United
States


Securities
and Exchange Commission


Washington,
D.C. 20549


Form
10-K




x
            ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
the fiscal year ended December 31, 2009


OR




o
            TRANSITIONAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For the
transition period from _______________to_________________




Commission
File Number 001-12000




YASHENG
ECO-TRADE CORPORATION


(Name of
issuer as specified in its charter)


VORTEX
RESOURCES CORP.


(Former
name of issuer as specified in its charter)




Delaware
            13-3696015(State
      or other jurisdiction of
            (I.R.S.
      Employerincorporation
      or organization)
            Identification
      No.)




1061 1⁄2 N
Spaulding, Los Angeles, CA 90046


(Address
of principal executive offices)




Issuer’s
telephone number, including area code: (323) 822-1750


Issuer’s
facsimile number, including area code: (323) 822-1784





Securities
registered under Section 12(b) of the Exchange Act: None





Securities
      registered under Section 12(g) of the Exchange Act:
            
            Common
      Stock, par value $0.001 per share




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




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 |  | No |X|





Check
whether the issuer is not required to file reports pursuant to Section 13 or 15
(d) of the Exchange Act.  o




Indicate
by checkmark 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 requirement for
the past 90 days. Yes x  No o





Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will be contained, to the best of
the 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. o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer or smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):




Large
accelerated filer     ̈   Accelerated
filer     ̈   Non-accelerated
filer    ̈
  Smaller Reporting Company    x





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




The
aggregate market value of the registrant’s common stock (the only class of
voting  stock) held by non-affiliates of the Company as of December
31, 2009 was about $1,206,310, based on the closing price of the registrant’s
common stock on such date of $0.023 as reported by the Over the Counter Bulletin
Board.




At April
15, 2010, 179,709,795 shares of common stock were issued and outstanding.











TABLE
OF CONTENTS





PagePART
      IITEM
      1.
            
            BUSINESS
            
            1ITEM
      1A.
            
            RISK
      FACTORS
            
            3ITEM
      1B.
            
            UNRESOLVED
      STAFF COMMENTS
            
            3ITEM
      2.
            
            PROPERTIES
            
            3ITEM
      3.
            
            LEGAL
      PROCEEDINGS
            
            4ITEM
      4.
            
            (Removed
      and Reserved)
            
            6PART
      IIITEM
      5.
            
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES
            
            6ITEM
      6.
            
            SELECTED
      FINANCIAL DATA
            
            13ITEM
      7.
            
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS
            
            13ITEM
      7A.
            
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
            
            16ITEM
      8.
            
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
            
            16ITEM
      9.
            
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
            
            17ITEM
      9A
            
            CONTROLS
      AND PROCEDURES
            
            17ITEM
      9B
            
            OTHER
      INFORMATION
            
            18PART
      IIIITEM
      10.
            
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
            
            19ITEM
      11.
            
            EXECUTIVE
      COMPENSATION
            
            22ITEM
      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
      ACCOUNTING FEES AND SERVICES
            
            29ITEM
      15.
            
            EXHIBITS
            
            29SIGNATURES
            
            34INDEX
      TO EXHIBITS










Item
      1.
            Business




History
of Business




Yasheng
Eco-Trade Corporation (formerly known as (“f/k/a”) Vortex Resources Corp,,
Euroweb International Corp. and Emvelco Corp.) (“we”, “us”, “YASH”, “Vortex” or
the “Company”), is a Delaware corporation and was organized on November 9, 1992.
We were a development stage company through December 1993. On January 8, 2007,
the Company changed its name from “Euroweb International Corp.” to “Emvelco
Corp.”.  On August 19, 2008, the Company changed its name from
“Emvelco Corp.” to “Vortex Resources Corp”. On July 15, 2009 the Company changed
its name from “Vortex Resources Corp.” to its current name.





The
Company’s holdings in its subsidiaries at December 31, 2009 were as
follows:




100% of
DCG – discontinued operations


100% of
Vortex Ocean One, LLC (See Commitment and contingencies)


Approximately
7% of Micrologic, (held by EA Emerging Ventures Corp, a 100% owned subsidiary of
the Company, which was sold on April 15, 2010 to a third party)





The above
subsidiaries are presently dormant and the Company is presently conducting its
business, the development of the logistics center, through Yasheng Eco-Trade
Corporation. The Company board re-visits the mineral industry – see discussion
below. The Company’s interest with Micrologic been divested – see
below.





Going
Concern





The
accompanying consolidated financial statements included in this Annual Report on
Form 10-K include an opinion from Robinson, Hill & Co., the Company’s
independent auditors, that there is substantial doubt as to our ability to
continue as a going concern. The financing of the Company’s projects is
dependent on the future effect of the so called sub-prime mortgage crisis on
financial institutions.  This sub-prime crisis may affect the
availability and terms of financing available to the Company for the completion
of its projects, and the availability and terms of financing may affect the
Company’s ability to obtain relevant financing for its ongoing operations as
well.    The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.





Business
Strategy





Our
business plan since 1993 has been identifying, developing and operating
companies within emerging industries for the purpose of consolidation and sale
if favorable market conditions exist. Although the Company primarily focuses on
the operation and development of its core businesses, the Company pursues
consolidations and sale opportunities in a variety of different industries, as
such opportunities may present themselves, in order to develop its core
businesses as well as outside of its core business.  The Company may
invest in other unidentified industries that the Company deems profitable. If
the opportunity presents itself, the Company will consider implementing its
consolidation strategy with its subsidiaries and any other business that it
enters into a transaction.  In January 2009, the Company commenced the
business of development of a logistics center.





Our missionisto develop an Asian Pacific Cooperation
Zone in Southern California to enhance and enable increased trade between the
United States and China(See details under Item 7 of this report).Thefacility will provide a “Gateway to
China” through a centralized location for the marketing, sales, customer
service, product completion for “Made in the USA” products and distribution of
goods imported from China. It will also promote Joint Ventures and exporting
opportunities for US companies.The importing or sourcing materials from
China has been the solution for creating significant margins for goods sold in
the United States.  While many large multi-national companies have
been able to navigate and capitalize on the opportunities the Chinese industrial
complex has created, most US companies simply do not have the resources to
manage the complexities of working with companies in China.  Some of
the complexities for US companies importing from China include selecting the
right manufacturer or vendor for your company, addressing transportation, tax
and customs issues and quality control and delivery issues..




Due to the complexities and
uncertainties US companies have found trying to import goods and services from
China, our goal is to establish a centralized US based trade center. The goal is
to create a “Gateway to China” with warehouse and office space. The warehouse
will be centrally located in Southern California with easy access to the ports
of Long Beach and Los Angeles, and railways. The warehouse will have the ability
to handle both 20 and 40 foot containers including wet, dry and cold storage.
The office space will be designed to provide US headquarters for the Chinese
companies involved. One of the keys to success for theAsian Pacific Cooperation Zone is the
ability to leverage a common infrastructure of technology, administration and
transportation to sell goods and services in the United States. We anticipate
the Cooperative zone will be utilized fordistribution, sales, marketing,
warehousing, administration, customer service, showroom display, pick and pack
services as well as other value added services that prepares products for
delivery to customers.




1







The business model is to facilitate the
importing and exporting of goods and services. Revenue will be generated through
a number of offerings including the lease of office space, storage space,
distribution services, and administration services along with other value added
services.




Our
successful development of the logistics center includes many risks including
raising adequate funds to pay for the lease of the facility and development of
the facility of which there is no guarantee that such funds will be available,
the general state of the economy in both the United States and China and
concerns over whether the recession will continue or even possibly
deepen.





Yasheng
Group





Logistics
Center and Potential Acquisition




During
2009, the Company entered into series of agreements with Yasheng Group, Inc., a
California corporation (“Yasheng”).  Yasheng is an agriculture
conglomerate which has subsidiaries located in the Peoples Republic of China who
are engaged in the production and distribution of agricultural, chemical and
biotechnological products to the United States, Canada, Australia, Pakistan and
various European Union countries as well as in China.  Pursuant to
these series of agreements Yasheng agreed to transfer certain assets and
know-how for the development of a logistics center and eco-trade cooperation
zone (the “Project”) as well as sale to the company control over
Yasheng.





As
part of the Company due diligence and closing procedure, the Company requested
that Yasheng-BVI (allegedly Yasheng’s parent company) provide a current legal
opinion from a reputable Chinese law firm attesting to the fact that no further
regulatory approval from the Chinese government is required as well as other
closing conditions to close the transaction.    On November
3, 2009, the Company sent Yasheng and Yasheng-BVI a formal letter demanding
various closing items.  Yasheng and Yasheng-BVI did not deliver the
requested items and, on November 9, 2009 Yasheng and Yasheng-BVI sent a
termination notice to the Company advising that the definitive Agreement has
been terminated. The Company is presently evaluating its options in moving
forward with respect to Group based on various letters of intent and
agreements with Group regarding various matters and is presently determining
whether it should cease all activities with Group.





As
Yasheng failed to enter into a definitive agreement with the Company, we may
lose a significant source of our potential clients for the logistics
center.  As such, we would be required to develop additional sources
of clients and develop a significant sales force to achieve favorable
results.





Real
Estate Development and Financial Services Industries





Until
December 31, 2007, the Company’s primary focus was on the business of real
estate development and financial services industries through its wholly-owned
subsidiaries in the United States and Europe.  In 2008, the Company
took the decision to discontinue its real estate operations. During 2008,
the Company sold all its real estate
properties





Mineral
Resources Industry





In 2008,
the Company’s primary focus shifted from real estate development and financial
services industries to the mineral resources industry, specifically within the
gas and oil sub-industry. On May 1, 2008, the Company entered into an Agreement
and Plan of Exchange (the “DCG Agreement”) with Davy Crockett Gas Company, LLC
(“DCG”) and its members (“DCG Members”). Pursuant to the DCG Agreement, the
Company acquired and the DCG Members sold, 100% of the outstanding membership in
DCG in exchange for 50,000,000 shares of preferred stock of the Company. The
sales price was $50 million, as calculated by the 50 million shares at an agreed
price of $1.00.  On June 30, 2008, the Company formed Vortex Ocean One
LLC (“Vortex One”) with third party -, an individual ("TI"). In addition, we
assigned the four leases in Crockett County, Texas to Vortex One.  As
a condition precedent to TI contributing the required funding, Vortex One
pledged all of its assets to TI including the leases.   On
October 29, 2008, the Company entered into a settlement arrangement with TI,
whereby the Company agreed to transfer the 5,250 common shares previously owned
by Vortex One to TI. On November 2009 the Company and TI agreed to dissolve
all their joint venture and or partnership agreement, and TI waved any equity
interest per conversion of his equity position into a debt
holder.





Further,
in February 28, 2009, TI, as the secured lender to Vortex One, directed Vortex
One to sell the term assignments with 80% of the proceeds being delivered to TI,
as secured lender, and 20% of the proceeds being delivered to the Company – as
per the original agreement.  The transaction closed on February 28,
2009 in consideration of a cash payment in the amount of $225,000, a 12 month
promissory note in the amount of $600,000 and a 60 month promissory note in the
amount of $1,500,000 (the “Notes”).  TI paid $25,000 fee, and from the
net consideration of $200,000 TI paid the Company its 20% portion of $40,000 on
March 3, 2009. No relationship exists between TI, the assignee of the leases and
the Company and/or its affiliates, directors, officers or any associate of
an officer or director. As TI agreed with the Company to wave any equity
interest, the Company is the beneficiary owner of the Notes.




2





Due to
economic and business issues in the development of the oil and gas project in
Crockett County, Texas, the board obtained additional  reserve report
for the Company’s interest in DCG and Vortex One, which report indicated that
the DCG properties as being negative in value. As a result of such report, the
world and US recessions and the depressed oil and gas prices, the board of
directors elected to dispose of the DCG property and/or desert the project in
its entirety. The Buyer of the term assignments is not performing under the
Notes, and in essence is in default. As the Notes are secured with encumbrances
on the wells, the Company did not make a reserve for doubtful debt. The Company
is presently evaluating its options in moving forward with respect to
potentially foreclose on the Notes, or negotiate terms with the Buyer, or revive
its operation in the Mineral industry.





Micrologic,
Inc.





Micrologic,
Inc. (“Micrologic”), is in the business of design and production of EDA
applications and Integrated Circuit (“IC”) design processes; specifically, the
development and production of the NanoToolBox TM tools suite which shortens
the time to market factor. NanoToolBox TM is a smart platform that is designed
to accelerate IC’s design time and shrink time to market factor. The Company own
100,000 shares of Micrologic - vested via EA Emerging Ventures Inc. (“EVC”)
represented less than ten percent (10%) equity ownership in Micrologic, prior to
further dilution..  Micrologic subsequently issued additional
securities to third parties diluting our interest to approximately 7% of the
issued and outstanding of Micrologic, Inc.





On April
15, 2010 the Company sold all its holdings in Micrologic for consideration of
$20,000.




Employees




As of
April 15, 2010, the Company employed a total of three full-time employees and
one part-time employee, all of whom are in executive and administrative
functions.  We believe that our relationships with our employees are
good.


Item
      1A.
              Risk
      Factors





As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this Item.


Item
      1B.
              Unresolved
      Staff Comments.





As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this Item.





Item
      2.
            Properties




On June
2006, we entered into a lease for approximately 1,500 square feet of office
space located at 1061 1⁄2 North Spaulding Ave., West Hollywood, CA 90046
which we rent for $2,500 per month.  Future minimum payments for the
years ending December 31, 2010 and 2011 are $30,000 and $15,000 (6 months in
2011), respectively. Our lease terminates June 2011 and we have not as yet
determined whether we will renew the lease for the existing space or seek new
space.  The Company is utilizing this space for operational and
accounting services.On September 2008 the Company’s principal executive
offices were relocated from 10990 Wilshire Blvd, Suite 1220, Los Angeles, CA to
9107 Wilshire Blvd., Suite 450, Beverly Hills, CA 90210.  This
office space was operating as executive suites space and services which we rent
for $219 per month as base rent, plus charges of actual spaces
uses.  In order to minimize cost and being more efficient, the Company
vacate said offices and operate in 2009 from its West Hollywood
offices.




3




Item
      3.
            Legal
      Proceedings




From time
to time, we are a party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings other than detailed below that could
reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations. We may become involved
in material legal proceedings in the future.




Navigator
– Registration Rights - The Company entered into a registration rights agreement
dated July 21, 2005, whereby it agreed to file a registration statement
registering the 441,566 shares of Company common stock issued in connection with
the Navigator acquisition within 75 days of the closing of the transaction. The
Company also agreed to have such registration statement declared effective
within 150 days from the filing thereof. In the event that Company failed to
meet its obligations to register the shares, it may have been required to pay a
penalty equal to 1% of the value of the shares per month. The Company obtained a
written waiver from the seller stating that the seller would not raise any
claims in connection with the filing of registration statement through May 30,
2006. The Company since received another waiver extending the registration
deadline through May 30, 2007 without penalty. As of June 30, 2008 (effective
March 31, 2008), the Company was in default of the Registration Rights Agreement
and therefore made a provision for compensation for $150,000 to represent agreed
final compensation (the "Penalty"). The holder of the Penalty subsequently
assigned the Penalty to three unaffiliated parties (the "Penalty Holders"). On
December 26, 2008, the Company closed agreements with the Penalty Holders
pursuant to which the Penalty Holders agreed to cancel any rights to the Penalty
in consideration of the issuance 66,667 shares of common stock to each of the
Penalty Holders. The shares of common stock were issued in connection with this
transaction in a private placement transaction made in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933 and
Rule 506 promulgated there under. Each of the Penalty Holders is an accredited
investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act of 1933.





Trafalgar
Capital Specialized Investment Fund, Luxembourg - The Company via series of
agreements (directly or via affiliates) with European based alternative
investment fund - Trafalgar Capital Specialized Investment Fund, Luxembourg
(“Trafalgar”) established a financial relationship which should create a source
of funding to the Company and its subsidiaries (see detailed description of said
series of agreements in the Company filing). The Company position is that the
DCG transactions (among others) would not have been closed by the Company unless
Trafalgar had provided the needed financing needed for the drilling
program.  On April 14, 2009, the Company filed a complaint in Superior
Court of California, County of Los Angeles, and Case No. BC 411768 against
Trafalgar Capital Specialized Investment Fund, Luxembourg and its affiliates
(which was served on June 5, 2009 via registered mail and on September 10, 2009
in personal service), alleging breach of contract and fraud and alleged damages
in the amount of $30,000,000.  On or about August 2008, Trafalgar
obtained a default judgment against the Company in a lawsuit brought by it (but
never served on the Company) in Florida (Case No. 09-60980) for $2,434,196.06.
The Company appealed said judgment, based on non-service and its appeal was
granted on April 9, 2010 so this judgment been vacated. On April 15, 2010
effective December 31, 2009 the company and Trafalgar settled all outstanding
disputes. The parties agreed that the debts owe to Trafalgar will be set as
$3,000,000 with maturity of 30 months from date of issuing carry a 7% annual
interest. Under the terms of the settlement, Trafalgar will be issued Preferred
Stock of the Company, which is convertible to common shares at the option of the
holders, into 600,000,000 common shares of the Company, at any time upon written
notice to the company; this is more than the total authorized shares of the
Company. In the event of conversion of the note, the Company will authorize more
shares to be issued at that point (The parties acknowledged that the Company has
not sufficient authorized shares to affect said issuance) Trafalgar will appoint
4 directors to the Company’s Board of Directors. Under the terms of the
settlement, Trafalgar agreed to continue and pursue the core business of the
Company.





