairment of intangible asset


30,000



-Amortization on discount of note payable


61,827



-Changes in operating assets and liabilities:Accounts receivable


(157,845
)


-Due from factor


(18,908
)


-Prepaid expenses and other current assets


(3,172
)


(4,461
)Accounts payable


593,930



141,898Accrued expenses and other current liabilities


346,280



83,760Net cash used in operating activities


(661,924
)


(325,777
)Cash flows from investing activities:Purchase of property and equipment


(8,500
)


-Deposit on asset purchase






(30,000
)Cash used in investing activities


(8,500
)


(30,000
)Cash flows from financing activitiesProceeds from notes payable


690,405



103,500Principal payments on notes payable


(45,000
)


-Proceeds from issuance of common stock


25,000



187,000Principal payments on note receivable for common stock


-



265,527Purchase of common stock


-



(200,000
)Net cash provided by financing activities


670,405



356,027Net increase (decrease) in cash


(19
)


250Cash - beginning of the year


250



-Cash - end of the year

$
231


$
250Supplemental disclosure for non-cash financing activities:Discount on notes payable

$
235,179


$
-Issuance of shares of common stock for note receivable

$
-


$
993,500Supplemental disclosures:Interest paid

$
52,066


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






F-6


Organic Alliance Inc. and Subsidiary


Notes to Consolidated Financial Statements





1.
NATURE OF BUSINESS AND OTHER MATTERS





NB Design & Licensing, Inc., (“NB Design”) was organized in September 2001.  The former parent, New Bridge Products, Inc., was originally incorporated in August 1995 as a manufacturer of minivans and 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.





On April 29, 2008, NB Design, a Nevada corporation, acquired all 10,916,917 issued and outstanding shares of common stock and assumed all liabilities Organic Texas for 9,299,972 shares of NB Design’s common stock. Organic Texas thereupon became a wholly owned subsidiary of NB Design. All Organic Texas common shares issued prior to April 29, 2008 for services provided are retroactively shown in the Consolidated Statement of Stockholders’ Equity (Deficiency) based on the ratio of 0.8435 NB Design common share issued for one Organic Texas common share (See Note 8).  All Organic Texas common shares issued prior to April 29, 2008 for cash are shown in the Consolidated Statement of Stockholders’ Equity (Deficiency) based on one NB Design common share issued for one Organic Texas common share (See Note 8).  The business of Organic Texas is the only business of NB Design.





The acquisition of Organic Texas by NB Design on April 29, 2008 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”. The reverse capitalization was the acquisition of a private operating company (Organic Texas) into a non-operating public shell corporation (NB Design) with nominal net assets and as such is treated as a capital transaction, rather than a business combination. As a result no goodwill is recorded.  In this situation, NB Design is the legal acquirer because it issued its equity interests, and Organic Texas is the legal acquiree because its equity interests were acquired.  However, NB Design is the acquiree and Organic Texas as 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.





Prior to April 29, 2008, NB Design had outstanding 1,000,028 each of Class A, Class B, Class C, Class D, Class E and Class F warrants.  The warrants were exercisable at $2.00, $2.00, $4.00, $4.00, $6.00 and $6.00, respectively, at any time until December 31, 2008.  As a condition to closing the Exchange Agreement, the exercise prices of the warrants were subsequently reduced to $1.00 per share for all classes of Warrants and the expiration date was extended to December 31, 2011.   In exchange for the exercise price reduction, the holders of at least 80% of the Warrants agreed to a call provision by NB Design on 10 days notice to them if (i) the bid price of our common stock is quoted at $1.25 per share or higher and the average share volume exceeds 300,000 shares for at least one day, and (ii) the shares underlying the warrants are subject to a current registration statement on file with the SEC.  Both the share price and volume must be met on the same day for the call provision to be effective.  A registration statement has not been filed with the SEC for the warrants as of the date of this Form 10-K.





On June 2, 2008, the name NB Design was changed to Organic Alliance, Inc.  On August 29, 2008, the name of Organic Texas was changed to Organic Texas, Inc.  All references throughout this Annual Report to “Organic Alliance, Inc.,” or the “Company” refer to the combined operations of Organic Alliance, Inc., a Nevada corporation, and our wholly-owned subsidiary, Organic Texas.





On December 31, 2008, we filed a Form S-1 with the SEC covering 2,638,250 shares of our .0001 par value Common Stock.





The Company was formed on February 19, 2008 and was in development stage through the first quarter of 2009. 2009 was the first year during which it is considered an operating company. During the second quarter of 2009, the Company commenced its operations and the Company generated approximately $4,300,000 of revenues for the year ended December 31, 2009.