Verge
Bankruptcy & Rusk Litigation - On January 23, 2009, Verge Living
Corporation (the “Debtor”),a former wholly owned subsidiary of Atia
Group Limited (“AGL), a former subsidiary of the Company, filed a voluntary petition (the “Chapter
11 Petitions”) for relief under Chapter 11 of Title 11 of the United States Code
(the “Bankruptcy Code”) in the United States Bankruptcy Court for the District
of California (the “Bankruptcy Court”).  The Chapter 11 Petitions are
being administered under the caption  In re: verge Living Corporation,
et al., Chapter 11 Case No. ND 09-10177 (the “Chapter 11
Proceedings”).  The Bankruptcy Court assumed jurisdiction over the
assets of the Debtors as of the date of the filing of the Chapter 11
Petitions.  . On April 28, 2009, Chapter 11 Proceedings changed venue
to the United States Bankruptcy Court for the District of Nevada,Chapter 11 Case No BK-S-09-16295-BAM. As
Debtor as well as its parent AGL were subsidiaries of the Company at time when
material agreements where executed between the parties, the Company may become
part of the proceeding.In August 2008, Dennis E. Rusk Architect LLC and
Dennis E. Rusk, (“Rusk”) were terminated by a former affiliate of the Company.
Rusk filed a lawsuit against the Debtor, the Company and multiple other parties
in Clark County, Nevada, Case No. A-564309. The Rusk parties seek monetary
damages for breach of contract. The Company has taken the position that the
Company will have no liability in this matter as it never entered an agreement
with Rusk. The court handling the Verge bankruptcy entered an automatic stay for
this matter. On or about October 28, 2009 the parties settled said complaint,
where the other parties agreed to pay the Rusk parties the sum of $400,000. The
amount of $37,500 was advanced by the other parties to the Rusk parties. The
Company’s Board of Directors agreed to issue to the other parties 4 million
shares of the Company, as the Company participation in said settlement, which
was done on October 2008. The shares of common stock were issued in connection
with this transaction in a private placement transaction made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933 and Rule 506 promulgated there under. Each of the Penalty Holders is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.





4





Yalon
Hecht - On February 14, 2007, the Company filed a complaint in the Superior
Court of California, County of Los Angeles against Yalon Hecht, a foreign
attorney alleging fraud and seeking the return of funds held in escrow, and
sought damages in the amount of approximately 250,000 Euros (approximately
$316,000 as of the date of actual transferring the funds), plus interest, costs
and fees. On April 2007, Mr. Hecht returned $92,694 (70,000 Euros on the date of
transfer) to the Company which netted $72,694.  On June 2007, the
Company filed a claim seeking a   default judgment against Yalon
Hecht. On October 25, 2007, the Company obtained a default judgment against
Yalon Hecht for the sum of $249,340.65. As of today, the Company has not
commenced procedures to collect on the default judgment.





Vortex
One - The Company via Vortex One commended its DCG’s drilling program, where
Vortex One via its former member, was the first cash investor. Since said cash
investment was done in July 2008, the Company defaulted on terms, period and
presentations (based on third parties presentations). Based on series of
defaults of third parties, Vortex One entered into a sale agreement with third
parties regarding specific 4 wells assignments. Per the terms of the sale,
Vortex One and the Company should be paid commencing May 1, 2009. Vortex One and
the Company agreed to give the Buyer a one-time 60 days extension, and put them
on notice for being in default on said notes. To date the operator of the wells
paid Vortex One (on behalf of the Buyer) per the terms of the agreement 3
payments (for the months of April, May and July 2009 – Operator did not pay for
the month of June 2009) amounting to $13,093.12. Vortex One position is that the
Buyer as well as the operator is under breach of the Sale agreement and the
Note’s terms, and notice has been issued for default. In lieu of the non
material amount, no provision was made to income of $2,617 (20% the Company
share per the operating agreement) until the Company finishes its investigation
of the subject.




On July
1, 2008, DCG entered into a Drilling Contract (Model Turnkey Contract)
("Drilling Contract") with Ozona Natural Gas Company LLC ("Ozona"). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells scheduled for as
later phase, by Ozona and Mr. Mustafoglu, as well as the wells locations. Based
on Mr. Mustafoglu negligence and executed un-authorized agreements with third
parties, the Company may have hold Ozona and others responsible for damages to
the Company with regards to surface rights, wells locations and further charges
of Ozona which are not acceptable to the Company. The Company did not commence
legal acts yet, and evaluate its rights with its legal consultants.




Wang -On August 4, 2009, the Company filed a
Form 8-K Current Report with the Securities and Exchange Commission advising
that Eric Ian Wang(“Wang”)was appointed as a director
of the Company on August 3, 2009. Mr. Yang was nominated as a director at the
suggestion of Yasheng which approved the filing of the initial Form 8-K. On
August 5, 2009, Mr. Wang contacted the Company advising that he has not
consented to such appointment. Accordingly, Mr. Wang has been nominated as a
director of the Company but has not accepted such nomination and is not
considered a director of the Company. Mr. Wang's nomination was subsequently
withdrawn. Furthermore, although no longer relevant, Mr. Wang's work history as
disclosed on the initial Form 8K was derived from a resume provided by Mr. Wang.
Subsequent to the filing of the Form 8-K, Mr. Wang advised that the disclosure
regarding his work history was inaccurate. As a result, the disclosure relating
to Mr. Wang's work history should be completely disregarded.The Company believe that at the time that these willful,
malicious, false and fraudulent representations were made by Wang to the
company, Wang knew that the representations were false and that he never
intended to be appointed to the board. The company informed and believe the
delivery of the resumes, and the later demand for a retraction of the resumes,
were part of a scheme (with others) to injure the business reputation of the
company to otherwise damages its credibility such that the Company would have a
lesser bargaining position in the finalization of
the documents relating to the Yasheng transaction. As such the Company filled on
September 2009 a complaint against Wang in California Superior Court – San
Bernardino County – Case No.: CIVRS909705. On or about January 4, 2010 the
parties settled all their adversaries. Under said settlement, Wangrepresents, warrants, and agrees that
the information about him that was contained in the 8K Filing and other
disclosure documents was supplied by him.  Any alleged inaccuracies,
misrepresentations, and/or misstatements in the 8K Filing and other disclosure
documents, regarding his resume, background and/or qualifications, if any exist,
were based upon the information he provided to the Company.




Sharp -
On October 20, 2009, an alleged former shareholder of the Company (Mr. Sharp),
has filed a lawsuit against the Company and Mr. Attia in San Diego County,
California (case number SC105331). Mr. Sharp subsequently attempted to settle
the matter for a nominal fee, which the Company refused to accept. The Company
disputes all of Mr. Sharp’s claims as meritless, frivolous and unsubstantiated
and believes that it has substantial and meritorious legal and factual defenses,
which the Company intends to pursue vigorously. The Court on January 10, 2010
imposed sanctions upon Sharp to be paid to Defendants no later than February 8
in the amount of $1,250.00.  The Order was entered January 25, 2010.
Despite several requests, Sharp has not paid the sanctions. As such the case is
being transferred to Los Angeles. On April 5, 2010 the Company filed a motion to court to
reclassified the Sharp complaint as limited scope or as a small court claim
case




5





Item
      4.
            (Removed
      and Reserved).





PART
II




Item
      5.
            Market
      For Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.




Market
Information




On
November 1, 2007, the Company received a NASDAQ Staff Determination (the
“Determination”) indicating that the Company has failed to comply with the
requirement for continued listing set forth in Marketplace Rule 4310(c)(4)
requiring the Company to maintain a minimum bid price of $0.80 and that its
securities are, therefore, subject to delisting from the NASDAQ Capital Market
if it does not regain compliance by April 29, 2008. If the bid price of the
Company’s common stock closes at $1.00 per share or more for a minimum of 10
consecutive business days any time prior to April 29, 2008, then the NASDAQ
Staff will provide written notification that it complies with the
Rule.  On February 11, 2008, the Company received a decision letter
from NASDAQ informing the Company that it has regained compliance with
Marketplace Rule 5310(c)(4). The Staff letter noted that the closing bid price
of the Company’s common stock has been at $1.00 per share or greater for at
least 10 consecutive business days.


During
2008 The Company elected to move from The NASDAQ Stock Market to the OTCBB to
reduce, and more effectively manage, its regulatory and administrative costs,
and to enable Company’s management to better focus on its business. The Company
is traded on the OTCBB under the symbol VXRC (on February 24, 2009 the Company
symbol was changed from VTEX into VXRC). Before that, the Company’s common stock
was traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “EMVL”. On
July 15, 2009 the Company changed its name from “Vortex Resources Corp.” to its
current name, which subsequently changed the Company symbol into
“YASH”.




The
following table sets forth the high and low bid prices for the Company’s common
stock during the periods indicated as reported by NASDAQ or OTCBB.




High
      ($)
            
            
            Low
      ($)Quarter
      Ended:2008March
      31, 2008
            
            $
            0.85
            
            
            $
            0.85June
      30, 2008
            
            
            2.00
            
            
            
            0.80September
      30, 2008
            
            
            1.10
            
            
            
            1.09December
      31, 2008
            
            
            0.02
            
            
            
            0.02








2009March
      31, 2009
            
            $
            1.00
            
            $
            0.54June
      30, 2009
            
            
            0.95
            
            
            0.693September
      30, 2009
            
            
            0.175
            
            
            0.1505December
      31, 2009
            
            
            0.0284
            
            
            0.0172





On
February 24, 2009, the Company affected a reverse split of its issued and
outstanding shares of common stock on a 100 for 1
basis.    As a result of the reverse split, the issued and
outstanding shares of common stock were reduced on a basis of one share for
every 100 shares outstanding. The shareholders holding a majority of the issued
and outstanding shares of common stock and the board of directors approved the
reverse split on November 24, 2008.  As part of the reverse that
became effective on February 24, 2009 the Company was quoted on the
Over-the-Counter Bulletin Board under the symbol VXRC.OB.  During
2009, the Company was quoted on the Frankfurt exchange, under the symbol HTE2.
The Company did not initiate this quotation nor has it filed any reports with
the Frankfurt Exchange.





On April
14, 2010 the closing bid price on the OTCBB for the Company’s common stock was
$0.012.




Holders
of Common Stock




As of
March 5, 2010, the Company had 153,909,795 shares of common stock outstanding
and 119 shareholders of record. The Company was advised by its transfer agent,
the American Stock Transfer & Trust Company, that according to a search made
by Broadridge Financial Solutions, the Company has on March 3, 2010
approximately 5,995 beneficial owners who hold their shares in street
names.




6




Dividends




It has
been the policy of the Company to retain earnings, if any, to finance the
development and growth of its business.




Equity
Compensation Plan Information





2004 Stock Incentive Plan - As
of December 31, 2009, there were 330,000 options outstanding with a weighted
average exercise price of $3.77. No options were exercised during the year ended
December 31, 2009 and the year ended December 31, 2008.





The
following table summarizes information about shares subject to outstanding
options as of December 31, 2009, which was issued to current or former
employees, consultants or directors pursuant to the 2004 Incentive Plan and
grants to Directors:




Options
      Outstanding
            
            Options
      ExercisableNumber
              Outstanding
            
            Range
      of
              Exercise Prices
            
            Weighted-
              Average
              Exercise Price
            
            Weighted-
              Average
      Remaining
              Life in Years
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise Price100,000
            
            $
            4.21
            
            $
            4.21
            
            
            1.79
            
            
            100,000
            
            $
            4.2130,000
            
            $
            4.78
            
            $
            4.78
            
            
            2.32
            
            
            30,000
            
            $
            4.78200,000
            
            $
            3.40
            
            $
            3.40
            
            
            3.31
            
            
            150,000
            
            $
            3.40330,000
            
            $
            3.40-$4.78
            
            $
            3.77
            
            
            2.66
            
            
            280,000
            
            $
            3.84





As part
of some Private Placement Memorandums the Company issued warrants that can be
summarized in the following table:





Name
            Date
            Terms
            No.
      of Warrants
            Exercise
      PriceParty
      1
            3/30/2008
            2
      years from Issuing
            200,000
            $1.50Party
      1
            3/30/2008
            2
      years from Issuing
            200,000
            $2.00Party
      2
            6/05/2008
            2
      years from Issuing
            300,000
            $1.50Party
      3
            6/30/2008
            2
      years from Issuing
            200,000
            $1.50Party
      4
            9/5/2008
            2
      years from Issuing
            200,000
            $1.50





None of
the warrants were exercised to the date of this filling.





Cashless
Warrants - On September 5, 2008 the Company entered a short term loan
memorandum, with Mehmet Haluk Undes a third party, for a short term loan
(“bridge”) of up to $275,000 to bridge the drilling program of the Company. As a
consideration for said facility, the Company grants the investor with 100%
cashless warrants coverage for two years at exercise price of 1.50 per share.
The investor made a loan of $220,000 to the company on September 15, 2008, that
was paid in full on October 8, 2008. Accordingly the investor is entitled to
200,000 cashless warrants as from September 15, 2008 at exercise price of $1.50
for a period of 2 years. The Company contests the validity of said
warrants.





Shares -
On May 6, 2008 the Company issued 5,000 shares of its common stock, $0.001 par
value per share, to Stephen Martin Durante in accordance with the instructions
provided by the Company pursuant to the 2004 Employee Stock Incentive Plan
registered on Form S-8 Registration.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the "Undes Services Agreement") pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide us services
related to the identification, evaluation, structuring, negotiating and closing
of business acquisitions, identification of strategic partners as well as the
provision of legal services. The term of the agreement is for five years and the
Company has agreed to issue Mr. Undes 5,250 shares of common stock that shall be
registered on a Form S8 no later than July 1, 2008.




7




On August
13, 2008, the Company issued 160 shares of its common stock, $0.001 par value
per share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





Following
the above securities issuance, the 2004 Plan was closed, and no more securities
can be issued under this plan.





2008 Stock Incentive Plan-On July
28, 2008 - the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the "2008
Incentive Plan") authorized the board to issue up to 50,000 shares of Common
Stock under the plan.





On August
23 the Company issued 1,000 shares of its common stock 0.001 par value per
share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On
November 4, 2008, the Company issued 2,540 shares of its common stock 0.001 par
value per share, to one consultant (2,000 shares) and two employees (540
shares), in accordance with the instructions provided by the Company pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.





On July
23, 2009 - , the Company issued 46,460 shares of its common stock 0.001 par
value per share, to Stephen M. Fleming, the Company’s securities counsel
pursuant to the 2008 Employee Stock Incentive Plan.





Following
the above securities issuance, the 2008 Plan was closed, and no more securities
can be issued under this plan.




Sale
of Securities that were not registered Under the Securities Act of
1933





Common
Stock:




On
February 14, 2008, the Company raised Three Hundred Thousand Dollars ($300,000)
in connection with a private offering to various accredited investors. The
offering is for Company common stock which was issued as "restricted securities"
at $1.00 per share. The money raised was used for working capital and business
operations of the Company. The private offering was done pursuant to Rule 506. A
Form D has been filed with the Securities and Exchange Commission in compliance
with Rule 506 for each Private Placement.




On March
30, 2008, the Company raised $200,000 from a private offering. The private
placement was for Company common stock which shall be "restricted securities",
which was sold at $1.00 per share. The offering included 200,000 warrants to be
exercised at $1.50 for two years, and additional 200,000 warrants to be
exercised at $2.00 for four years. The money raised from the sale of the
Company’s securities was used for working capital and business operations of the
Company. The sale of the securities was done pursuant to Rule 506. A Form D has
been filed with the Securities and Exchange Commission in compliance with Rule
506 for the sale of securities. The investor is D’vora Greenwood (Attia), the
sister of Mr. Yossi Attia. Mr. Attia did not participate in the board meeting
which approved this transaction.




On May 6,
2008 the Company issued 5,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration.




On June
6, 2008, the Company raised $300,000 from the private offering pursuant to a
Private Placement Memorandum ("PPM"). The private placement was for Company
common stock which shall be "restricted securities" and were sold at $1.00 per
share. The money raised from the private placement of the Company’s shares was
used for working capital and business operations of the Company. The PPM was
done pursuant to Rule 506. A Form D has been filed with the Securities and
Exchange Commission in compliance with Rule 506 for each Private Placement.
Based on information presented to the Company, and in lieu of the Company
position which was sent to the investor on June 18, 2008 the investor is in
default for not complying with his commitment to invest an additional $225,000
and the Company vested said 3,000 shares under a trustee.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the "Undes Services Agreement") pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide the Company
services related to the identification, evaluation, structuring, negotiating and
closing of business acquisitions, identification of strategic partners as well
as the provision of legal services. The term of the agreement is for five years
and the Company has agreed to issue Mr. Undes 5,250 shares of common stock that
was issued on August 15, 2008.




8




On June
30, 2008 and concurrent with the formation and organization of Vortex One,
whereby the Company contributed 5,250 shares of common stock (the "Vortex One
Shares"), a common stock purchase warrant purchasing 2,000 shares of common
stock at an exercise price of $1.50 per share (the "Vortex One
Warrant")..




In July
2008, the Company issued 160 shares of its common stock, $0.001 par value per
share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On July
28, 2008, the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the "2008
Incentive Plan") authorized the board to issue up to 50,000 shares of Common
Stock under the plan.





On August
23, 2008, the Company issued 1,000 shares of its common stock 0.001 par value
per share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On August
8, 2008, assigned holders of the Undes Convertible Note gave notices to the
Company of their intention to convert their original note dated June 5, 2007
into 250,000 common shares of the Company. The portion of the accrued interest
from inception of the note in the amount of $171,565 was not converted into
shares.  The Company accepted these notices and issued the said
shares.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company about
converting said 100,000 preferred stock into 500,000 common shares of the
Company. The conversion of preferred shares to common shares marks the
completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 500,000 common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




In
connection of selling a convertible note to Trafalgar (see further disclosures
in this report ), the Company issued on September 25, 2008 the amount of 547
common shares at $0.001 par value per share to Trafalgar as a fee. As part of
collateral to said note, the Company issued to Trafalgar 45,000 common stock
0.001 par values per shares, as security for the Note. Said shares consider
being escrow shares, and accordingly are not included in the outstanding common
shares of the company.




On
November 4, 2008, the Company issued 2,540 shares of its common stock 0.001 par
value per share, to one consultant (2,000 shares) and two employees (540
shares), in accordance with the instructions provided by the Company pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On
December 5, 2008 the Company cancelled 150,000 of its common shares held by
certain shareholder, per comprehensive agreement detailed in this report under
Preferred Stock section. Said shares were surrendered to the Company secretary
for cancellation.




On
December 26, 2008, the Company closed agreements with the Penalty Holders
pursuant to which the Penalty Holders agreed to cancel any rights to the Penalty
in consideration of the issuance 66,667 shares of common stock to each of the
Penalty Holders, totaling in issuing 200,000 of the Company common shares. The
shares of common stock were issued in connection with this transaction in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated there under. Each of the Penalty Holders is an accredited investor
as defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933.




On
January 23, 2009, the Company completed the sale of 50,000 shares of the
Company's common stock to one accredited investor for net proceeds of $75,000
(or $0.015 per common share). The shares of common stock were issued in
connection with this transaction in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The investor is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




9




As
reported by the Company on its Form 10-Q filed on November 14, 2008, Star Equity
Investments, LLC (“Star”) entered, on September 1, 2008, into that certain
Irrevocable Assignment of Promissory Note, which resulted in Star being a
creditor of the Company with a loan payable by the Company in the amount of
$1,000,000 (the “Debt”). No relationship exists between Star and the Company
and/or its affiliates, directors, officers or any associate of an officer or
director.  On March 11, 2009, the Company entered and closed an
agreement with Star pursuant to which Star agreed to convert all principal and
interest associated with the Debt into 8,500,000 shares of common stock and
released the Company from any further claims.





On March
5, 2009, the Company and Yasheng implemented an amendment to the Term Sheet
pursuant to which the parties agreed to explore further business opportunities
including the business of logistic centers, and/or alliance with other major
groups complimenting and/or synergetic to the Vortex/Yasheng JV as approved by
the board of directors on March 9, 2009. Further, in accordance with the
amendment, the Company issued 50,000,000 shares to Yasheng and 38,461,538 shares
to Capitol Properties (which was acting as agent for Yasheng) as consideration
for exploring the business opportunities, based on the pro-ration set in the
January Term Sheet. The shares of common stock were issued based on the Board
consent on March 9, 2009, in connection with this transaction in a private
transaction made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and/or Rule 506 promulgated there
under. Yasheng and Capitol are accredited investors as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933. As the Yasheng
transaction did not close, the Company recorded direct transaction-related
expenses of $348,240, which represented the Company’s direct expenses associated
with said transaction. On April 5, 2010 the Company issued a formal request to
Yasheng demanding that they surrender the 50,000,000 shares that were issued to
them, as well as reimburse the Company for its expenses associated with the
transaction in the amount of $348.240.





On
October 1, 2008, the Company entered into a short term note payable (6 month
maturity) with AP – a foreign Company controlled by Shalom Attia (the brother of
Yossi Attia, the Company CEO – the “Holder”), a third party, for $330,000. The
note bears 12% interest commencing October 1, 2008 and can be converted
(including interest) into common shares of the Company at an established
conversion price of $0.015 per share. Holder has advised that it has no desire
to convert the AP Note into shares of the Company’s common stock at $1.50 per
share at this time as the Company’s current bid and ask is $0.23 and $0.72,
respectively, and there is virtually no liquidity in the Company’s common stock.
The Company is in default on the AP Note, and Holder has threatened to commence
litigation if it not paid in full. The Company does not have the cash resources
to pay off the AP Note due to current capital constraints. Holder has agreed
that it is willing to convert the AP Note if the conversion price is reset to
$0.04376 resulting in the issuance of 8,000,000 shares of common stock (the
“Shares”) of the Company or 7.56% of the Company assuming 105,884,347 shares of
common stock outstanding (97,884,347 as of May 7, 2009 plus 8,000,000 shares
issued to Holder). The parties entered a settlement agreement in May
2009.  The agreement with AP was approved by the Board of Directors
where Mr. Yossi Attia has abstained from voting due to a potential conflict of
interest.





On July
15, 2009 TAS which owned Series B preferred shares, converted the Series B
Preferred Shares to 7,500,000 common stock 0.001 par values per
share.





On July
23, 2009, the Company issued 46,460 shares of its common stock 0.001 par value
per share, to Stephen M. Fleming, the Company’s securities counsel pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On August
17, 2009, the Company entered into a Subscription Agreement with an accredited
investor pursuant to which the investor agreed to acquire up $400,000 in shares
of common stock of the Company at a per share purchase price equal to the
average closing price for the five trading days prior to close. On August 17,
2009, the accredited investor purchased 350,877 restricted shares of common each
at $0.57 per share for an aggregate purchase price of $200,000, which was paid
in cash. On August 31, 2009, the accredited investor purchased an additional
150,060 shares of common stock at $.3332 per share for an aggregate purchase
price of $50,000, which was paid in cash. On September 4, 2009, an accredited
investor purchased 574,718 restricted shares of common each at $.22136 per share
for an aggregate purchase price of $127,219.48, which was paid in cash. The
shares of common stock were offered and sold to the accredited investor in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and/or Rule 506
promulgated thereunder. The investor is an accredited investor as defined in
Rule 501 of Regulation D promulgated under the Securities Act of
1933.




On
October 22, 2009, the Company issued Corporate Evolutions, Inc. 500,000 shares
of common stock. Corporate Evolutions, Inc. provides investor relation services
to the Company and is an accredited investor as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933. The shares were
issued in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and/or Rule 506 promulgated
thereunder.





On or
around October 28, 2009 the Company and all other parties settled the Rusk
dispute for $400,000 to be paid within 75 days from settlement. As the Company
does not have sufficient funds to pay the Settlement Amount, and Emvelco RE
Corp.  (“Emvelco RE Corp.”) has agreed indemnify the Company and pay
the Settlement Amount if the Company issues Emvelco RE 4,000,000 shares of
common stock of the Company (the “Shares”)., the Company authorized to issue
Emvelco RE the Shares which shall be issued under Section 4(2) of the Securities
Act of 1933, as amended, and which shall be considered validly issued and duly
authorized.




10





On December 30, 2009, the Company
entered into a Preferred Stock Purchase Agreement dated as of December 30,
2009 (the “Agreement”) – See below for details. Pursuant to the Agreement, the
Company agreed to pay the Investor a commitment fee of $250,000 (the “Commitment
Fee”), payable at the earlier of the six monthly anniversary of the execution of
the Agreement or the first tranche.  The Company has the right to
elect to pay the Commitment Fee in immediately available funds or by issuance of
shares of Common Stock. As such the Company issued to the Investor 10,000,000
shares of Common Stock of the Company, in a transaction made pursuant to Section
3(a)(9) of the Securities Act of 1933.





On December 30, 2009, the Company
entered into an Exchange Agreement with Moran Atias (“Atias”) whereby the
Company and Ms. Atias exchanged $100,000 of a promissory note in the amount of
$250,000 held by Ms. Atias into 11,903,333 shares of Common Stock of the
Company, in a transaction made pursuant to Section 3(a)(9) of the Securities Act
of 1933.  The promissory note, of which a portion was converted by Ms.
Atias, was initially issued on August 8, 2008.





On January 20, 2010, the Company, in an
effort to reduce outstanding debt of the Company, entered into an Exchange
Agreement with Moran Atias (“Atias”) whereby the Company and Ms. Atias exchanged
$100,000 of a promissory note in the amount of $150,000 held by Ms. Atias into
13,000,000 shares of common stock of the Company, in a transaction made pursuant
to Section 3(a)(9) of the Securities Act of 1933.  The promissory
note, of which a portion was converted by Ms. Atias (see above), was initially
issued on August 8, 2008.   The Company’s issuance of the
securities described in the preceding sentence is exempt from registration under
the Securities Act of 1933 pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 for a transaction not
involving a public offering of securities.





On March 23, 2010, the Company issued
8,000,000 shares of its common stock 0.001 par values per share, to Donfeld,
Kelley & Rollman(“Kelley”), the Company
lawyer, as partial payment for legal fees due.The promissory note, which was
converted by Kelley, was issued on August 30, 2009.   The
Company’s issuance of the securities described in the preceding sentence is
exempt from registration under the Securities Act of 1933 pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
of 1933 for a transaction not involving a public offering of
securities





On April 9, 2010, the Company, in an
effort to pay-off outstanding debt of the Company, entered into an Exchange
Agreement with Moran Atias (“Atias”) whereby the Company and Ms. Atias exchanged
$50,000 of a promissory note in the amount of $50,000 held by Ms. Atias into
12,714,286 shares of common stock of the Company, in a transaction made pursuant
to Section 3(a)(9) of the Securities Act of 1933.  The promissory
note, of which its total balance outstanding was converted by Ms. Atias was
initially issued on August 8, 2008.   The Company’s issuance of
the securities described in the preceding sentence is exempt from registration
under the Securities Act of 1933 pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 for a transaction
not involving a public offering of securities.





On April 9, 2010, the Company, in an
effort to pay-off outstanding debt of the Company, entered into an Exchange
Agreement with Priscilla Dunckel (“PD”) whereby the Company and PD exchanged
$20,000 of a promissory note in the amount of $20,000 held by PD into 5,085,714
shares of common stock of the Company, in a transaction made pursuant to Section
3(a)(9) of the Securities Act of 1933.  The promissory note, of which
the note was converted by PD was initially issued on August 8,
2008.   The Company’s issuance of the securities described in the
preceding sentence is exempt from registration under the Securities Act of 1933
pursuant to the exemption from registration provided by Section 4(2) of the
Securities Act of 1933 for a transaction not involving a public offering of
securities.





Preferred
Stock:




Series A
- As disclosed in Form 8-Ks filed on May 7, 2008 and May 9, 2008, on May 1,
2008, the Company entered into an Agreement and Plan of Exchange (the "DCG
Agreement") with DCG and the members of DCG Members. Pursuant to the DCG
Agreement, the Company acquired and, the DCG Members sold, 100% of the
outstanding securities in DCG. DCG is a limited liability company organized
under the laws of the State of Nevada and headquartered in Bel Air; California
is a newly formed designated LLC which holds certain development rights for gas
drilling in Crockett County, Texas.  In consideration for 100% of the
outstanding securities in DCG, the Company issued the DCG Members promissory
notes in the aggregate amount of $25,000,000 payable together with interest in
May 2010 (the "DCG Notes"). On August 1, 2008, all holders of the Company’s
preferred stock Series A, notified the Company of their intention to convert
said 100,000 preferred stock into 500,000 common shares of the Company. The
conversion of preferred shares to common shares marks the completion of the
acquisition of DCG. The Company accepted such notice and instructed the
Company’s transfer agent on August 15, 2008 to issue said common shares to the
former members of DCG, as reported and detailed on the Company’s 14A
filings.




11




Series B
- On December 5, 2008 the Company entered into and closed end Agreement with
T.A.S. Holdings Limited ("TAS") (the "TAS Agreement") pursuant to which TAS
agreed to cancel the debt payable by the Company to TAS in the amount of
approximately $1,065,000 and its 150,000 shares of common stock it presently
holds in consideration of the Company issuing TAS 1,000,000 shares of Series B
Convertible Preferred Stock, which such shares carry a stated value equal to
$1.20 per share (the "Series B Stock"). The Series B Stock is convertible, at
any time at the option of the holder, into common shares of the Company based on
a conversion price of $0.0016 per share. The Series B Stock shall have voting
rights on an as converted basis multiplied by 6.25. Holders of the Series B
Stock are entitled to receive, when declared by the Company's board of
directors, annual dividends of $0.06 per share of Series B Stock paid
semi-annually on June 30 and December 31 commencing June 30, 2009. In the event
of any liquidation or winding up of the Company, the holders of Series B Stock
will be entitled to receive, in preference to holders of common stock, an amount
equal to the stated value plus interest of 15% per year. The Series B Stock
restricts the ability of the holder to convert the Series B Stock and receive
shares of the Company's common stock such that the number of shares of the
Company common stock held by TAS and its affiliates after such conversion does
not exceed 4.9% of the Company's then issued and outstanding shares of common
stock. The Series B Stock was offered and sold to TAS in a private placement
transaction made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated there
under. TAS is an accredited investor as defined in Rule 501 of Regulation D
promulgated under the Securities Act of 1933. The Company filed its Certificate
of Designation of Preferences, Rights and Limitations of Series B Preferred
Stock with the State of Delaware. The preferred shares were subsequently
converted to 7,500,000 shares of common stock and are included in the EPS
calculation.





Series C - On November 26, 2009, the
Company issued 210,087 shares of Series C Preferred Stock for aggregate
consideration of $4,945.  Each six shares of Series C Preferred Stock
is convertible into one share of common stock; provided, however, in the event
that the shares of Series C Preferred Stock have been outstanding for a period
of one year, then it shall be automatically converted into shares of common
stock in accordance with the aforementioned conversion formula.  The
Company issued the securities to one non-U.S. persons (as that term is defined
in Regulation S of the Securities Act of 1933) in an offshore transaction
relying on Regulation S and/or Section 4(2) of the Securities Act of
1933.





Series D – Not issued yet - On
December 30, 2009, the Company entered into a Preferred Stock Purchase
Agreement dated as of December 30, 2009 (the “Agreement”) with Socius
Capital Group, LLC, a Delaware limited liability company d/b/a Socius Life
Sciences Capital Group, LLC including its designees, successors and assigns (the
“Investor”). Pursuant to the Agreement, the Company will issue to the Investor
up to $5,000,000 of the Company’s newly created Series D Preferred Stock (the
“Preferred Stock”). The purchase price of the Preferred Stock is $10,000 per
share. The shares of Preferred Stock that are issued to the Investor will bear a
cumulative dividend of 10.0% per annum, payable in shares of Preferred
Stock, will be redeemable under certain circumstances and will not be
convertible into shares of the Company’s common stock (the “Common Stock”).
Subject to the terms and conditions of the Agreement, the Company has the right
to determine (1) the number of shares of Preferred Stock that it will
require the Investor to purchase from the Company, up to a maximum purchase
price of $5,000,000, (2) whether it will require the Investor to purchase
Preferred Stock in one or more tranches, and (3) the timing of such
required purchase or purchases of Preferred Stock. The terms of the Preferred
Stock are set forth in a Certificate of Designations of Preferences, Rights and
Limitations of Series D Preferred Stock (the “Preferred Stock Certificate”) that
the Company filed with the Delaware Secretary of State on December 18,
2009. Pursuant to the Agreement, the Company agreed to pay the Investor a
commitment fee of $250,000 (the “Commitment Fee”), payable at the earlier of the
six monthly anniversary of the execution of the Agreement or the first
tranche.  The Company has the right to elect to pay the Commitment Fee
in immediately available funds or by issuance of shares of Common Stock.
Concurrently with its execution of the Agreement, the Company issued to the
Investor a warrant (the “Warrant”) to purchase shares of Common Stock with an
aggregate exercise price of up to $6,750,000 depending upon the amount of
Preferred Stock that is purchased by the Investor. Each time that the Company
requires the Investor to purchase shares of Preferred Stock, a portion of the
Warrant will become exercisable by the Investor over a five-year period for a
number of shares of Common Stock equal to (1) the aggregate purchase price
payable by the Investor for such shares of Preferred Stock multiplied by 135%,
with such amount divided by (2) the per share Warrant exercise price. The
initial exercise price under the Warrant is $0.022 per share of Common Stock.
Thereafter, the exercise price for each portion of the Warrant that becomes
exercisable upon the Company’s election to require the Investor to purchase
Preferred Stock will equal the closing price of the Common Stock on the date
that the Company delivers its election notice. The Investor is entitled to pay
the Warrant exercise price in immediately available funds, by delivery of cash,
a secured promissory note or, if a registration statement covering the resale of
the Common Stock subject to the Warrant is not in effect, on a cashless basis.
Pursuant to the Agreement, the Company agreed to file with the Securities and
Exchange Commission a registration statement covering the resale of the shares
of Common Stock that are issuable to the Investor under the Warrant and in
satisfaction of the Commitment Fee.





Series E – Not issued yet – On April
15,2010 the Company’s Board of Directors
approved settlement agreement with Trafalgareffective December 31, 2009
(see Item III – Legal Proceedings). The parties agreed that the debts owe to
Trafalgar will be set as $3,000,000 with maturity of 30 months from date of
issuing carry a 7% annual interest. Via mechanism of Preferred Stocks, the debt
is Convertible at the Option of the Holders, into Six Hundred Million (six
hundred million) common shares of the Company, at any time upon written notice
to the company(The parties
acknowledged that the Company does not have sufficient authorized shares to
affect said conversion).





12





Treasury
Stock Repurchase





In
June 2006, the Company's Board of Directors approved a program to repurchase,
from time to time, at management's discretion, up to 700,000 shares of the
Company's common stock in the open market or in private transactions commencing
on June 20, 2006 and continuing through December 15, 2006 at prevailing market
prices. Repurchases will be made under the program using our own cash resources
and will be in accordance with Rule 10b-18 under the Securities Exchange Act of
1934 and other applicable laws, rules and regulations. A licensed Stock Broker
Firm is acting as agent for our stock repurchase program. Pursuant to the
unanimous consent of the Board of Directors in September 2006, the number of
shares that may be purchased under the Repurchase Program was increased from
700,000 to 1,500,000 shares of common stock and the Repurchase Program was
extended until October 1, 2007, or until the increased amount of shares is
purchased. On November 20, 2008, the Company issued a press release announcing
that its Board of Directors has approved a share repurchase program. Under the
program the Company is authorized to purchase up to ten million of its shares of
common stock in open market transactions at the discretion of management. All
stock repurchases will be subject to the requirements of Rule 10b-18 under the
Exchange Act and other rules that govern such purchases.





As of
September 30, 2009 the Company had 1,000 treasury shares in its possession
scheduled to be cancelled.





Pursuant
to the Sale Agreement of Navigator, the Company got on closing (February 2,
2007) 622,531 shares of the Company’s common stock as partial consideration. The
Company shares were valued at $1.34 per share, representing the closing price of
the Company on the NASDAQ Capital Market on February 16, 2007, the closing of
the sale. The Company canceled the common stock acquired during the disposition
in the amount of $834,192. All, the Company 660,362 treasury shares were retired
and canceled during August and September 2008.