F-7




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 applicable for a going concern which assumes that the Company will realize it's assets and discharging it's liabilities in the ordering course of business. These principles contemplate the realization of assets and liquidation of liabilities in the normal course of business.




Principles of Consolidation-The consolidated financial statements include the accounts of the 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.





Revenue Recognition -Revenue is recorded when (1) the customer accepts delivery of the product and 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.  Sales are presented net of discounts and allowances.





Impairment of Long-Lived and Intangible Assets- Long-lived assets consist of property and equipment and intangible assets. Intangible assets are comprised of AvocadoMan brand and an order processing web software system. The Company evaluates long-lived assets, including property, plant and equipment and intangible assets, for impairment in accordance with Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”) (primarily codified into Topic 360), “Accounting for the Impairment or Disposal of Long-Lived Assets” whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. If the estimated future cash flows (undiscounted and without interest charges) from the use of an asset are less than the carrying value, a write-down would be recorded to reduce the related asset to its estimated fair value.




When the Company determines that the carrying value of long-lived assets may not be recoverable based upon the existence of the above indicators of impairment and the carrying value of the asset cannot be recovered from projected undiscounted cash flows, the Company records an impairment charge. Significant management judgment is required in determining whether an indicator of impairment exists and in projecting cash flows. The Company believes the carrying value of its  brand name will not be recovered in the future and so recorded impairment loss of $30,000.





Debt Discount - Costs incurred with parties who are providing the actual long-term financing, which generally include the value of shares of the Company’s common stock are reflected as a debt discount. These discounts are amortized over the life of the related debt.  Amortization expense related to these costs and discounts is $61,827 for the year ended December 31, 2009 and is included in interest expense.





Estimated Fair Value of Financial Instruments - The Company's financial instruments include cash, accounts receivable, other receivables, accounts payable, accrued expenses and notes payable. Management believes the estimated fair value of these financial instruments at December 31, 2009 approximate their carrying value as reflected in the balance sheets due to the short-term nature of these instruments.




F-8


Concentrations





·
Credit Risk -The Company maintains cash balances at various financial institutions. Accounts at each financial institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) for up to $250,000.  At December 31, 2009, the Company’s cash did not exceed the FDIC insurance limit.


·
Major customers - The Company has four major customers, which accounted for approximately 74% of sales during 2009. The loss of any of these customers could adversely affect the Company's operations.


·
Major suppliers - The Company has three major suppliers, which accounted for approximately 53% of purchases during 2009. The loss of any of these suppliers could adversely affect the Company's operations.





Allowance for Doubtful Accounts -An allowance for uncollectible accounts receivable is recorded based on a combination of aging analysis and any specific troubled accounts. Starting in 2009, our produce are sold to our 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.





Income Taxes - Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating losses. 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 income in the period that includes the enactment date. At December 31, 2009 and 2008, the Company had a full valuation allowance against its deferred tax assets.





The Company files an income tax return in the U.S. federal jurisdiction, California and Texas. Tax returns for 2009 and 2008 remain open for examination. The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109, Accounting for Income Taxes” (“FIN 48”) (primarily codified into Topic 740 of Accounting Standards Codification (“ASC”)), at February 19, 2008.  The Company’s estimate of the potential outcome of any uncertain tax issues is subject to management’s assessment of relevant risks, facts, and circumstances existing at that time. The Company uses a more likely than not threshold for financial statement recognition and measurement of tax position taken or expected to be taken in a tax return. To the extent that our assessment of such tax position changes, the change in estimate is recorded in the period in which the determination is made.  As a result of the implementation of FIN 48, the Company recognized no material adjustment in the liability for unrecognized income tax benefits at February 19, 2008. At December 31, 2009 and 2008, there were no unrecognized tax benefits. Interest and penalties related to uncertain tax positions will be recognized in income tax expense. As of December 31, 2009 and 2008, no interest and penalties related to uncertain tax positions had been accrued.





Property and Equipment - Property and equipment is stated at cost, less accumulated depreciation, which is calculated using the straight-line method over the estimated useful life of three years. At December 31, 2009, the property and equipment was $7,319, included cost of $8,500, net of accumulated depreciation of $1,181. The depreciation expense was $1,181 for the year ended December 31, 2009 and included in general and administrative expense on the consolidated statement of operations.