On
November 20, 2008, the Company issued a press release announcing that its Board
of Directors has approved a share repurchase program. Under the program the
Company is authorized to purchase up to 100,000 of its shares of common stock in
open market transactions at the discretion of management. All stock repurchases
will be subject to the requirements of Rule 10b-18 under the Exchange Act and
other rules that govern such purchases.




As of
December 31, 2009 the Company has 1,000 treasury shares in its possession (which
been purchased in the open market per the above program) scheduled to be
cancelled.


Item
      6.
              Selected
      Financial Data.





As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this Item.





Item
      7.
            Management’s
      Discussion And Analysis Of Financial Condition And Results Of
      Operations




The
following discussion of the results of our operations and financial condition
should be read in conjunction with our financial statements and the related
notes, which appear elsewhere in this annual report.





Results
of Operations





Year
Ended December 31, 2009 compared to Year Ended December 31, 2008




Due to
the new financial investment in developing a logistics center in 2009, and the
discontinuation of Gas and Oil activity, which commenced in May 2008, the
consolidated statements of operations for the years ended December 31, 2009 and
2008 are not comparable. This section of the report, should be read together
with Notes of the Company consolidated financials especially - Change in the Reporting
Entity: In accordance with Financial Accounting Standards, FAS 154, Accounting Changes and Error
Corrections , when an accounting change results in financial statements
that are, in effect, the statements of a different reporting entity, the change
shall be retrospectively applied to the financial statements of all prior
periods presented to show financial information for the new reporting entity for
those periods. Previously issued interim financial information shall be
presented on a retrospective basis.




13




The
consolidated statements of operations for the years ended December 31, 2009 and
2008 are compared (subject to the above description) in the sections
below:





Revenues





The
following table summarizes our revenues for the year ended December 31, 2009 and
2008:





Year
      ended December 31,
            
            2009
            
            
            2008Total
      revenues
            
            $
            —
            
            
            $
            —




There was
a sale of a property in 2008. Since the board resolved to discontinue real
estate operations during 2008, revenues of $1,990,000 from the real estate
property are included as part of discontinued operations for years ended
December 31, 2008





Cost
of revenues





The
following table summarizes our cost of revenues for the year ended December 31,
2009 and 2008:





Year
      ended December 31,
            
            2009
            
            
            2008Total
      cost of revenues
            
            $
            —
            
            
            $
            —




Since the
board resolved to discontinue real estate operations during 2008, cost of sales
of $2,221,929 for the real estate property are included as part of discontinued
operations for the year ended December 31, 2008





Compensation
and related costs





The
following table summarizes our compensation and related costs for the year ended
December 31, 2009 and 2008:





Year
      ended December 31,
            
            2009
            
            
            2008Compensation
      and related costs
            
            $
            410,156
            
            
            $
            558,073




Overall
compensation and related costs decreased by about 27%, or $147,917, primarily as
the result of reduction of employees.





Consulting,
professional and director fees





The
following table summarizes our consulting, professional and director fees for
the year ended December 31, 2009 and 2008:





Year
      ended December 31
            
            2009
            
            
            2008Consulting,
      professional and director fees
            
            $
            790,373
            
            
            $
            13,049,759




Overall
consulting, professional and director fees decreased by about 94%, or
$12,259,386, primarily as the result of a fee charge of $9,782,768 to C.
Properties as a fee associated with the DCG transaction and a $2,108,161 charge
to stock compensation expense for various grants of shares and warrants in
relation to the cost of several consultants, investment bankers, advisors,
accounting and lawyers fee in 2008.  These charges did not occur in
2009.




Other
selling, general and administrative expenses





The
following table summarizes our other selling, general and administrative
expenses for the year ended December 31, 2009 and 2008:





Year
      ended December 31
            
            2009
            
            
            2008Other
      selling, general and administrative expenses
            
            $
            203,670
            
            
            $
            413,576






Other
selling, general and administrative expenses decreased by 51%, or $209,906, from
2008 to 2009.  This change is due to management resizing its business,
changing its business model, and reducing its employees.  Since the
board resolved to discontinue real estate operations during 2008, other selling,
general and administrative expenses of $0 for the real estate properties
are included as part of discontinued operations for the years ended December 31,
2008.




14





Goodwill
impairment





The
following table summarizes our goodwill impairment fees for the year ended
December 31, 2009 and 2008:





Year
      ended December 31
            
            2009
            
            
            2008Goodwill
      impairment
            
            $
            --
            
            
            $
            34,490,000




For the
year ended December 31, 2008, an analysis was performed on the goodwill
associated with the investment in DCG that occurred during the year (which was
booked against Equity), and an impairment expense was charged against the
P&L for $34,490,000 million.


Depreciation
and amortization





The
following table summarizes our depreciation and amortization for the year ended
December 31, 2009 and 2008:





Year
      ended December 31,
            
            2009
            
            
            2008Depreciation
            
            $
            —
            
            
            $
            —




There is
no depreciation expense in the years ended December 31, 2009 and 2008 due to the
capitalization of depreciation into the Investment in Land Development accounts
for the majority owned subsidiary.










The
following table summarizes our other expenses for the year ended December 31,
2009 and 2008:





Year
      ended December 31,
            
            2009
            
            
            2008Other
      expenses
            
            $
            348,240
            
            
            $
            —




These
expenses in 2009, which did not occur in 2008, are direct expenses incurred in
connection with the Yasheng transaction, the outcome of which is currently
uncertain.





Net
interest income (expense)





The
following table summarizes our net interest income for the year ended December
31, 2009 and 2008:





Year
      ended December 31,
            
            2009
            
            
            2008Interest
      income
            
            $
            171,567
            
            
            $
            729,097Interest
      expense
            
            $
            (3,280,731
            )
            
            $
            (1,922,983)Net
      interest income (expense)
            
            $
            (3,449,164
            )
            
            $
            (1,193,886)





The
decrease in interest income is attributable to the Company having sold its real
estate assets in 2008, thereby reducing the Company’s base of properties which
entitled it to receive interest income in 2008.





The
increase in interest expense is primarily due to on the issuance of notes
payable during 2008 and 2009.  On the other hand, the line of credit
was paid back during 2008, and short-term borrowing overall has decreased
sharply from 2008 to 2009.  Some stock was issued during 2009, and
management will seek to exploit equity financing as opposed to debt going
forward wherever possible and feasible.  The interest expense in 2009
also includes the discount portion of the seller’s note issued in connection
with the sale of the DCG wells, which was issued at face value.  The
discount under that note was computed at the Company’s approximate cost of
borrowing, 12%.





Liquidity
and Capital Resources





As of
December 31, 2009, our cash, cash equivalents and marketable securities were
$85,789 (in 2008 it was $123,903), a decrease of approximately $38,114 from the
end of fiscal year 2008. The decrease in our cash, cash equivalents and
marketable securities is primarily the result of pay-off bank loans and
conversion of notes payable, and also cash was used to operate our
business.




15





Cash flow
used by operating activities for the year ended December 31, 2009 was $690,279,
and cash flow used by operating activities in 2008 was
$230,983.  Although the net loss was much larger in 2008 than in 2009,
much of that net loss in 2008 was the (non-cash) 35MM goodwill impairment of the
DCG wells (discontinued operations).  As previously noted, however,
the operations of the Company are not truly comparable between 2008 and 2009,
due to the changed business model.





Cash flow
provided by investing activities for the year ended December 31, 2009 was
$25,000 and cash flow used by investing activities in 2008 was $327,102. The
change was primarily due to the reduction in 2008 of loan advances to ERC and
Verge.





Cash
provided by financing activities in the year ended December 31, 2009 was
$627,165, and cash flow used by financing activities was $341,792 for the year
ended December 31, 2008. This change is mainly due to the repayment of a bank
loan in 2008.





The
Company held restricted Certificate of Deposits (CD) with the Bank to access a
revolving line of credit. These deposits are interest bearing and approximated
$4.196 million as of September 30, 2008. On November 8, 2007, the lines of
credits were increased and extended as the following: $4,180,000 until October
16, 2008 and $4,229,000 until September 1, 2008. Both lines bear interest of
5.87% and are secured by restricted cash deposited in CD’s with the bank.
 On August 2008, the company notified the bank, not to extend the deposits,
and pay it off from the CD. In the event the Company makes future acquisitions
or investments, additional bank loans or fund raising may be used to finance
such future acquisitions. The Company may consider the sale of non-strategic
assets. The Company currently anticipates that its available cash resources will
not be sufficient to meet its prior anticipated working capital requirements,
though it will be sufficient manage the existing business of the Company without
further development.





Plan
of operation





The
Company intends to continue to develop its logistics center with or without the
continued support and involvement of Yasheng.  Its efforts will be
focused on obtaining the required financing to develop the center, selecting the
appropriate facility for lease and commencing sales. Per Yasheng’s cancellation
of the Exchange Agreement (see above) there is no guarantee that the Company
will be able to successfully develop its logistic center.





The above
efforts are subject to obtaining adequate financing on acceptable terms. The
Company anticipates that it will be spending approximately $2,000,000 over the
next 12 month period pursuing its stated plan. The Company’s present cash
reserves and monetary assets are not sufficient to carry out its plan of
operation without substantial additional financing. The Company is currently
attempting to arrange for financing through mezzanine arrangements, debt or
equity that would enable it to proceed with its plan of investment
operation.   (See above – Preferred Shares Series D) However,
there is no guarantee that we will be able to close such financing transaction
or, if financing is available, that the terms will be acceptable to the
Company.


Item
      7A.
              Quantitative
      And Qualitative Disclosures About Market
Risk





As a
smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are
not required to provide the information required by this Item.





Item
      8.
            Financial Statements and
      Supplementary Data.




The
audited Consolidated Financial Statements of the Company for the years ended
December 31, 2009 and December 31, 2008, are included herein beginning with the
index hereto on page F-1
..





16






Item
      9.
            Changes
      In and Disagreements With Accountants On Accounting And Financial
      Disclosure




None.




Item
      9A.
            Controls And
      Procedures





The term
disclosure controls and procedures means controls and other procedures of an
issuer that are designed to ensure that information required to be disclosed by
the issuer in the reports that it files or submits under the Exchange Act (15
U.S.C. 78a, et seq.) is
recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms.  Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.





The term
internal control over financial reporting is defined as a process designed by,
or under the supervision of, the issuer’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
issuer’s board of directors, management and other personnel, 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 the transactions and dispositions of the assets of the
      issuer;





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




·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of the issuer’s assets that
      could have a material effect on the financial
  statements.





Our
management, including our chief executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls over financial reporting will prevent all error and all
fraud.  A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.  Further, the design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs.  Because of
inherent limitations in all control systems, internal control over financial
reporting may not prevent or detect misstatements, and no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the registrant have been detected.  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.





Evaluation of Disclosure and
Controls and Procedures.   Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rule 13a-15(f) under the Exchange Act.  Our internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States.  We carried out an
evaluation, under the supervision and with the participation of our management,
including our chief executive officer and principal financial officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this report.  The
evaluation was undertaken in consultation with our accounting
personnel.  Based on that evaluation and for the reasons set forth
below, our chief executive officer and principal financial officer concluded
that our disclosure controls and procedures are currently not effective to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and
forms.




Management’s Report on
Internal Control over Financial Reporting





Management
is responsible for establishing and maintaining adequate internal control over
financial reporting of the Company. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. 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 and
procedures may deteriorate.




17





Management,
with the participation of our principal executive officer, financial and
accounting officer, has evaluated the effectiveness of our internal control
over financial reporting as of December 31, 2009 based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations . Based on this evaluation, because of the Company’s
limited resources and limited number of employees, management concluded that, as
of December 31, 2009, our internal control over financial reporting is
not effective in providing reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting
principles.   The ineffectiveness of our disclosure controls and
procedures is the result of certain deficiencies in internal controls that
constitute material weaknesses as discussed below. The material weaknesses
identified did not result in the restatement of any previously reported
financial statements or any other related financial disclosure, nor does
management believe that it had any effect on the accuracy of the Company's
financial statements for the current reporting period. We lack segregation of
duties in the period-end financial reporting process.  The Company has
historically had limited accounting and minimal operating revenue and, as such,
all accounting and financial reporting operations have been and are currently
performed by one individual.  The party that performs the accounting
and financial reporting operations is the only individual with any significant
knowledge of generally accepted accounting principles.  The person is
also in charge of the general ledger (including the preparation of routine and
non-routine journal entries and journal entries involving accounting estimates),
the selection of accounting principles, and the preparation of interim and
annual financial statements (including report combinations, consolidation
entries and footnote disclosures) in accordance with generally accepted
accounting principles.  In addition, the lack of additional staff with
significant knowledge of generally accepted accounting principles has resulted
in ineffective oversight and monitoring.  The company intends to add
accounting staff, subject to adequate financing, in order to assist in reducing
its risk in these areas and plans to add additional personnel in accounting and
internal auditing in the near future, which is subject to obtaining the required
financing.





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 temporary rules of the SEC that permit the
Company to provide only management’s report in this annual report.





Changes in internal
controls





There
have been no changes in our internal control over financial reporting identified
in connection with the evaluation required by paragraph (d) of Rule 13a-15 or
15d-15 under the Exchange Act that occurred during the year ended December 31,
2009 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.


Item
      9B.
              Other
      Information.




None.





18




PART
III


Item 10.
                Directors, Executive Officers
      and Corporate Governance.





The
following table sets forth certain information regarding the executive officers
and directors of the Company as of December 31, 2009:





Name
            
            Age
            
            Position with CompanyYossi
      Attia
            
            48
            
            Director,
      Chief Executive Officer, Principal Financial Officer and
      PresidentStewart
      Reich
            
            66
            
            Director
      and Audit and Compensation Committees ChairmanGerald
      Schaffer
            
            86
            
            Director
      and Audit and Compensation Committee’s
member




Alison M.
    Moses
            
            43
            
            Secretary
       (*)





Directors
are elected annually and hold office until the next annual meeting of the
stockholders of the Company and until their successors are elected. Officers are
elected annually and serve at the discretion of the Board of
Directors.





Yossi Attia has been self
employed as a real estate developer since 2000. Mr. Attia was appointed to the
Board of Directors (“Board”) on February 1, 2005, as CEO of ERC on June 15, 2006
and as the CEO and President of the Company on August 14, 2006. Prior to
entering into the real estate development industry, Mr. Attia served as the
Senior Vice President of Investments of Interfirst Capital from 1996 to 2000.
From 1994 through 1996, Mr. Attia was a Senior Vice President of Investments
with Sutro & Co. and from 1992 through 1994. Mr. Attia served as the Vice
President of Investments of Prudential Securities. Mr. Attia received a Bachelor
of Arts (“BA”) in economics and marketing from Haifa University in 1987 and
a Masters of Business Administration (“MBA”) from Pepperdine University in
1995. Mr. Attia held Series 7 and 63 securities licenses from 1991 until 2002.
Effective March 21, 2005, Mr. Attia was appointed as a member of the Audit
Committee and the Compensation Committee. In June 2006, Mr. Attia was appointed
as the CEO of ERC. Upon his appointment as the CEO of ERC, Mr. Attia was not
considered an independent Director. Consequently, Mr. Attia resigned from all
committees. In August 2006, Mr. Attia was appointed as the CEO and President of
the Company. Upon closing the acquisition of AGL Mr. Attia was appointed as the
CEO of AGL. Mr. Yossi Attia serves as chairmen of the board of AGL.





Stewart Reich, was Chairman of
the Board since June 2004 until August 2008, was CEO and President of Golden
Telecom Inc., Russia’s largest alternative voice and data service provider as
well as its largest ISP, since 1997. In September 1992, Mr. Reich was employed
as Chief Financial Officer (“CFO”) at UTEL (Ukraine Telecommunications), of
which he was appointed President in November 1992. Prior to that, Mr. Reich held
various positions at a number of subsidiaries of AT&T Corp. Mr. Reich have
been a Director of the Company since 2002. Mr. Reich is head of the Audit and
the Compensation Committees.





Gerald Schaffer was
unanimously appointed to the Board of Directors of the Company on June 22, 2006,
as well as a member of the Audit and Compensation Committees. Mr. Schaffer has
been extensively active in corporate, community, public, and government affairs
for many years, having served on numerous governmental boards and authorities,
as well as public service agencies, including his current twenty-one year
membership on the Board of Directors for the American Lung Association of
Nevada. Additionally, Mr. Schaffer is a past member of the Clark County
Comprehensive Plan Steering Committee, as well as a former Commissioner for
Public Housing on the Clark County Housing Authority. For many years he served
as a Planning Commissioner for the Clark County Planning Commission, which
included the sprawling Las Vegas Strip. His tenure on these various governmental
entities was enhanced by his extensive knowledge of the federal government. Mr.
Schaffer is Chairman Emeritus of the Windsor Group and a founding member of both
Windsor and its affiliate - Gold Eagle Gaming. Over the years the principals of
Windsor have developed shopping and marketing centers, office complexes,
hotel/casinos, apartments, residential units and a wide variety of large land
parcels. Mr. Schaffer continues to have an active daily role in many of these
subsidiary interests. He is also President of the Barclay Corporation, a
professional consulting service, as well as the Barclay Development Corporation,
dealing primarily in commercial land acquisitions and sales. Mr. Schaffer
resides in Nevada and oversees the Company’s interest in the Verge project,
specifically with compliance and obtaining governmental licensing.




19






Alison M.
Moseshas over 15 years of
senior level paralegal experience with significant experience in corporate,
finance and bankruptcy transactions and additional expertise with filings
related to the Securities and Exchange Commission Blue Sky and state, county and
local licensing and compliance regulatory agencies.  Ms. Moses began
her career at Countrywide Home Loans as a Senior Licensing Administrator in
March 1992 where she remained until April of 1997.  From April 1997
through July 2000, Ms. Moses worked for IndyMac Bancorp, Inc. holding the
positions of Senior Licensing Paralegal and Corporate, Business & Finance
Paralegal.  From July 2000 until January 2002 Ms. Moses remained at
Morgan, Lewis & Bockius LLP in the position of Corporate, Business &
Finance Paralegal.  In July 2002, Ms. Moses became Professional Legal
Assistant at the law firm of O’Melveny & Myers LLP, where she worked until
August of 2005.  From August 2005 through March 2006, Ms. Moses was
employed at Jones Day as a Senior Corporate Paralegal and from the years March
2006 until September 2008 she held the title of Senior Corporate Paralegal at
the firm of Heller Ehrman LLP.  In September 2008, Ms. Moses accepted
a position as Senior Corporate Paralegal at the law firm of Paul, Hastings,
Janofsky & Walker LLP where she remained until moving onto to the Law
Offices of Robert M. Yaspan as a Senior Corporate & Bankruptcy Paralegal,
where she is currently employed.





*) Robin Ann Gorelick from
1992 to the present, has served as the Managing Partner at the Law Offices of
Gorelick & Associates, specializing in the representation of various public
and private business entities. Ms. Gorelick received her Juris Doctor (“JD”) and
her BA in economics and political science from the University of California, Los
Angeles in 1982 and 1979, respectively. Ms. Gorelick is admitted to practice law
in California, the District of Columbia and Texas. On October 4, 2007, Robin
Gorelick, resigned as a director of Emvelco the Company. Ms. Gorelick continues
to act as general counsel and corporate secretary for the Company. On December 30, 2009, Robin Ann Gorelick
resigned as Corporate Secretary of the Company.  There is no
disagreement known to any executive officer of the Company between the Company
and Ms. Gorelick on any matter relating to the Company’s operations, policies or
practices.  The Board of Directors then appointed Alison M. Moses as
Secretary of the Company.





Mace Miller was appointed
 on July 28, 2008
as a director of the Company, received his BBA in Accounting and an MBA with
International Concentration from the University of Texas at El Paso in 1989 and
1992, respectively. Further, Mr. Mace received his law degree from the
University of Texas at El Paso in 1992. From 2001 to 2006, Mr. Miller has been a
principal with Raymond James Financial Services. Mr. Miller, since 2006, has
been a partner with Coronado Capital Advisers, where he has been responsible for
the administration and creation of proprietary hedge fund. He has been a
frequent speaker at various international venues, including the Raymond James
National Conference, on tax mitigation and anti-money laundering issues related
to hedge funds. Recognized as an expert in international finance, Mr. Miller has
consulted on numerous bond offerings in the United States and the Dominican
Republic on behalf of institutions and investors alike. Mr. Miller is a licensed
Attorney with the State of Texas. Mr. Miller resigned as a director on October
7, 2009. There is no disagreement
known to any executive officer of the Company between the Company and Mr. Miller
on any matter relating to the Company’s operations, policies or
practices




ROLE
OF THE BOARD





Pursuant
to Delaware law, our business, property and affairs are managed under the
direction of the Board. The Board has responsibility for establishing broad
corporate policies and for the overall performance and direction of Vortex, but
is not involved in day-to-day operations. Members of the Board keep informed of
the business by participating in Board and committee meetings, by reviewing
analyses and reports sent to them regularly, and through discussions with the
executive officers.





2009
BOARD MEETINGS





In 2009,
the Board had 4 meetings telephonically and 17 meetings through unanimous
written consents and additional resolutions. No director attended less than 75%
of all of the combined total meetings of the Board and the committees on which
they served in 2009.





The Board
has determined that Messrs Reich, Miller and Schaffer, are independent directors
as such term is defined in rule 4200(a) (15) of the listing standards of the
National Association of Securities Dealers.




Audit
Committee Financial Expert




The Board
has determined that Mr. Reich qualifies as “audit committee financial expert” as
such term is defined in Item 407 of Regulation S-K, and is independent as
defined in rule 4200(a) (15) of the listing standards of the National
Association of Securities Dealers..




20





BOARD
COMMITTEES





Audit
Committee




The Audit
Committee of the Board reviews the internal accounting procedures of the Company
and consults with and reviews the services provided by our independent
accountants. The Audit Committee consists of Gerald Schaffer, Stewart Reich and
Mace Miller is independent members of the Board. The Audit Committee held 4
meetings in 2009.




The audit
committee has reviewed and discussed the audited financial statements with
management; the audit committee has discussed with the independent auditors the
matters required to be discussed by the statement on Auditing Standards No. 61,
as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted
by the Public Company Accounting Oversight Board in Rule 3200T; and the audit
committee has received the written disclosures and the letter from the
independent accountants required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees), as adopted by the Public Company.




Compensation Committee





The
Compensation Committee of the Board performs the following: i) reviews and
recommends to the Board the compensation and benefits of our executive officers;
ii) administers the stock option plans and employee stock purchase plan; and
iii) establishes and reviews general policies relating to compensation and
employee benefits. The Compensation Committee consisted of Messrs Reich,
Schaffer and Miller. No interlocking relationships exist between the Board or
Compensation Committee and the Board or Compensation Committee of any other
company. During the past fiscal year the Compensation Committee met 4
times.





SECTION
16(A) BENEFICIAL OWNERSHIP COMPLIANCE




Section
16(a) of the Securities Exchange Act of 1934 requires the Company’s Directors
and executive officers, and persons who own more than 10 percent of the
Company’s common stock, to file with the SEC the initial reports of ownership
and reports of changes in ownership of common stock. Officers, Directors and
greater than 10 percent stockholders are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file.




Specific
due dates for such reports have been established by the SEC and the Company is
required to disclose in this Proxy Statement any failure to file reports by such
dates during fiscal 2007. Based solely on its review of the copies of such
reports received by it, or written representations from certain reporting
persons that no Forms 5 were required for such persons, the Company believes
that during the fiscal year ended December 31, 2009, there was no failure to
comply with Section 16(a) filing requirements applicable to its officers,
Directors and ten percent stockholders.




POLICY
WITH RESPECT TO SECTION 162(m)




Section
162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), provides
that, unless an appropriate exemption applies, a tax deduction for the Company
for compensation of certain executive officers named in the Summary Compensation
Table will not be allowed to the extent such compensation in any taxable year
exceeds $1 million. As no executive officer of the Company received compensation
during 2008 approaching $1 million, and the Company does not believe that any
executive officer’s compensation is likely to exceed $1 million in 2009, the
Company has not developed an executive compensation policy with respect to
qualifying compensation paid to its executive officers for deductibility under
Section 162(m) of the Code.




CODE OF ETHICS




The
Company has adopted its Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of the officers, Directors and
employees of the Company, which is currently not available on the Company’s
website.  A copy of the Company’s Code of Ethics may be obtained from
the Company, free of charge, upon written request to the Company
Secretary.





21




Item
      11.
            Executive
      Compensation.




The
following table sets forth the cash compensation (including cash bonuses) paid
or accrued and equity awards granted by us for years ended December 31, 2009 and
2008 to the Company’s CEO and our most highly compensated officers other than
the CEO at December 31, 2009 and 2008 whose total compensation exceeded
$100,000.





SUMMARY
COMPENSATION TABLE




Name
      & Principal Position
            Year
            
            Salary
      ($)
            
            
            Bonus
      ($)
            
            
            Stock
      Awards($)
            
            
            Option
      Awards ($)
            
            All
      Other Compensation ($)
            Total
      ($)Yossi
      Attia
            2009
            
            $
            240,000
            
            
            $
            120,000
            
            
            $
            —
            
            
            $
            —
            
            —
            $360,0002008
            
            
            240,000
            
            
            
            120,000
            
            
            
            —
            
            
            
            —
            
            —
            $360,000Robin
      Gorelick
            2009
            
            
            77,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            —
            $77,0002008
            
            $
            168,000
            
            
            
            —
            
            
            
            24,048
            
            
            
            —
            
            —
            $192,048




OUTSTANDING
EQUITY AWARDS





Option
      Awards
            
            Stock
      AwardsName
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            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
              ($)Yossi
      Attia (1)
            
            
            1,000
            (2)
            
            —
            
            
            —
            
            $
            3.40
            
            
            03/12/2011
            
            
            --
            (3)
            $
            --
            (3)
            
            —
            
            
            —




(1)
            Mr.
      Attia was appointed as Chief Executive Officer of the Company on August
      14, 2006.





(2)
            On
      March 22, 2005, the Company granted 1,000 options to Yossi Attia. The
      stock options granted vest at the rate of 250 options on each September 22
      of 2005, 2006, 2007 and 2008, respectively. The exercise price of the
      options ($3.40) is equal to the market price on the date the options were
      granted.





(3)
            In
      accordance with Mr. Attia’s employment agreement, Mr. Attia was entitled
      to receive 111,458 shares of common stock for the first year. No shares
      have been issued and Mr. Attia has waived his right to these
      shares.





Except as
set forth above, no other named executive officer has received an equity
award.





22








DIRECTOR COMPENSATION





The
following table sets forth with respect to the named Director, compensation
information inclusive of equity awards and payments made in the year end
December 31, 2009.




Name
            
            Fees
      Earned or Paid in Cash
            
            Fees
      Earned or Accrued but not Paid in CashStewart
      Reich
            
            $
            ---
            
            $
            57,504Gerald
      Schaffer
            
            
            ---
            
            
            
            50,004Total
            
            $
            ---
            
            
            $
            107,508




OPTIONS/SAR GRANTS IN LAST FISCAL
YEAR





There
were no other grants of Stock Options/SAR made during the fiscal year ended
December 31, 2009.





AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION/SAR
VALUES




Name
            
            Shares
      acquired on exercise (#)
            
            Value
      realized ($)
            
            Number
      of securities
              underlying
      unexercised
              options/SARs
      at FY-end (#)
              Exercisable/
      Unexercisable
            
            Value
      of the unexercised in the money options/SARs at FY-end ($)*
              Exercisable/
      UnexercisableYossi
      Attia, CEO, Director
            
            
            None
            
            None
            
            1,000
            
            $
            0.00




* Fair
market value of underlying securities (calculated by subtracting the exercise
price of the options from the closing price of the Company’s common stock quoted
on the OTC as of December 31, 2009, which was about $0.023 per share. None of
Mr. Attia’s options are presently in the money.




EMPLOYMENT
AND MANAGEMENT AGREEMENTS




Effective
July 1, 2006, the Company entered into a five-year employment agreement with
Yossi Attia as the President and provides for annual compensation in the amount
of $240,000, an annual bonus not less than $120,000 per year, and an annual car
allowance. On August 14, 2006, the Company amended the agreement to provide that
Mr. Attia shall serve as the Chief Executive Officer of the Company for a term
of two years commencing August 14, 2006 and granting annual compensation of
$250,000 to be paid in the form of Company shares of common stock. The number of
shares to be received by Mr. Attia is calculated based on the average closing
price 10 days prior to the commencement of each employment year. Mr. Attia has
waived his rights to these shares.





On August
19, 2008, the Company entered into that certain Employment Agreement with Mike
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed to
serve as the Chairman of the Board of Directors of the Company for a period of
five years. Mr. Mustafoglu will receive (i) a salary of $240,000; (ii) a
performance bonus of 10% of net income before taxes, which will be allocated by
Mr. Mustafoglu and other key executives at the sole discretion of Mr.
Mustafoglu; and (iii) a warrant to purchase 10 million shares of common stock of
the Company at an exercise price equal to  the lesser of $.50 or 50%
of the average market price of the Company’s common stock during the 20 day
period prior to exercise on a cashless basis (the “Mustafoglu Warrant”). The
Mustafoglu Warrant shall be released from escrow on an equal basis over the
employment period of five years. As a result, 2,000,000 shares of the Mustafoglu
Warrant will vest per year.  Effective July 16, 2008, the Board of
Directors of the Company approved that certain Mergers and Acquisitions
Consulting Agreement (the “M&A Agreement”) between the Company and
TransGlobal Financial LLC, a California limited liability company
(“TransGlobal”). Pursuant to the M&A Agreement, TransGlobal agreed to assist
the Company in the identification, evaluation, structuring, negotiation and
closing of business acquisitions for a term of five years. As compensation for
entering into the M&A Agreement, TransGlobal shall receive a 20% carried
interest in any transaction introduced by TransGlobal to the Company that is
closed by the Company. At TransGlobal’s election, such compensation may be paid
in restricted shares of common stock of the Company equal to 20% of the
transaction value. Mike Mustafoglu, who is the Chairman of TransGlobal
Financial, was elected on July 28, 2008 at a special shareholder meeting as the
Company’s Chairman of the Board of Directors.  On December 24, 2008,
Mr. Mustafoglu resigned as Chairman of the Board of Directors of Company to
pursue other business interests. Further, that certain Mergers and Acquisitions
Consulting Agreement between the Company and TransGlobal was terminated. Mr.
Mustafoglu is the Chairman of TransGlobal




23




The board
of directors of AGL approved an employment agreement between the Company and Mr.
Shalom Attia, the controlling shareholder and CEO of AP Holdings
Ltd.  The agreement goes into effect on the date that the
aforementioned allotments are consummated and stipulates that Mr. Shalom Attia
will serve as the VP – European Operations of AGL in return for a salary that
costs the Company an amount of US$ 10 thousand a month.  Mr. Attia is
also entitled to reimbursement of expenses in connection with the affairs of the
Company, in accordance with Company policy, as set from time to
time.  In addition, Mr. Shalom Attia is entitled to an annual bonus of
2.5% of the net, pre-tax income of AGL in excess of NIS 8 million. The agreement
was ratified by the general shareholders meeting of AGL on 30 October
2007.




Effective
July 1, 2006, Verge entered into a non written year employment agreement with
Darren C Dunckel as the President of Verge which commenced on July 11, 2006 and
provides for annual compensation in the amount of $120,000, the employment
expense which was capitalized related to such agreement was $120,000 for each
year ended December 31, 2008 and 2007.  Mr. Dunckel subsequently
resigned as a director of the Company and Verge was disposed of.





The
Company has no pension or profit sharing plan or other contingent forms of
remuneration with any officer, Director, employee or consultant, although
bonuses are paid to some individuals.




DIRECTOR
COMPENSATION




Before
June 11, 2006, Directors who are also officers of the Company were not
separately compensated for their services as a Director. Directors who were not
officers received cash compensation for their services: $2,000 at the time of
agreeing to become a Director; $2,000 for each Board Meeting attended either in
person or by telephone; and $1,000 for each Audit and Compensation Committee
Meeting attended either in person or by telephone. Non-employee Directors were
reimbursed for their expenses incurred in connection with attending meetings of
the Board or any committee on which they served and were eligible to receive
awards under the Company’s 2004 Incentive Plan.The Board has
approved the modification of Directors’ compensation on its special meeting held
on June 11, 2006. Directors who are also officers of the Company are not
separately compensated for their services as a Director. Directors who are not
officers receive cash compensation for their services as follows: $40,000 per
year and an additional $5,000 if they sit on a committee and an additional
$5,000 if they sit as the head of such committee. Non-employee directors are
reimbursed for their expenses incurred in connection with attending meetings of
the Board or any committee on which they serve and are eligible to receive
awards under our 2004 Incentive Plan. During 2008 the Board modified its
member’s compensation to include only compensation only to committee’s member
that was appointed by the prior board, as following: each member: $4,167 per
month and chairman $4,792 per month.





STOCK
OPTION PLAN




2004
Incentive Plan





a) Stock
option plans





In 2004,
the Board of Directors established the “2004 Incentive Plan” (“the Plan”), with
an aggregate of 800,000 shares of common stock authorized for issuance under the
Plan. The Plan was approved by the Company’s Annual Meeting of Stockholders in
May 2004. In 2005, the Plan was adjusted to increase the number of shares of
common stock issuable under such plan from 800,000 shares to 1,200,000 shares.
The adjustment was approved at the Company’s Annual Meeting of Stockholders in
June 2005. The Plan provides that incentive and nonqualified options may be
granted to key employees, officers, directors and consultants of the Company for
the purpose of providing an incentive to those persons. The Plan may be
administered by either the Board of Directors or a committee of two directors
appointed by the Board of Directors (the “Committee”). The Board of Directors or
Committee determines, among other things, the persons to whom stock options are
granted, the number of shares subject to each option, the date or dates upon
which each option may be exercised and the exercise price per share. Options
granted under the Plan are generally exercisable for a period of up to ten years
from the date of grant. Incentive options granted to stockholders that hold
in excess of 10% of the total combined voting power or value of all classes of
stock of the Company must have an exercise price of not less than 110% of the
fair market value of the underlying stock on the date of the grant. The Company
will not grant a nonqualified option with an exercise price less than 85% of the
fair market value of the underlying common stock on the date of the
grant.





The
Company has granted the following options under the Plan:




24





On April
26, 2004, the Company granted 125,000 options to its Chief Executive Officer, an
aggregate of 195,000 options to five employees and an aggregate of 45,000
options to two consultants of the Company (which do not qualify as employees).
The stock options granted to the Chief Executive Officer vest at the rate of
31,250 options on November 1, 2004, October 1, 2005, October 1, 2006 and October
1, 2007. The stock options granted to the other employees and consultants vest
at the rate of 80,000 options on November 1, 2004, October 1, 2005 and October
1, 2006. The exercise price of the options ($4.78) was equal to the market price
on the date of grant. The options granted to the Chief Executive Officer were
forfeited/ cancelled in August 2006 due to the termination of his employment. Of
the 195,000 options originally granted to employees, 60,000 options were
forfeited or cancelled during 2005, while the remaining 135,000 options were
forfeited or cancelled in August 2006 due to termination of the five employee
contracts. 15,000 options granted to one of the consultants were also forfeited
or cancelled in April 2006 due to the termination of the consultant’s
contract.





Through
December 31, 2005, the Company did not recognize compensation expense under APB
25 for the options granted to the Chief Executive Officer and the five employees
as the options had a zero intrinsic value at the date of grant. The adoption of
SFAS 123R on January 1, 2006 resulted in a compensation charge of $36,817 and
$21,241 for the years ended December 31, 2007 and 2006,
respectively.