Share Based Compensation - The Company accounts for its share-based employee compensation arrangement in accordance with SFAS No. 123R, “Share Based Payment” (SFAS No. 123(R)”) (primarily codified into Topic 718 of ASC). Under SFAS No. 123R, share-based payments are measured at the estimated fair value on the date of grant and are recognized as an expense over the requisite service period (generally the vesting period).





F-9


The Company uses the provisions of FAS 123(R) and EITF 96-18,“Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”  (primarily codified into Topic 505 of ASC) to account for the compensation expense associated with equity grants to non-employees. The Company measures the compensation associated with these grants based on the fair value of the equity instruments issued.  The measurement date to calculate the fair value of the equity instruments granted is based upon the date that the performance commitment has occurred.





Net Loss Per Share - Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the period.





Diluted net loss per share is computed by dividing the net loss by the weighted average number of common and common equivalent shares outstanding during the period. Basic and diluted net loss per share are the same.





Period from InceptionYear Ended


(February 19, 2008)December 31, 2009


to December 31, 2008Numerator:Net loss - basic and diluted

$
(3,313,213
)

$
(4,949,977
)Denominator:Weighted average shares – basic


25,565,377



12,102,221Effect of dilutive stock options and warrants


-



-Denominator for diluted earnings per share


25,565,377



12,102,221Loss per shareBasic

$
(0.13
)

$
(0.41
)Diluted

$
(0.13


$
(0.41
)







At December 31, 2009 and 2008, the Company stock options outstanding totaled 675,000. In addition, at December 31, 2009 and 2008, the Company’s warrants outstanding represented 6,000,168 common shares. Inclusion of the Company’s options and warrants in diluted loss per share for the year ended December 31, 2009 and for the period from inception (February 19, 2008) to December 31, 2008, have an anti-dilutive effect because the Company incurred a net loss from operations.





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





Reclassifications - Certain 2008 balances have been reclassified to conform to the 2009 presentation.








F-10


Recently Issued Accounting Standards





Effective February 19, 2008, the Company adopted the provisions Topic 820 of FASB ASC, “Fair Value Measurements and Disclosures”, which did not have a material impact on the Company’s consolidated financial statements. In February 2008, the FASB provided a one year deferral for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities until fiscal years beginning after November 15, 2008. The adoption of this statement had no impact on the Company’s consolidated financial statements.





In April 2009, the FASB issued FSP FAS 157-4 (primarily codified into Subtopic 820-10 of FASB ASC), “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly”. FSP FAS 157-4 must be applied prospectively and retrospective application is not permitted. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. An entity early adopting FSP FAS 157-4 must also early adopt FSP FAS 115-2 and FAS 124-2 (primarily codified into Subtopic 320-10 of FASB ASC), “Recognition and Presentation of Other-Than-Temporary Impairments”. The adoption of these statements had no material impact on the Company’s consolidated financial statements.





In December 2007, the FASB issued Statement No. 141(R), "Business Combinations” (“SFAS 141(R)”) (primarily codified into Topic 805 of FASB ASC). SFAS 141(R) expands the definition of transactions and events that qualify as business combinations; requires that the acquired assets and liabilities, including contingencies, be recorded at the fair value determined on the acquisition date and changes thereafter reflected in revenue, not goodwill; changes the recognition timing for restructuring costs; and requires acquisition costs to be expensed as incurred. Adoption of SFAS 141(R) is required for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. Early adoption and retroactive application of SFAS 141(R) to fiscal years preceding the effective date are not permitted.





In April 2009 the FASB issued FSP FAS 141(R)-1 (primarily codified into Topic 805 of FASB ASC), “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies”. This FSP amends the guidance in SFAS 141 (R). This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The adoption of these statements had no material impact on the Company’s consolidated financial statements.





In June 2008 the FASB issued FSP Emerging Task Force (“EITF”) 03-6-1 (primarily codified into Topic 260 of FASB ASC), “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” FSP EITF 03-6-1 provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. FSP EITF-03-6-1 is effective for fiscal years beginning after December 15, 2008, and interim periods within those years. Upon adoption, a Company is required to retrospectively adjust its earnings per share data (including any amounts related to interim periods, summaries of earnings and selected financial data) to conform to the provisions of FSP EITF 03-6-1.  The adoption of these statements had no material impact on the Company’s consolidated financial statements.





In June 2009 FASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets” — an amendment of SFAS No. 140” (“SFAS 166”)”, (primarily codified into Topic 860 of FASB ASC).  This statement removes the concept of a qualifying special-purpose entity which was primarily codified into Topic 810 of FASB ASC, Consolidation of Variable Interest Entities, to qualifying special-purpose entities.  This statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact this statement may have on the consolidated financial statements.