In
accordance with SFAS 123, as amended by SFAS 123R, and EITF Issue No. 96-18,
“Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling, Goods or Services”, the Company
computed total compensation charges of $162,000 for the grants made to the two
consultants. Such compensation charges are recognized over the vesting period of
three years. Compensation expense for the year ended December 31, 2006 was
$9,921.





On March
22, 2005, the Company granted an aggregate of 200,000 options to two of the
Company’s Directors. These stock options vest at the rate of 50,000 options on
each September 22 of 2005, 2006, 2007 and 2008, respectively. The exercise price
of the options ($3.40) was equal to the market price on the date the options
were granted. Through December 31, 2005, the Company did not recognize
compensation expense under APB 25 as the options had a zero intrinsic value at
the date of grant. The adoption of SFAS 123R on January 1, 2006 resulted in a
compensation charge of $36,817 and $128,284 for the years ended December 31,
2007 and 2006, respectively. One of the directors was elected as Chief Executive
Officer from August 14, 2006.




On June
2, 2005, the Company granted 100,000 options to a director of the Company, which
vests at the rate of 25,000 options on December 2 of 2005, 2006, 2007, and 2008,
respectively. Through December 31, 2005, the Company did not recognize
compensation expense under APB 25 as the options had a zero intrinsic value at
the date of grant. The adoption of SFAS 123R on January 1, 2006 resulted in a
compensation charge of $89,346 for the year ended December 31, 2006. On November
13, 2006, the Director filed his resignation. His options were vested
unexercised in February 2007.





(b) Other
Options





On
October 13, 2003, the Company granted two Directors 100,000 options each, at an
exercise price (equal to the market price on that day) of $4.21 per share, with
25,000 options vesting on each April 13, 2004, 2005, 2006 and 2007. There were
100,000 options outstanding as of December 31, 2006. The adoption of SFAS 123R
on January 1, 2006 resulted in a compensation charge of $6,599 and $31,824
during the years ended December 31, 2007 and 2006, respectively.





As of
December 31, 2009, there were 330,000 options outstanding with a weighted
average exercise price of $3.77.





No
options were exercised during the year ended December 31, 2009 and the year
ended December 31, 2008.




The
following table summarizes information about shares subject to outstanding
options as of December 31, 2009, which was issued to current or former
employees, consultants or directors pursuant to the 2004 Incentive Plan and
grants to Directors:




Options
      Outstanding
            
            Options
      ExercisableNumber
              Outstanding
            
            Range
      of
              Exercise Prices
            
            Weighted-
              Average
              Exercise Price
            
            Weighted-
              Average
      Remaining
              Life in Years
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise Price100,000
            
            $
            4.21
            
            $
            4.21
            
            
            1.79
            
            
            100,000
            
            $
            4.2130,000
            
            $
            4.78
            
            $
            4.78
            
            
            2.32
            
            
            30,000
            
            $
            4.78200,000
            
            $
            3.40
            
            $
            3.40
            
            
            3.31
            
            
            150,000
            
            $
            3.40330,000
            
            $
            3.40-$4.78
            
            $
            3.77
            
            
            2.66
            
            
            280,000
            
            $
            3.84




25




(c)
Warrants





On June
7, 2005, the Company granted 100,000 warrants to a consulting company as
compensation for investor relations services at exercise prices as follows:
40,000 warrants at $3.50 per share, 20,000 warrants at $4.25 per share, 20,000
warrants at $4.75 per share and 20,000 warrants at $5 per share. The warrants
have a term of five years and increments vest proportionately at a rate of a
total 8,333 warrants per month over a one year period. The warrants are being
expensed over the performance period of one year. In February 2006, the Company
terminated its contract with the consultant company providing investor relation
services. The warrants granted under the contract were reduced
time-proportionally to 83,330, based on the time in service by the consultant
company.





As part
of some Private Placement Memorandums the Company issued warrants that can be
summarized in the following table:





Name
            
            Date
            
            Terms
            
            No.
      of Warrants
            
            Exercise
      PriceParty
      1
            
            3/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $1.50Party
      1
            
            3/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $2.00Party
      2
            
            6/05/2008
            
            2
      years from Issuing
            
            300,000
            
            $1.50Party
      3
            
            6/30/2008
            
            2
      years from Issuing
            
            200,000
            
            $1,50Party
      4
            
            9/5/2008
            
            2
      years from Issuing
            
            200,000
            
            $1.50




Cashless
Warrants:





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes a third party, for a short term loan (“bridge”) of up to $275,000 to
bridge the drilling program of the Company. As a consideration for said
facility, the Company grants the investor with 100% cashless warrants coverage
for two years at exercise price of 1.50 per share. The investor made a loan of
$220,000 to the company on September 15, 2008 (where said funds were wired to
the company drilling contractor), that was paid in full on October 8, 2008.
Accordingly the investor is entitled to 200,000 cashless warrants as from
September 15, 2008 at exercise price of $1.50 for a period of 2 years. The
Company contests the validity of said warrants.





(d)
Shares





On May 6,
2008 the Company issued 500,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the “Undes Services Agreement”) pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide us services
related to the identification, evaluation, structuring, negotiating and closing
of business acquisitions, identification of strategic partners as well as the
provision of legal services. The term of the agreement is for five years and the
Company has agreed to issue Mr. Undes 525,000 shares of common stock that shall
be registered on a Form S8 no later than July 1, 2008.





On August
13, 2008, the Company issued 16,032 shares of its common stock, $0.001 par value
per share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration





Following
the above securities issuance, the 2004 Plan was closed, and no more securities
can be issued under this plan.





2008
Stock Incentive Plan:





On July
28, 2008 - the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the “2008
Incentive Plan”) authorized the board to issue up to 50,000 shares of Common
Stock under the plan.





On August
23 the Company issued 1,000 shares of its common stock 0.001 par value per
share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration.




26





On
November 4, 2008, the Company issued 2,540 shares of its common stock 0.001 par
value per share, to one consultant (2,000 shares) and two employees (540
shares), in accordance with the instructions provided by the Company pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.





On July
23, 2009 - , the Company issued 46,460 shares of its common stock 0.001 par
value per share, to Stephen M. Fleming, the Company’s securities counsel
pursuant to the 2008 Employee Stock Incentive Plan.





Following
the above securities issuance, the 2008 Plan was closed, and no more securities
can be issued under this plan.




Item
      12.
            Security Ownership Of Certain
      Beneficial Owners And Management and Related Stockholder
      Matters.





The
following table sets forth certain information relating to the ownership of our
voting securities by (i) each person known by us be the beneficial owner of more
than five percent of the outstanding shares of our common stock, (ii) each of
our directors, (iii) each of our named executive officers, and (iv) all of our
executive officers and directors as a group. Unless otherwise indicated, the
information relates to these persons, beneficial ownership as of April 15, 2010.
Except as may be indicated in the footnotes to the table and subject to
applicable community property laws, each person has the sole voting and
investment power with respect to the shares owned.




Title
      of Class
            Name of Beneficial Owner (1)
            
            Amount
      of Class
              Beneficially Owned
            
            
            Percentage of
              ClassCommon
            Yossi
      Attia (2)(3)(4)
            
            
            1,000
            
            
            
            *Common
            Robin
      Ann Gorelick  **
            
            
            0
            
            
            
            *Common
            Stewart
      Reich (3) (4)
            
            
            1,000
            
            
            
            *Common
            Mace
      K. Miller **
            
            
            0
            
            
            
            *Common
            Gerald
      Schaffer (3)
            
            
            0
            
            
            
            *Common
            Yasheng
      Group (6)
            
            
            50,000,000
            
            
            
            27.8%Common
            Capitol
      Properties LLC (7)
            
            
            38,461,538
            
            
            
            21.4%All
      executive officers and directors as a group (consisting of 6
      individuals)
            
            
            1,000
            
            
            
            **
            less
      than 1.00%




**
            Resigned  at
      the date of this table.





(1)
Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For purposes of this table, a person or
group of persons is deemed to have “beneficial ownership” of any shares which
such person has the right to acquire within 60 days after April 15, 2010. For
purposes of computing the percentage of outstanding shares held by each person
or group of persons named above on April 15, 2010, any security which such
person or group of persons has the right to acquire within 60 days after such
date is deemed to be outstanding for the purpose of computing the percentage
ownership for such person or persons, but is not deemed to be outstanding for
the purpose of computing the percentage ownership of any other
person.





(2) An
officer of the Company.




(3) A
director of the Company.




(4)
Includes an option to purchase 1,000 shares of common stock at an exercise price
of $3.40 per share.




(5)
Intentionally left blank.





(6)
Yasheng Group is a publicly traded company listed on the pink
sheets.  As a result, its board of directors of Yasheng has voting and
dispositive control over the securities held by it.  On April 5, 2010
the Company issued a formal request to Yasheng demanding that they surrender of
the 50,000,000 shares that were issued to them, as well as reimburse the Company
for its expenses associated with the transaction in the amount of
$348,240.




(7)
Haggai Ravid has voting and dispositive control over the securities held by
Capitol.





The
foregoing table is based upon  179,709,795 shares of common stock
outstanding as of April 15, 2010.





27




Item
      13.
            Certain Relationships And
      Related Transactions, and Director
  Independence.




Mr.
Darren Dunckel, a former member of the Board, serves as CEO and President of ERC
as well as Verge, which are both Nevada corporations and former subsidiaries of
the Company. As President, he oversees management of real estate acquisitions,
development and sales in the United States and in Croatia where ERC holds
properties. Concurrently, Mr. Dunckel is the Managing Director of The
International Holdings Group Ltd. ("TIHG"), the sole shareholder of ERC and as
such manages the investment portfolio of this holding company. Mr. Dunckel has
entered into various transactions and agreements with the Company on behalf of
ERC, Verge and TIHG (all of which are related entities given Mr. Dunckel’s
involvement as their CEO). On December 31, 2006, Mr. Dunckel executed the
Agreement and Plan of Exchange on behalf of TIHG which was issued shares in ERC
in consideration for the exchange of TIHG's interest in Verge. Pursuant to that
certain Stock Transfer and Assignment of Contract Rights Agreement dated as of
May 14, 2007, the Company transferred its shares in ERC in consideration for the
assignment of rights to that certain Investment and Option Agreement, and
amendments thereto, dated as of June 19, 2006 which gives rights to certain
interests and assets. Mr. Dunckel has represented and executed the foregoing
agreements on behalf of ERC, Verge and TIHG as well as executed agreements on
behalf of Verge to transfer 100% of Verge. Effective July 1, 2006, Verge entered
into a non written year employment agreement with Darren C Dunckel as the
President of Verge which commenced on July 11, 2006 and provides for annual
compensation in the amount of $120,000, the employment expense of which was
capitalized related to such agreement was $120,000 for each year ended December
31, 2008 and 2007. Verge loaned to Mr. Darren Dunckel, the sum of $93,822, of
which $90,000 was paid-off via Mr. Dunckel’s employment agreement, and the
balance of $3,822 is included in Prepaid and other current assets as of December
31, 2006. As of December 31, 2007, the balance for advances to Mr. Dunckel was
paid off. On October 2008 a group of investors associated with Mr. Dunckel
acquired Verge from AGL in a transaction to which the company is not a
party.  Upon closing the acquisition of AGL Mr. Attia was appointed as
the CEO of AGL. Mr. Yossi Attia serves as chairmen of the board of
AGL.





The board
of directors of AGL approved an employment agreement between the Company and Mr.
Shalom Attia, the controlling shareholder and CEO of AP Holdings
Ltd.  The agreement goes into effect on the date that the
aforementioned allotments are consummated and stipulates that Mr. Shalom Attia
will serve as the VP – European Operations of AGL in return for a salary that
costs the Company an amount of US$ 10 thousand a month.  Mr. Attia is
also entitled to reimbursement of expenses in connection with the affairs of the
Company, in accordance with Company policy, as set from time to
time.  In addition, Mr. Shalom Attia is entitled to an annual bonus of
2.5% of the net, pre-tax income of AGL in excess of NIS 8 million. The agreement
was ratified by the general shareholders meeting of AGL on 30 October
2007.




On March
31, 2008, the Company raised $200,000 from a private offering of its securities
pursuant to a Private Placement Memorandum (“PPM”). The private placement was
for Company common stock which shall be “restricted securities” and were sold at
$1.00 per share. The offering included 200,000 warrants to be exercised at $1.50
for two years (for 200,000 shares of the Company common stock), and an
additional 200,000 warrants to be exercised at $2.00 for four years (for 200,000
shares of the Company common stock). Said Warrants may be exercised to ordinary
common shares of the Company only if the Company issues subsequent to the date
of the PPM, 25 million or more shares of its common stock. The money raised from
the private placement of the Company’s shares will be used for working capital
and business operations of the Company. The PPM was done pursuant to Rule 506. A
Form D has been filed with the Securities and Exchange Commission in compliance
with Rule 506 for each Private Placement. The investor is D’vora Greenwood
(Attia), the sister of Mr. Yossi Attia. Mr. Attia abstained from voting on this
matter in the board meeting which approved this PPM.




On
September 1, 2008 Star Equity Investment LLC a third party acquired from Mr.
Attia, a $1 million note due by the Company since January 1, 2008. Said note is
bearing 12% interest commencing October 1st, 2008 and can be converted
(including interest) into common shares of the Company at a fixed price of $0.75
per share.  Star Equity Investment LLC noticed the Company that due to
the Company default on said note, it willing to enter negotiations to modify its
instrument. The parties agreed to settle by converting the note including
interest into 8.5 million common shares of the Company.





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contest said
warrants entitlements to the investor, based on a cause.




On
December 5, 2008 the Company entered into and closed an
Agreement  with T.A.S. Holdings Limited (“TAS”) (the “TAS Agreement”)
pursuant to which TAS agreed to cancel the debt payable by the Company to TAS in
the amount of approximately $1,065,000 and its 15,000,000 shares of common stock
it presently holds in consideration of the Company issuing TAS 1,000,000 shares
of Series B Convertible Preferred Stock, which such shares carry a stated value
equal to $1.20 per share (the “Series B Stock”).




28





The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company’s board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30,
2009.




In the
event of any liquidation or winding up of the Company, the holders of Series B
Stock will be entitled to receive, in preference to holders of common stock, an
amount equal to the stated value plus interest of 15% per year.




The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock.




The
Series B Stock was offered and sold to TAS in a private placement transaction
made in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and Rule 506 promulgated there under. TAS is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933. The Company filed its Certificate of Designation of
Preferences, Rights and Limitations of Series B Preferred Stock with the State
of Delaware




Based on
agreements that the company is not side too, Dr. Rubin was partial owner of
T.A.S. Dr. Rubin resigned from the Company Board of Directors on April 7, 2010
to pursue other opportunities.





Item
      14.
            Principal Accountants Fees And
      Services





The
following table presents aggregate fees for professional audit services rendered
by Robison Hill and Company for the audits of the Company’s annual financial
statements for the fiscal years ended December 31, 2009 and 2008,
respectively, and fees billed for other services rendered.




2009
            
            
            2008Audit
      Fees
            
            $
            24,960
            
            
            $
            41,800Total
            
            $
            24,960
            
            
            $
            41,800





The
Company’s Audit Committee’s policy is to pre-approve all audit and permissible
non-audit services provided by the independent auditors. These services may
include audit services, audit-related services, tax services and other services.
All services rendered have been approved by the Audit Committee.




Item
      15.
            Exhibits, Financial Statement
      Schedules.




Exhibit
      No.
            