F-11





In June 2009 the FASB issued SFAS No. 167, “Amendments to FASB interpretation No. 46(R)” (“SFAS 167”), (primarily codified into ASC Topic 810). This statement requires an analysis of existing investments to determine whether variable interest or interests gives the Company a controlling financial interest in a variable interest entity. This analysis identifies the primary beneficiary of a variable interest entity as the enterprise that has both the power to direct the activities of significant impact on a variable interest entity and the obligation to absorb losses or receive benefits from the variable interest entity that could potentially be significant to the variable interest entity. This statement requires ongoing reassessments of whether an enterprise is the primary beneficiary of a variable interest entity. This statement is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company is currently evaluating the impact this statement may have on the consolidated financial statements.





In June 2009 the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (“US GAAP”) -a replacement of FASB Statement No. 162” (“SFAS 168”) (primarily codified into Topic 105 of FASB ASC). The FASB Accounting Standards Codification is intended to be the source of authoritative U.S. GAAP and reporting standards as issued by the Financial Accounting Standards Board. Its primary purpose is to improve clarity and use of existing standards by grouping authoritative literature under common topics. This statement is effective beginning with the quarter ended September 15, 2009.  All references to GAAP in the consolidated financial statements also use the new Codification numbering system. The Codification does not change or alter existing GAAP; therefore, it does not have an impact on the Company’s consolidation financial statements.




In June 2009 the SEC released “Update of codification of Staff Accounting Bulletins”. This update amends or rescinds existing portions of the interpretive guidance included in the SEC’s Staff Accounting Bulletin Series to be consistent with the authoritative accounting guidance of SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”) (primarily codified into Topic 805 of FASB ASC) and SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements” (“SFAS 160”) (primarily codified into Topic 810 of FASB ASC). This update is effective for the Company beginning with the first fiscal quarter of 2010 and will be utilized in conjunction with future business combinations and non-controlling interests.





In August 2009 the FASB issued Accounting Standards Update (“ASU”) No. 2009-05, “Fair Value Measurements and Disclosures (Topic 820) —Measuring Liabilities at Fair Value”. This statement includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”, for the fair value measurement of liabilities and provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. This statement is effective for the first report period (including interim periods) beginning after issuance. The adoption of this statement had no material impact on the Company’s consolidated financial statements.





In January 2010, FASB issued ASU 2010-02, “Accounting and Reporting for Decreases in Ownership of a Subsidiary- a Scope Clarification”, which addresses the accounting for non-controlling interests and changes in ownership interests of a subsidiary. ASU 2010-02 is effective for the interim or annual reporting periods ending on or after December 15, 2009, and must be applied retrospectively to interim or annual reporting periods beginning on or after December 15, 2008. The adoption of ASU 2010-02 had no impact on the Company's consolidated financial statements.




In January 2010, FASB issued ASU 2010-06, “Improving Disclosures about Fair Measurements”, which provides amendments to subtopic 820-10 that require separate disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and the presentation of separate information regarding purchases, sales, issuances and settlements for Level 3 fair value measurements. Additionally, ASU 2010-06 provides amendments to subtopic 820-10 that clarify existing disclosures about the level of disaggregation and inputs and valuation techniques. ASU 2010-06 is effective for financial statements issued for interim and annual periods ending after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the rollforward of activity in Level 3 fair value measurements, which are effective for interim and annual periods ending after December 15, 2010. The Company is currently evaluating the impact of the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. The Company adopted provisions of ASU 2009-06 that were affective after December 15, 2009 and the application of those provisions had no impact on the Company’s consolidated financial statements.




F-12


In February 2010, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2010-09, Subsequent Events (Topic 855) Amendments to Certain Recognition and Disclosure Requirements, which amends disclosure requirements within Subtopic 855-10. An entity that is an SEC filer is not required to disclose the date through which subsequent events have been evaluated. This change alleviates potential conflicts between Subtopic 855-10 and the SEC's requirements. ASU 2010-09 is effective upon issuance. The adoption of ASU 2010-09 did not have a material impact on the Company's consolidated financial statements.




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, 2009, the Company has a working capital deficit of approximately $1,610,000 and has accumulated losses of approximately $8,263,000 since its inception.  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 upon 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 may 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, and strategic relationships, if necessary to raise additional funds, and may require that the Company relinquish valuable rights.





F-13





4.
ASSET PURCHASE AGREEMENT





On January 7, 2009, the Company entered into an Asset Purchase Agreement with American Eagle Transport LLC to purchase The AvocadoMan brand and an order processing web software system for $30,000.  The purchase price was paid in November 2008 and was included in other assets on the consolidated balance sheet at December 31, 2008.





During March 2009, the Company determined that the AvocadoMan brand has zero fair value and so recorded an impairment loss of $30,000. The Company's methodology to determine this impairment was based upon its assessment of future undiscounted cash flows and certain market-based assumptions.





5.
DUE FROM FACTOR





During April 2009, the company entered into an account receivable factoring facility with a financial service company specializing in short term financing facilities for produce companies with maximum borrowing of $1,500,000.





The financial service company advances 85% of qualified customer invoices to the Company and holds the remaining 15% as a reserve until the customer pays the financial services company.  The Company is charged .083% interest per day for all advances made to the Company.  Uncollectable customer invoices will be charged back to the Company.  At December 31, 2009, the advances from the factor amounted to approximately $136,000, which was offset against due from factor of approximately $155,000.  Advances from the factor are collateralized by substantially all assets of the Company. (see note 13)







6.
INCOME TAXES





The components of deferred tax assets as of December 31, 2009 and 2008 are as follows:








December 31, 2009


December 31, 2008Share based compensation

$
2,173,000


$
1,464,000Start up costs


276,000



191,000Net operating losses


501,000



23,000Less: valuation allowance


(2,950,000
)


(1,678,000
)Net deferred tax asset

$
-


$
-







F-14


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. As a result of uncertainty of achieving sufficient taxable income in the future, the Company has recorded a full valuation allowance against its deferred tax asset of $2,950,000 and $1,678,000 as of December 31, 2009 and 2008, respectively.





At December 31, 2009, the Company had net operating losses of approximately $1,300,000 that may be used to reduce future tax liabilities, including net operating losses of approximately $68,000 of NB Design at December 31, 2008 acquired per the Exchange Agreement. . Such net operating losses expire through 2029 and may be limited as the annual amount available for use under Internal Revenue Code Section 382.





A reconciliation of the benefit from income taxes based on the Federal statutory rate to the Company’s effective rate for year ended December 31, 2009 and the period from inception (February 19, 2008) to December 31, 2008 is as follows:




2009


2008%


%Federal income tax benefit at statutory rate


34



34State income tax benefit, net of federal income tax


6



6Change in valuation allowance


40



40Total benefit from taxes


-



-





The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible.





7.
PREFERRED STOCK





The Company has not assigned any preference rights to the preferred stock, nor has any preferred stock been issued as of December 31, 2009 and 2008.





8.
SHARE EXCHANGE AGREEMENT





On April 29, 2008, NB Design exchanged 9,299,972 shares of its common stock for 10,916,917 shares of Organic Texas common stock.  The shares were exchanged in two groups as follows:






Group A represents 44 Organic Texas stockholders that received Organic Texas common stock for consulting services, executive compensation and director compensation prior to the April 29, 2008 merger date.  These stockholders exchanged 10,331,917 shares of Organic Texas common stock for 8,714,972 shares of the NB Design common stock using the ratio of .8435 share of NB Design common stock to one share of Organic Texas common stock.
Group B represents 8 investors who received Organic Texas common stock for investing funds in Organic Texas prior to the April 29, 2008 merger date.  These stockholders exchanged 585,000 shares of Organic Texas common stock for 585,000 shares of NB Design common stock.





As part of the transaction, $200,000 was paid to certain shareholders of the Company by Organic Texas to re-purchase 500,000 shares of Company’s common stock.  These shares were subsequently retired.





F-15





9.
EQUITY TRANSACTIONS





Unregistered Sales of Equity Securities:





In March 2008, the Company sold 335,000 unregistered shares of common stock (Group B, See Note 8) for $100,500.





In March 2008, the Company issued 5,000,000 shares of common stock to Officers, Directors and a related party of the Company.  These shares were exchanged for 4,217,500 unregistered shares of the Company’s common stock (Group A, See Note 8) on April 29, 2008.  These shares were valued at $1,500,000 or $0.30 per share based on the sales price of shares to non-related third parties during March 2008.





In March and April 2008, the Company issued 5,331,917 shares of common stock to consultants to perform services for the Company including legal, public relations, investor relations, and others.  These shares were exchanged for 4,497,472 unregistered shares of the Company’s common stock (Group A, See Note 8) on April 29, 2008.  These shares were valued at $1,599,575 or $0.30 per share based on the sales price of shares to non-related third parties during March and April 2008.