            Description2.1
            
            Amendment
      No. 1 to that certain Share Exchange Agreement by and
      between  Vortex Resources Corp. and Trafalgar Capital
      Specialized Investment Fund, Luxembourg dated April 29
      2008  (15)2.2
            
            Agreement
      and Plan of Exchange with Davy Crockett Gas Company, LLC and the members
      of Davy Crockett Gas Company, LLC dated May 1, 2008
(16)2.3
            
            Amendment
      No. 1 to the Agreement and Plan of Exchange with Davy Crockett Gas
      Company, LLC and the members of Davy Crockett Gas Company, LLC dated June
      11, 2008 (19)2.4
            
            Shares
      Purchase Agreement between Vitonas Investments Limited, a
      Hungarian corporation, Certus Kft., a Hungarian corporation, Rumed
      2000 Kft., a Hungarian corporation and Euroweb International Corp., a
      Delaware corporation, dated as of February 23, 2004.
  (33)2.5
            
            Share
      Purchase Agreement by and between Euroweb International Corp. and Invitel
      Tavkozlesi Szolgaltato Rt. (34)2.6
            
            Shares
      Purchase Agreement between Vitonas Investments Limited, a Hungarian
      corporation, Certus Kft., a Hungarian corporation, Rumed 2000 Kft., a
      Hungarian corporation and Euroweb International Corp., a Delaware
      corporation, dated as of February 23, 2004. (33)




29




3.1
            
            Certificate
      of Incorporation filed November 9, 1992 (1)3.2
            
            Amendment
      to Certificate of Incorporation filed July 9, 1997 (2)3.3
            
            Bylaws(1)3.4
            
            Certificate
      of Designation of Preferences, Rights, and Limitations of Series A
      Preferred Stock (19)3.5
            
            Certificate
      of Designation of Preferences, Rights and Limitations of Series B
      Preferred Stock (26)3.6
            
            Restated
      Certificate of Incorporation (33)3.7
            
            Certificate
      of Amendment to the Restated Certificate of Incorporation, dated July 29,
      2008 (22)3.8
            
            Certificate
      of Ownership of Emvelco Corp. and Vortex Resources
    Corp.(23)3.9
            
            Certificate
      of Amendment to the Certificate of Incorporation , dated February 24, 2009
      (28)3.10
            
            Form
      of Common Stock Certificate (1)3.11
              
              3.12
            
            Certificate of Designations of
      Preferences, Rights and Limitations of Series D Preferred Stock dated
      December 18, 2009. (36)
              
              Certificate of Designation –
      Series C (38)4.1
            
            Convertible
      Note issued to Trafalgar Capital Specialized Investment Fund, Luxembourg,
      dated September 2008 (24)4.2
            
            Form
      of Convertible Note dated May 1, 2008 issued to the members of Davy
      Crockett Gas Company, LLC (16)4.3
            
            All
      Inclusive Promissory Note, dated November 27, 2007, issued by 13059
      Dickens LLC in the name of Kobi Louria  (14)4.4
            
            Form
      of Warrant to Purchase 200,000 Shares of Common Stock issued in the name
      of Vortex One, LLC (20)10.1
            
            Share
      Purchase Agreement, dated February 2004, by and
      between  PANTEL  TAVKOZLESI  ES  KOMMUNIKACIOS  RT.
      And Euroweb International Inc. (3)10.2
            
            Form
      of Guaranty, dated February 23, 2004 by EuroWeb International, Inc. in
      favor
      of  PANTEL  TAVKOZLESI  ES  KOMMUNIKACIOS  RT.
      (3)10.3
            
            Securities
      Purchase Agreement entered by and between Vortex Resources Corp. and
      Trafalgar Capital Specialized Investment Fund, Luxembourg dated September
      25, 2008 (24)10.4
            
            Security
      Agreement entered by and between Vortex Resources Corp. and Trafalgar
      Capital Specialized Investment Fund, Luxembourg dated September 25, 2008
      (24)10.5
            
            Pledge
      Agreement entered by and between Vortex Resources Corp. and Trafalgar
      Capital Specialized Investment Fund, Luxembourg dated September 25, 2008
      (24)10.6
            
            Investment
      Agreement, dated as of June 19, 2006, by and between EWEB RE Corp. and AO
      Bonanza Las Vegas, Inc. (4)10.7
            
            Sale
      and Purchase Agreement, dated as of February 16, 2007, by and between
      Emvelco Corp. and Marivaux Investments Limited (5)




30




10.8
            
            Stock
      Transfer and Assignment of Contract Rights Agreement, dated as of May 14,
      2007 among Emvelco Corp., Emvelco RE Corp., The International Holdings
      Group Ltd., and Verge Living Corporation (6)10.9
            
            Agreement,
      dated as of June 5, 2007, among Emvelco Corp., Yossi Attia, Darren
      Dunckel, and Upswing, Ltd.(7)10.10
            
            Agreement,
      dated July 5, 2007 by and between Emvelco Corp and Emvelco RE
      Corp.(8)10.11
            
            All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Edinburgh Avenue,
      dated July 5, 2007 by and between Emvelco Corp and Emvelco RE
      Corp.(8)10.12
            
            All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Harper
      Avenue,  dated July 5, 2007 by and between Emvelco Corp and
      Emvelco RE Corp. (8)10.13
            
            All-Inclusive
      Purchase Money Deeds of Trust with Assignment of Rents - Laurel
      Avenue,  dated July 5, 2007 by and between Emvelco Corp and
      Emvelco RE Corp. (8)10.14
            
            Agreement,
      dated as of June 5, 2007, among Emvelco Corp., Yossi Attia, Darren
      Dunckel, and Upswing, Ltd.(9)10.15
            
            Agreement,
      dated July 2007, by and among Emvelco Corp., Appswing Ltd. and AP Holdings
      Ltd. (10)10.16
            
            Agreement,
      dated July 19, 2007, by and among Emvelco Corp., Kidron Industrial
      Holdings Ltd and AP Holdings Ltd. (10)10.17
            
            Indemnification
      Agreement, dated September 18, 2007 by and between Emvelco Corp. and Verge
      Living Corporation (11)10.18
            
            Notice
      of Exercise of Options, dated October 15, 2007 from Emvelco Corp. to
      Emvelco RE Corp. (12)10.19
            
            Settlement
      and Release Agreement and Amendment No. 1 to that certain Term Sheet by
      and between Emvelco Corp and  Dr. Danny Rittman, dated
      November 15, 2007. (13)10.20
            
            All
      Inclusive Deed of Trust, dated November 27, 2007 by and between 13059
      Dickens LLC and Kobi Louria (14)10.21
            
            Services
      Agreement dated June 11, 2008 by and between EMVELCO Corp. and Mehmet
      Haluk Undes (18)10.22
            
            Limited
      Liability Company Operating Agreement of Vortex Ocean One, LLC, a Nevada
      limited liability company, dated June 30, 2008 (20)10.23
            
            Term
      Assignment of Oil and Gas Lease issued to Davy Crockett Gas Company, LLC
      (20)10.24
            
            Drilling
      Agreement, dated July 1, 2008, by and between Davy Crockett Gas Company,
      LLC and Ozona Natural Gas Company, LLC (20)10.25
            
            Mergers
      and Acquisitions Consulting Agreement, dated July 1, 2008, by and between
      the Company and TransGlobal Financial LLC (21)10.26
            
            Agreement
      dated December 3, 2008 and is made by and between Vortex Resource Corp.
      and T.A.S. Holdings Limited (26)10.27
            
            Form
      of Agreement, dated December 19, 2009, by and between Vortex Resources
      Corp. and the assignees of those persons party to that certain
      Registration Rights Agreement, dated July 21, 2005 (27)10.28
            
            Agreement
      by and between Vortex Resources Corp. and Star Equity Investments, LLC,
      dated March 11, 2009 (29)10.29
            
            Form
      of Subscription Agreement, dated January 23, 2009 related to the sale of
      shares of the Company’s Common Stock
(30)




31






10.30
              
              10.31
              
              10.32
              
              10.33
              
              10.34
              
              10.35
              
              10.36
              
              10.37
            
            Employment
      Agreement by and between the Company and Yossi Attia effective July 1,
      2006 (31)
              
              Pledge
      Agreement by and between Vortex Ocean One LLC and Tiran Ibgui dated
      November 18, 2008
              
              Amendment
      No, 1 Dated as of August 14, 2006 to the Employment Agreement between
      Yossi Attia and Euroweb International Corp.
              
              Employment
      Agreement by and between Emvelco Corp. and Mike M. Mustafoglu
      (35)
              
              Preferred
      Stock Purchase Agreement dated as of December 30, 2009 between
      Yasheng Eco-Trade Corporation and Socius Capital Group, LLC d/b/a Socius
      Life Sciences Capital Group, LLC
              
              Warrant dated December 30, 2009
      issued by Yasheng Eco-trade Corporation to Socius CG II,
      Ltd.
              
              Exchange
      Agreement dated December 30, 2009 between Yasheng Eco-trade Corporation
      and Moran Atias
              
              Exchange Agreement dated January
      20, 2010 between Yasheng Eco-trade Corporation and Moran Atias
      (37)10.38
              
              10.39
              
              10.40
              
              21.1
            
            Convertible Note issued November
      23, 2009 (38)
              
              Stock Exchange Agreement between
      Yasheng Eco-Trade Corporation and Yasheng Group (BVI) dated August 26,
      2009 (39)
              
              Agreement between Yasheng
      Eco-Trade Corporation and Yasheng Group dated August 26, 2009
      (40)
              
              List
      of Subsidiaries31
            
            Certification
      of the Chief Executive Officer and Principal Financial Officer of Vortex
      Resources Corp. pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32
            
            Certification
      of the Chief Executive Officer and Principal Financial Officer of Vortex
      Resources Corp. Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002.


(1)
Incorporated by reference to Registrant’s Registration Statement on Form SB-2
dated May 12, 1993 (Registration No. 33-62672-NY, as amended)




(2)
Incorporated by reference to the exhibit filed with the Registrant’s Form 10-QSB
for quarter ended June 30, 1998.




(3)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on February 27, 2004.




(4)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on March 9, 2004.




(5)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on December 21, 2005.




(6)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on May 16, 2007




(7)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on June 11, 2007




(8)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on July 12, 2007




(9)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on June 11, 2007




(10)  Incorporated
by reference to the exhibit filed with the Registrant’s Current Report on Form
8-K on July 26, 2007




(11)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on September 26, 2007




(12)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on October 19, 2007




(13)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on November 19, 2007




(14)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on December 21, 2007




(15)  Incorporated
by reference to the exhibit filed with the Registrant’s Current Report on Form
8-K on  May 5, 2008




(16)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  May 7, 2008




(17)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  June 10, 2008




32




(18)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  June 13, 2008




(19
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  June 17, 2008




(20)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  July 9, 2008




(21)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  July 17, 2008




(22)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  August 1, 2008





(23)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  September 4, 2008




(24)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  October 2, 2008




(25)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  November 20, 2008




(26)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  December 5, 2008




(27)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  December 31, 2008




(28)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  February 25, 2009




(29)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  March 19, 2009





(30)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  January 28, 2009





(31)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  July 5, 2006




(32)
Incorporated by reference to the exhibit filed with the Registrant’s Schedule
14A Proxy Statement on May 7, 2003





(33) Incorporated by reference to the exhibit filed
with the Registrant’s Current Report on Form 8-K on  March 9,
2004





(34)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  December 21, 2005




(35)
Incorporated by reference to the exhibit filed with the Registrant’s Quarterly
Report on Form 10-Q filed on  August 19, 2008




(36)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  December 31, 2009




(37)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  January 22, 2010




(38)
Incorporated by reference to the exhibit filed with the Registrant’s Current
Report on Form 8-K on  December 3, 2009




(39) Incorporated
by reference to the exhibit filed with the Registrant’s Current Report on Form
8-K on  January 9, 2009




(40) Incorporated
by reference to the exhibit filed with the Registrant’s Current Report on Form
8-K on  August 28, 2009




33





SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.




VORTEX
      RESOURCES CORP.By
            /s/
      Yossi AttiaYossi
      AttiaDated:
      April 15, 2010
            
            Chief
      Executive Officer and Director(Principal
      Executive Officer and Principal Financial Officer)




Pursuant
to the requirements of the Securities Exchange of 1934, as amended, this Report
has been signed below by the following persons in the capacities and on the
dates indicated.




SIGNATURE
            
            TITLE
            
            DATEBy:
      /s/ Yossi Attia
            
            Chief
      Executive Officer and Director
            
            April
      15, 2010Yossi
      Attia
            
            (Principal
      Executive Officer, Principal Financial and Accounting
    Officer)By:
      /s/ Stewart Reich
            
            Director
            
            April
      15, 2010Stewart
      ReichBy:
      /s/ Gerald Schaffer
            
            Director
            
            April
      15, 2010Gerald
      SchafferBy:
      /s/ Allison Moses
            
            Secretary
            
            April
      15, 2010Allison
      Moses






34





YASHENG
ECO-TRADE CORPORATION


(f/k/a
VORTEX RESOURCES CORP.)





Consolidated
Financial Statements





As of
December 31, 2009 and As of December 31, 2008 and for the Years Ended December
31, 2009 and 2008




TABLE OF
CONTENTS





PageReport
      of the Independent Registered Public Accounting Firm
            
            F-2Consolidated
      Financial Statements:Consolidated
      Balance Sheet
            
            F-3Consolidated
      Statements of Operations and Comprehensive Income
            
            F-4Consolidated
      Statements of Stockholders’ Equity
            
            F-5Consolidated
      Statements of Cash Flows
            
            F-6Notes
      to Consolidated Financial Statements
            
            F-7












REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS





To the
Board of Directors and Shareholders


Yasheng
Eco-Trade Corporation and Subsidiaries





We have audited the accompanying
consolidated balance sheets of Yasheng Eco-Trade Corporation (f/k/a Vortex
Resources Corp., and f/k/a Emvelco Corp.) and Subsidiaries as of December 31,
2009 and 2008 and the related consolidated statements of operations,
comprehensive income, stockholder’s equity and cash flows for the years then
ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.





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





In our opinion the consolidated
financial statements referred to above present fairly, in all material respects,
the financial position of Yasheng Eco-Trade Corporation and Subsidiaries as of
December 31, 2009 and 2008 and the results of its operations and its cash flows
for the years ended December 31, 2009 and 2008 in conformity with accounting
principles generally accepted in the United States of America.





The accompanying consolidated financial
statements have been prepared assuming that the Company will continue as a going
concern. As discussed in Note 1 to the financial statements, the financing of
the Company’s projects is dependent on the future effect of the so called
sub-prime mortgage crisis on financial institutions.  This sub-prime
crisis may affect the availability and terms of financing of the completion of
the projects as well as the availability and terms of financing may affect the
Company’s ability to obtain relevant financing, if required.  The
sub-prime mortgage crisis has raised 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.









/s/ Robison, Hill
      &
      Co.
              Certified
      Public Accountants




Salt Lake
City, Utah


April 15,
2010





F-2





YASHENG
ECO-TRADE CORPORATION


(f/k/a Vortex Resources
Corp.)


Consolidated
Balance Sheet


As
of December 31, 2009 and 2008


Amounts in US
dollars


ASSETS
            
            2009
            
            
            2008Current
    assets:Cash and cash
      equivalents
            
            
            85,789
            
            
            
            123,903Total current
      assets from continued operations
            
            
            85,789
            
            
            
            123,903Non Current assets from
      discontinued operations
            
            
            1,544,690
            
            
            
            2,100,000Total
assets
            
            
            1,630,479
            
            
            
            2,223,903LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilities:Accounts payable and accrued
      expenses
            
            
            1,390,451
            
            
            
            813,064Convertible notes payable to third
      party – current portion
            
            
            ---
            
            
            
            212,290Other current
      liabilities
            
            
            151,742
            
            
            
            89,400Total current
      liabilities
            
            
            1,542,193
            
            
            
            1,114,754Convertible Notes Payable to Third
      Parties
            
            
            3,535,000
            
            
            
            3,440,119Commitments and
      contingencies
            
            
            ---
            
            
            
            ---Minority
      interest in subsidiary’s net assets
            
            
            ---
            
            
            
            525,000Stockholders'
      equityPreferred stock, seriesCconvertible, $.025 stated value,
      210,087 sharesauthorized issued and
      outstanding; in 2008,1,000,000 series B
      convertible, $1.20 stated value - Authorized and
      outstanding
            
            
            5,000
            
            
            
            1,200,000Common stock, $0.001 par value -
      Authorized 400,000,000 shares;140,909,795 and 872,809 shares
      issued and outstanding
            
            
            140,910
            
            
            
            873Additional paid-in
      capital
            
            
            92,624,105
            
            
            
            85,467,283Accumulated
      deficit
            
            
            (96,189,694
            )
            
            
            (89,497,091
            )Accumulated other comprehensive
      loss
            
            
            (2,226
            )
            
            
            (2,226
            )Treasury stock – 1,000 common
      shares at cost
            
            
            (24,809
            )
            
            
            (24,809
            )Total stockholders'
      equity
            
            
            (3,446,714
            )
            
            
            (2,855,970
            )Total liabilities and
      stockholders' equity
            
            
            1,630,479
            
            
            
            2,223,903





See
accompanying notes to consolidated financial statements.


F-3








YASHENG
ECO-TRADE CORPORATION


(f/k/a Vortex Resources
Corp.)


Consolidated
Statements of Operations and Comprehensive Income


Years
Ended December 31, 2009 and 2008


Amounts
in US dollars





2009
            
            
            2008Revenues from
      Sales
            
            $
            ---
            
            
            $
            ---Cost of
      revenues
            
            
            ---
            
            
            
            ---Operating
      expensesCompensation and related
      costs
            
            
            410,156
            
            
            
            558,073Consulting, professional and
      directors fees
            
            
            790,373
            
            
            
            13.049,759Other selling, general and
      administrative expenses
            
            
            203,670
            
            
            
            413,576Commitment feeand related legal
      expenses
            
            
            270,000
            
            
            
            --Other
    expenses
            
            
            348,240
            
            
            
            --Total operating
      expenses
            
            
            2,022,439
            
            
            
            14,021,409Operating
    loss
            
            
            (2,022,439
            )
            
            
            (14,021,409Interest
    income
            
            
            171,567
            
            
            
            729,097Interest
      expense
            
            
            (3,280,731
            )
            
            
            (1,922,983
            )Net interest income
      (expense)
            
            
            (3,109,164
            )
            
            
            (1,193,886
            )Other
      income
            
            
            65,000
            
            
            
            --Financing loss - change in
      conversion price
            
            
            (1,786,000
            )
            
            
            -Loss before income
      taxes
            
            
            (6,852,603
            )
            
            
            (15,215,295
            )Income tax
      expense
            
            
            --
            
            
            
            --Loss from continuing
      operations
            
            
            (6,852,603
            )
            
            
            (15,215,295
            )Loss from discontinued operations
      & Goodwill impairment, net oftax
            
            
            --
            
            
            
            (35,935,635
            )Net Loss before minority interest
      in loss of consolidated subsidiary
            
            
            (6,852,603
            )
            
            
            (51,150,930
            )Less minority interest in loss of
      consolidated subsidiary
            
            
            160,000
            
            
            
            (56,531
            )Net loss
            
            
            (6,692,603
            )
            
            
            (51,207,461
            )Other comprehensive
      loss
            
            
            ---
            
            
            
            ---Comprehensive
      (loss)
            
            $
            (6,692,603
            )
            
            $
            (51,207,461
            )Loss per share from continuing
      operations, basic
            
            
            (0.08
            )
            
            
            (78.04
            )Loss per share from discontinued
      operations, basic
            
            
            --
            
            
            
            (184.32
            )Net Loss per share,
      basic
            
            
            (0.08
            )
            
            
            (262.36
            )Loss per share from continuing
      operations, diluted
            
            
            (0.08
            )
            
            
            (76.01
            )Loss per share from discontinued
      operations, diluted
            
            
            --
            
            
            
            (179.52
            )Net Loss per share,
      diluted
            
            
            (0.08
            )
            
            
            (255.53
            )Weighted average number of shares
      outstanding, basic
            
            
            88,985,544
            
            
            
            194,967Weighted average number of shares
      outstanding, diluted
            
            
            88,985,544
            
            
            
            200,175





See
accompanying notes to consolidated financial statements.