In April 2008, the Company sold 250,000 unregistered shares of common stock (Group B, See Note 8) for $75,000 and 16,667 unregistered shares of common stock for $5,000.





During May 2008, the Company issued 90,000 unregistered shares or common stock to an attorney to perform legal services for the Company.  These shares were valued at $54,000 or $0.60 per share based on the closing price of the Company’s common stock on the date of the agreement.





During June 2008, the Company issued 30,000 unregistered shares of common stock to a consultant to perform accounting services for the Company.  These shares were valued at $30,300 or $1.01 per share based on the closing price of the Company’s common stock on the date of the agreement.





During July 2008, the Company issued 73,000 unregistered shares of common stock to a group of six physicians that served on a medical advisory board for the Company.  These shares were valued at $72,270 or $0.99 per share based on the closing price of the Company’s common stock on the date of the agreement.





During July 2008, the Company issued 357,300 unregistered shares of common stock to a six individuals that performed investor relation services for the Company.  These shares were valued at $353,727 or $0.99 per share based on the closing price of the Company’s common stock on the date of the agreement.





During August 2008, the Company issued 10,000 unregistered shares of common stock to an individual that performed investor relation services for the Company.  These shares were valued at $10,300 or $1.03 per share based on the closing price of the Company’s common stock on the date of the agreement. Also during August 2008, the Company issued 5,000 unregistered shares of common stock to an individual that performed administrative services for the Company.  These shares were valued at $5,000 or $1.00 per share based on the closing price of the Company’s common stock on the date of the agreement.




During September 2008, the Company issued 50,000 unregistered shares of common stock to an individual that performed investor relation services for the Company.  These shares were valued at $45,500 or $0.91 per share based on the closing price of the Company’s common stock on the date of the agreement.





During January 2009 and March 2009, the Company exchanged 1,747,071 shares of its registered common stock from a group of investors and related parties for two shares of the Company’s unregistered common stock (3,493,476 shares).  The registered shares were transferred to Edge Trading, LLC and Partners in an unsuccessful attempt to obtain financing.  As part of the transaction an additional 2,000,000 unregistered shares of the Company’s common stock were transferred to this group in January 2009. These shares were valued at $535,488, or $0.10 and $0.07 per share based on the closing price of the Company’s common stock in January and March 2009, the dates of the shares were exchanged. The Company received proceeds of $25,000 from this transaction, the remaining $510,488 included in the general and administrative expense on the consolidated statement of operations.





F-16


During February 2009, the Company compensated Thomas Morrison, chief executive officer, with 2,500,000 unregistered shares of the Company’s common stock, Parker Booth, president, with 645,000 unregistered shares of the Company’s common stock and a financial consultant, with 2,000,000 unregistered shares of the Company’s common stock for service to the Company.  The Company also compensated three investor relations consultants with a total of 270,000 unregistered shares of the Company’s common stock.  The total compensation was valued at $487,350 or $0.09 per share based on the closing price of the Company’s common stock on the date of the shares issued.





During June 2009, the Company compensated Dr. Corey Ruth, director, with 843,000 unregistered shares of the Company’s common stock, Parker Booth, CEO, with 1,500,000 unregistered shares of the Company’s common stock and a financial consultant, with 476,000 unregistered shares of the Company’s common stock for services to the Company.  The total compensation was valued at $620,180 or $0.22 per share based on the closing price of the Company’s common stock on the date of the shares issued.





During August 2009, Mike Rosenthal and Mark Klein joined the Company’s Board of Directors.  Both were to each receive 350,000 unregistered shares of the Company's common stock upon appointment to the board.  These shares were issued in March 2010.  The total compensation was valued at $91,000 or $0.13 per share based on the closing price of the Company’s common stock on the date of the agreement.





During September 2009, the Company issued 10,500 unregistered shares of common stock to an individual to become part of our medical advisory board.  These shares were valued at $788 or $0.075 per share based on the closing price of the Company’s common stock on the date of the agreement.





Registered Sales of Equity Securities:





In May 2008, the Company sold 16,250 registered shares of common stock for $0.40 a share to an investor to help fund the Company.  The Company also sold 2,483,750 registered shares of common stock for $0.40 per share to an investor for a 90 day promissory note that bore interest at 8% per annum on any unpaid balance.  The unpaid balance of $750,630 including accrued interest of $22,657 was written off as uncollectable and included in the consolidated statement of operations for period of inception (February 19, 2008) to December 31, 2008.





Notes payable





In September 2008, Earnest Mathis, a related party, advanced the Company $15,000. The advance is evidenced by a promissory note bearing interest at 10% per annum.  The unpaid balance including accrued interest was $16,942 at December 31, 2009.





During the fourth quarter of 2008 through December 31, 2009, Parker Booth, Chief Executive Officer, advanced the Company $493,905. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $508,293 at December 31, 2009.  The promissory notes with accrued interest are due on December 31, 2010. The promissory notes also include the issuance of 2,668,747 shares of the Company’s common stock to Mr. Booth as a financing incentive. These shares have not been issued to Mr. Booth.





In July 2009, Alicia Kriese, Director, advanced the Company $35,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The promissory note includes the issuance of 231,000 shares of the Company’s common stock upon the maturity of the note as financing incentive. The promissory note matured and was paid off during August 2009. The 231,000 shares of the Company’s common stock were issued during September 2009.





F-17


In July 2009, an individual advanced the Company $50,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The promissory note includes the issuance of 166,000 shares of the Company’s common stock upon the maturity of the note as financing incentive. The promissory note matured on November 1, 2009. The Company issued 166,000 shares of the Company’s common stock during September 2009.  The unpaid balance including accrued interest was $51,171 at December 31, 2009. The note has not been paid off as of the date of this Form 10-K.





In October and December 2009, Mike Rosenthal, Director, advanced the Company $100,000 and $30,000, respectively, totaling $130,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The unpaid balance including accrued interest was $131,123 at December 31, 2009. The promissory notes also include the issuance of 900,000 shares of the Company’s common stock to Mr. Rosenthal as a financing incentive.  These shares were issued to Mr. Rosenthal in March 2010. The October and December 2009 notes are due on March 31, 2010 and June 30, 2010, respectively.  The October note has not been paid back as of the date of this Form 10-K.





In November 2009, Morrison Partners, LLC, Tom Morrison, former Chairman of Board of the Company is the President, advanced the Company $10,000. The advance is evidenced by promissory note bearing interest at 5% per annum and due on June 30, 2010.  The unpaid balance including accrued interest was $10,042 at December 31, 2009.  The promissory note also includes the issuance of 55,400 shares of the Company’s common stock to Mr. Morrison as a financing incentive.  These shares have not been issued to Morrison Partners, LLC.





In June and December 2009, Dr. Corey Ruth, Director, advanced the Company $10,000 and $50,000, respectively, totaling $60,000. The advances are evidenced by promissory notes bearing interest at 5% per annum.  The promissory note of $10,000 includes the issuance of 33,000 shares of the Company’s common stock upon the maturity of the note as a financing incentive. The promissory note matured and was paid off on September 1, 2009. The promissory note of $50,000 matures on February 4, 2010, which includes the issuance of 200,000 shares of the Company’s common stock as financing incentive. The unpaid balance including accrued interest was $50,137 at December 31, 2009.  The loan was paid back in February 2010. The 200,000 shares of the Company’s common stock were issued to Mr. Ruth during March 2010.





A total discount of $235,179 was taken on these notes for the fair value of the shares of common stock issuable upon notes issuance date and upon shares issued date for promissory notes of $35,000 and $10,000 issued to Alicia Smith and Dr. Ruth, respectively. At December 31, 2009, notes payable was $594,356, net of $173,352 discount and include the accrued interest of $18,803 .The Company amortized the discount using the effective interest rate method over the term of the promissory notes. The amortization of discount of $61,827 for the year ended December 31, 2009, is included in interest expense on the consolidated statement of operations.




10.  STOCK OPTIONS AND WARRANTS





Stock Options – Employment Contract:





On October 1, 2008 we executed an employment contract with Mr. Booth as the Company’s President.  Mr. Booth’s employment contract was effective on November 15, 2008 provides for options to purchase 675,000 shares of the Company stock at $0.51 per share.  The options vest annually for three years beginning September 30, 2009.  The options expire five years from the date of the original grant.





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.





F-18


The fair value was determined to be $100,230 utilizing the Black-Scholes option pricing model with the following assumptions: stock price $0.15, expected term of 5 years, expected dividends of 0, 246.3% volatility, and a risk-free interest rate of 2.31 %. The Company recognized compensation expense included in general and administrative expense on the consolidated statement of operations for the year ended December 31, 2009 and period from inception (February 19, 2008) to December 31, 2008 for $34,863 and $4,358, respectively.





Options Summary:





A summary of option activity as of December 31, 2009 and 2008 and changes during the year ended December 31, 2009 and the period from date of inception (February 19, 2008) to December 31, 2008 is presented below:








Shares


Weighted

Average

Exercise

Price


Weighted -

Average

Remaining

Contractual

Term


Weighted -

Average

Remaining Contractual

TermOptionsGranted – 2008


675,000


$
0.51



3.88



-Outstanding, December 31, 2009 and 2008


675,000


$
0.51



3.88



-Exercisable, December 31, 2009


225,000


$
0.51



3.88



-A summary of the status of the Company's non-vested shares as of December 31, 2009, and changes during the year ended December 31, 2009, is presented below:
  Shares


Weighted -

Average

Grant-Date

Fair ValueNon-vested SharesNon-vested, January 1, 2009


675,000


$
0.15Vested


(225,000)



0.15Non-vested, December 31, 2009


450,000


$
0.15








The Company expects to issues shares upon exercise of the options from its authorized shares of common stock.





F-19


Common Stock Warrants:





At December 31, 2009 and 2008 the Company had 6,000,168 warrants outstanding with an exercise price of $1.00 and an expiration date of December 31, 2011 (See Note 1).





11.
RELATED PARTY TRANSACTIONS





Consulting agreement





On July 1, 2008, the Company signed a 16 month consulting agreement with a consultant and a shareholder of the Company. The consulting services include financial advisory, investment relations and certain administrative and other services for $6,250 monthly fees. At December 31, 2009 and 2008, the Company owed approximately $100,000 and $26,000, respectively related to above consulting services, which is included in accrued expenses and other current liabilities on the consolidated balance sheet.  Mr. Gallagher contributed approximately $11,500 to the Company during 2009 which was added to his accrued expense balance.  This contract expired on October 31, 2009 and was not renewed.





12.
COMMITMENTS AND CONTINGENCIES





Operating Leases





From February 2008 through January 2009, the corporate office was in San Antonio, Texas.  The terms were $1,500 a month for one year.  In December 2008 the Company opened a new office in Salinas, California and moved the Corporate Office and terminated the lease in San Antonio after January 2009.  The Salinas lease for $2,230 per month terminated on December 31, 2009.  The Company is currently paying rent on a month to month basis.  Rent expense for the year ended December 31, 2009 and period from inception (February 19, 2008) to December 31, 2008 was $28,265 and $12,789, respectively.  The lease commitment at December 31, 2009 was $0.





13.
SUBSEQUENT EVENTS




On March 11, 2010, the Company accepted the resignation of Dr. Corey Ruth as Director of the Company.





During February 2010, Tom Morrison, Director loaned the Company $15,000 payable with interest at 5% and a maturity date of September 30, 2010.





During March 2010, the Company issued Michael Rosenthal and Mark Klein, directors, each 350,000 unregistered shares of the Company's common stock they earned in August 2009 for their appointment to the board of directors.





During March 2010, the Company compensated Michael Rosenthal, director, with 750,000 unregistered shares of the Company’s common stock from the financing incentive included in the terms of a $100,000 promissory note issued during October 2009 (see Note 9).





During March 2010, the Company compensated Dr. Corey Ruth, director, with 200,000 unregistered shares of the Company’s common stock from a financing incentive included in the terms of a $50,000 promissory note issued during December 2009 (see Note 9).





F-20


During March 2010, the Company compensated Michael Rosenthal, director, with 150,000 unregistered shares of the Company’s common stock from the financing incentive included in the terms of a $30,000 promissory note issued during December 2009, see Note 9.





During March 2010, the Company issued Michael Rosenthal 50,000 unregistered shares of the Company's common stock for service to the Company.








During April 2010, we terminated our account receivable factoring facility with a financial services company. We are presently negotiating a factoring facility with a new financial services company.





During April 2010, the Company announced receiving a new loan from Mr. Parker Booth, CEO, for $136,560 ($50,000 was received in 2009) and consolidated his previous note dated December 10, 2009 into a single promissory note totaling $580,060 that pays interest at 5% and matures on December 31, 2010.




During April 2010, a consultant was issued 500,000 unregistered shares of the Company’s common stock for investor relations.  These shares were valued at $0.04 per share.




On April 22, 2010, Tom Morrison, Non-Executive Chairman of the Board of Directors, informed the management of the Company that he was retiring from his position as the Company's Chairman.  The retirement was effective immediately.   There have been no disagreements between Mr. Morrison and the Company.  In connection with his retirement, Mr. Morrison gratuitously reconveyed to the Company for cancellation 1,500,000 shares of the Company’s common stock that was previously granted to him as compensation.





















F-21