F-4




YASHENG
ECO-TRADE CORPORATION


(f/k/a
VORTEX RESOURCES CORP.)


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY


YEARS
ENDED DECEMBER 31, 2009 and 2008


Amounts
in US dollars




Preferred
      Stock
              
              Common
      Stock
              
              AdditionalNumber
              
              Number
              
              Paid-in
              Accumulated
              Income
              Treasury
              Shareholders'of
      Shares
              Amount
              of
      Shares
              Amount
              Capital
              Deficit
              (Loss)
              Stock
              EquityBalances
      December 31, 2007
              
              
              46,092
              46
              53,285,959
              (38,289,630)
              (2,226)
              (2,117,711)
              12,876,438Compensation
      charge on shares, options and warrants issued to
      consultants
              
              
              2,540
              3
              2,018,412
              
              
              
              2,018,415Treasury
      stock - Open Market
              
              
              (1,030)
              (1)
              (102)
              
              
              (28,400)
              (28,503)Issuance
      of preferred shares and subsequent conversion into common
      shares
              
              
              500,000
              500
              49,999,500
              
              
              
              50,000,000Issuance
      of shares - common
              
              
              25,207
              25
              1,017,489
              
              
              
              1,017,514Conversion
      of notes payable into common shares
              
              
              450,000
              450
              2,149,550
              
              
              
              2,150,000Cancellation
      of treasury shares
              
              
              
              
              (2,121,302)
              
              
              2,121,302
              -Discount
      on Note Payable
              
              
              
              
              210,000
              
              
              
              210,000Surrendered
      15M shares
              
              
              (150,000)
              (150)
              (14,999,850)
              
              
              
              (15,000,000)Conversion
      of note to Series B preferred
              1,000,000
              1,200,000
              
              
              (132,417)
              
              
              
              1,067,583Net
      loss for the period
              
              
              
              
              
              (51,207,461)
              
              
              (51,207,461)Related
      party-bad debt writeoff
              
              
              
              
              (5,959,956)
              
              
              
              (5,959,956)Balances
      as of December 31, 2008
              1,000,000
              1,200,000
              872,809
              873
              85,467,283
              (89,497,091)
              (2,226)
              (24,809)
              (2,855,970)Conversion
      of note to common shares
              
              
              8,500,000
              8,500
              1,048,833
              
              
              
              1,057,333Change
      in conversion price
              
              
              
              
              1,786,000
              
              
              
              1,786,000Shares
      issued to Yasheng
              
              
              50,000,000
              50,000
              146,830
              
              
              
              196,830Shares
      issued to Capitol
              
              
              38,461,538
              38,462
              112,948
              
              
              
              151,410Conversion
      of preferred Series B stock
              -1000000
              -1200000
              7,500,000
              7,500
              1,192,500
              
              
              
              -Issuance
      of Series C Preferred Stock
              210087
              5000
              
              
              (55)
              
              
              
              4,945Discount
      on conversion of debt
              
              
              
              
              1,278,821
              
              
              
              1,278,821Star
      note payable conversion
              
              
              8,000,000
              8,000
              342,000
              
              
              
              350,000Moran
      note payable conversion
              
              
              11,903,333
              11,903
              88,097
              
              
              
              100,000Common
      stock issuance: Raccah
              
              
              1,075,655
              1,076
              376,144
              
              
              
              377,220Common
      stock issuance: Yaniv
              
              
              50,000
              50
              74,950
              
              
              
              75,000Common
      stock issuance for servies: Fleming law firm
              
              
              46,460
              46
              22,254
              
              
              
              22,300Common
      stock issuance for servies: Public Relations firm
              
              
              500,000
              500
              51,500
              
              
              
              52,000Common
      stock for Rusk
              
              
              4,000,000
              4,000
              396,000
              
              
              
              400,000Common
      stock for Socius
              
              
              10,000,000
              10,000
              240,000
              
              
              
              250,000Net
      loss for period
              
              
              
              
              
              (6,692,603)
              
              
              (6,692,603)Balance
      December 31, 2009
              210,087
              5,000
              140,909,795
              140,910
              92,624,105
              -96,189,694
              -2,226
              -24,809
              -3,446,714




See
accompanying notes to consolidated financial statements.


F-5





YASHENG
ECO-TRADE CORPORATION


(f/k/a Vortex Resources
Corp.)


Consolidated
Statements of Cash Flows


Year
Ended December 31, 2009 and 2008


Amounts
in US dollars




2009
              
              
              2008Comprehensive
      loss
              
              
              (6,692,603
              )
              
              
              (51,207,461
              )Decrease (Increase) in
      accounts receivable
              
              
              0
              
              
              
              218,418Loss in consolidated
      subsidiary
              
              
              160,000
              
              
              
              56,531Increase (Decrease) in
      accounts payable
              
              
              577,387
              
              
              
              813,064Financing
    loss
              
              
              1,786,000
              
              
              
              0Amortization of debt
      discount
              
              
              2,595,600
              
              
              
              222,509Bad debt
      expense
              
              
              
              
              
              
              0Consulting
      fees
              
              
              724,300
              
              
              
              13,049,759Decrease in other
      current liabilities
              
              
              (62,342
              )
              
              
              (216,120
              )Net cash provided by (used
      by) continuing operations
              
              
              (1,276,658
              )
              
              
              (37,063,300
              )Net cash provided by (used
      by) discontinued operations
              
              
              221,379
              
              
              
              36,832,317Net
      cash provided by operating activities
              
              
              (690,279
              )
              
              
              (230,983
              )Cash flows from investing
      activities:Cash proceeds received from sale
      of stock for minority interest
              
              
              25,000
              
              
              
              525,000Cash proceeds received from former
      DCG members
              
              
              
              
              
              
              10,000Loan advances to Emvelco RE
      Corp
              
              
              
              
              
              
              (294,361
              )Loan advances to Verge Loan
      advances to Verge
              
              
              
              
              
              
              (241,837
              )Repayments from Verge,
      net
              
              
              
              
              
              
              328,300Net cash  used in
      investing activities
              
              
              25,000
              
              
              
              (327,102
              )Cash flows from financing
      activities:Payments to acquire treasury
      stock
              
              
              
              
              
              
              -28,503Proceeds from notes
      payable
              
              
              170,000
              
              
              
              4,009,900Payment on notes
      payable
              
              
              
              
              
              
              (591,565
              )Proceeds from secured bank
      loans
              
              
              
              
              
              
              17,993Repayments of bank
      loans
              
              
              
              
              
              
              (4,249,590
              )Proceeds from related
      party
              
              
              
              
              
              
              482,205Repayment to related
      party
              
              
              
              
              
              
              (1,000,000
              )Proceeds from the issuance of
      stock
              
              
              457,165
              
              
              
              1,017,768Net cash (used in) provided by
      financing activities
              
              
              627,165
              
              
              
              (341,792
              )Net increase (decrease) in cash
      and cash equivalents
              
              
              (38,114
              )
              
              
              (245,673
              )Cash and cash equivalents,
      beginning of year
              
              
              123,903
              
              
              
              369,576Cash and cash equivalents, end of
      year
              
              
              85,789
              
              
              
              123,903





Supplemental
      disclosure:Cash paid for interest
      expense
            
            
            38,253
            
            
            
            4,822Cash received for interest
      income
            
            
            171,567
            
            
            
            394,281Summary of non-cash
      transactions:Note payable in exchange for
      minority interest
            
            
            365,000
            
            
            
            ---Note payable converted for
      shares
            
            
            1,507,333
            
            
            
            2,000,000Acquisition of subsidiary
      Preferred shares converted into 50,000,000 common
      shares
            
            
            
            
            
            
            50,000,000Preferred stock converted to
      common stock
            
            
            1,200,000Note payable converted into
      20,000,000 common shares
            
            
            
            
            
            
            150,000Note payable converted into
      1,000,000 convertible preferred shares
            
            
            
            
            
            
            1,200,000and surrendered 15,000,000 common
      shares
            
            
            
            
            
            
            15,000,000




See
accompanying notes to consolidated financial statements.





F-6




1.
Organization and Business




Yasheng
Eco-Trade Corporation (f/k/a Vortex Resources Corp, and Emvelco Corp., and
Euroweb International Corp.) , is a Delaware corporation and was organized on
November 9, 1992. It was a development stage company through December 1993..
Yasheng Eco-Trade Corporation and its consolidated subsidiaries are collectively
referred to herein as “Yasheng Eco” or “Vortex” or the “Company”.





The
Company’s headquarters and operational offices are located in West Hollywood,
California.





General
Business Strategy





Our
business plan since 1993 has been identifying, developing and operating
companies within emerging industries for the purpose of consolidation and sale
if favorable market conditions exist. Although the Company primarily focuses on
the operation and development of its core businesses, the Company pursues
consolidations and sale opportunities in a variety of different industries, as
such opportunities may present themselves, in order to develop its core
businesses and additional areas outside of its core business.  The
Company may invest in other unidentified industries that the Company deems
profitable. If the opportunity presents itself, the Company will consider
implementing its consolidation strategy with its subsidiaries and any other
business that it enters into a transaction.  In January 2009, the
Company commenced the development of a logistics center in Southern
California.





In 2008,
the Company changed or amended its business model to focus on the mineral
resources industry, commencing gas and oil sub-industry, which was approved by
its shareholders. Based on series of agreements, the Company entered into an
Agreement and Plan of Exchange (the "DCG Agreement") with Davy Crockett Gas
Company, LLC ("DCG") and its members ("DCG Members"). Pursuant to the DCG
Agreement, the Company acquired and the DCG Members sold, 100% of the
outstanding membership in DCG. DCG is a limited liability company organized
under the laws of the State of Nevada.  As a newly formed designated
LLC, DCG holds certain development rights for gas drilling in Crockett County,
Texas. DCG has entered into the final DCG Agreement with the Company, which
provided that the members sold all of their membership units to the Company.
DCG, a wholly owned subsidiary is a limited liability company and was organized
in Nevada on February 22, 2008. The Company's members’ capital accounts consist
of 10,000 units. As of December 31, 2008, 10,000 member’s units are issued and
outstanding.  DCG has obtained drilling rights from a third party in
Wolfcamp Canyon Sandstone Field in West Texas and entering the natural gas
production & exploration, drilling, and extraction business.  DCG
had the option to purchase rights on up to 180 in-fill drilling locations on
about specific 3,600 acres, based on a 20 acres spacing.  The field
was first developed in the 1970s on a 160 acre well spacing and was later
reduced based on a small radius of the wells drainage. The spacing has
subsequently been reduced to 40 acres, 20 acres, and 10 acres accordingly. DCG’s
drilling program is based on 20 acres spacing. Due to major issues in the
development of the oil and gas project in Crockett County, Texas, the board
obtained additional reserve report for the Company's interest in DCG and Vortex
Ocean One, LLC (“Vortex Ocean”), which report indicated that the DCG properties
being in essence negative in value. As a result of such report, the world and US
recessions and the depressed oil and gas prices, the board of directors elected
to dispose of the DCG property. As Such, Vortex Ocean sold during 2009 the DCG
properties to a third party (See Commitment and Contingencies).





As a
result of the series of transactions described above, the Company’s ownership
structure at December 31, 2008 was as follows (designated for sale – see
subsequent events):


100% of
DCG – discontinued operations
 50% of
Vortex Ocean One, LLC
 Approximately
7% of Micrologic, Via EA Emerging Ventures Corp)
 100% of
610 N. Crescent Heights, LLC and 50% of 13059 Dickens, LLC – both properties
divested




In January 2009, the Company
commenced the development of a logistics center in Southern California. Our
mission is to develop an Asian Pacific Cooperation Zone in Southern California
to enhance and enable increased trade between the United States and China. The
facility will provide a “Gateway to China” through a centralized location for
the marketing, sales, customer service, product completion for “Made in the USA”
products and distribution of goods imported from China. It will also promote
Joint Ventures and exporting opportunities for US companies. The importing or
sourcing materials from China has been the solution for creating significant
margins for goods sold in the United States.  While many large
multi-national companies have been able to navigate and capitalize on the
opportunities the Chinese industrial complex has created, most US companies
simply do not have the resources to manage the complexities of working with
companies in China.  Some of the complexities for US companies
importing from China include selecting the right manufacturer or vendor for your
company, addressing transportation, tax and customs issues and quality control
and delivery issues. Due to the complexities and uncertainties US companies have
found trying to import goods and services from China, our goal is to establish a
centralized US based trade center. The goal is to create a “Gateway to China”
with warehouse and office space. The warehouse will be centrally located in
Southern California with easy access to the ports of Long Beach and Los Angeles,
and railways. The warehouse will have the ability to handle both 20 and 40 foot
containers including wet, dry and cold storage. The office space will be
designed to provide US headquarters for the Chinese companies involved. One of
the keys to success for the Asian Pacific Cooperation Zone is the ability to
leverage a common infrastructure of technology, administration and
transportation to sell goods and services in the United States. We anticipate
the Cooperative zone will be utilized for distribution, sales, marketing,
warehousing, administration, customer service, showroom display, pick and pack
services as well as other value added services that prepares products for
delivery to customers. The
business model is to facilitate the importing and exporting of goods and
services. Revenue will be generated through a number of offerings including the
lease of office space, storage space, distribution services, andadministration services along with other value added services. Our
successful development of the logistics center includes many risks including
raising adequate funds to pay for the lease of the facility and development of
the facility of which there is no guarantee that such funds will be available,
the general state of the economy in both the United States and China and
concerns over whether the recession will continue or even possibly
deepen.










Yasheng Group - Logistics Center and
Potential Acquisition - During 2009, the Company entered into series of
agreements with Yasheng Group, Inc., a California corporation
(“Yasheng”).  Yasheng is an agriculture conglomerate which has
subsidiaries located in the Peoples Republic of China who are engaged in the
production and distribution of agricultural, chemical and biotechnological
products to the United States, Canada, Australia, Pakistan and various European
Union countries as well as in China.  Pursuant to these series of
agreements Yasheng agreed to transfer certain assets and know-how for the
development of a logistics center and eco-trade cooperation zone (the
“Project”).





As
part of the Company due diligence and closing procedure, the Company requested
that Yasheng-BVI (allegedly Yasheng parent company) provide a current legal
opinion from a reputable Chinese law firm attesting to the fact that no further
regulatory approval from the Chinese government is required as well as other
closing conditions to close the transaction.    On November
3, 2009, the Company sent Yasheng and Yasheng-BVI a formal letter demanding
various closing items.  Yasheng and Yasheng-BVI did not deliver the
requested items and, on November 9, 2009 Yasheng and Yasheng-BVI sent a
termination notice to the Company advising that the definitive Agreement has
been terminated. The Company is presently evaluating its options in moving
forward with respect to Group based on various letters of intent and
agreements with Group regarding various matters and is presently determining
whether it should cease all activities with Group.





As
Yasheng failed to enter into a definitive agreement with the Company, we may
lose a significant source of our potential clients for the logistics
center.  As such, we would be required to develop additional sources
of clients and develop a significant sales force to achieve favorable
results.





Micrologic, Inc. - Micrologic,
Inc. (“Micrologic”), is in the business of design and production of EDA
applications and Integrated Circuit (“IC”) design processes; The Company own
100,000 shares of Micrologic - vested via EA Emerging Ventures Inc. (“EVC”)
represented less than ten percent (10%) equity ownership in Micrologic, prior to
further dilution..  Micrologic subsequently issued additional
securities to third parties diluting our interest to approximately 7% of the
issued and outstanding of Micrologic, Inc. On April 15, 2010 the Company sold
all its holdings in Micrologic for consideration of $20,000.





The
Company’s holdings in its subsidiaries at December 31, 2009 were as
follows:




100% of
DCG – discontinued operations


100% of
Vortex Ocean One, LLC (See Commitment and contingencies)


Approximately
7% of Micrologic, (held by EA Emerging Ventures Corp, a 100% owned subsidiary of
the Company)





Going Concern - The
accompanying consolidated financial statements included in this Annual Report on
Form 10-K include an opinion from Robinson, Hill & Co., the Company’s
independent auditors, that there is substantial doubt as to our ability to
continue as a going concern. The financing of the Company’s projects is
dependent on the future effect of the so called sub-prime mortgage crisis on
financial institutions.  This sub-prime crisis may affect the
availability and terms of financing available to Company for the completion of
its projects as well as the availability and terms of financing for operating
expenses of the Company.    The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.





During
2008 The Company elected to move from The NASDAQ Stock Market to the OTCBB to
reduce, and more effectively manage, its regulatory and administrative costs,
and to enable Company’s management to better focus on its business. The Company
was traded on the OTCBB under the symbol VXRC (on February 24, 2009 the Company
symbol was changed from VTEX into VXRC). Before that, the Company’s common stock
was traded on the NASDAQ Capital Market (“NASDAQ”) under the symbol “EMVL”. On
July 15, 2009 the Company changed its name from “Vortex Resources Corp.” to its
current name, which subsequently changed the Company symbol into
“YASH”.





2.
Summary of Significant Accounting Policies





The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“US
GAAP”).










Basis of consolidation - The
consolidated financial statements include the accounts of the Company, its
majority-owned subsidiaries and all variable interest entities for which the
Company is the primary beneficiary. All intercompany balances and transactions
have been eliminated upon consolidation. Control is determined based on
ownership rights or, when applicable, whether the Company is considered the
primary beneficiary of a variable interest entity.





Variable Interest Entities -
The Company is required to consolidate variable interest entities (“VIE's”),
where it is the entity’s primary beneficiary. VIE's are entities in which equity
investors do not have the characteristics of a controlling financial interest or
do not have sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support from other parties. The
primary beneficiary is the party that has exposure to a majority of the expected
losses and/or expected residual returns of the VIE.





. For the
year ending December 31, 2008, the balance sheets and results of operations of
DCG, 610 Crescent Heights, LLC, Dickens LLC and Vortex Ocean One, LLC are
consolidated into these financial statements. As of and for the year ending
December 31, 2009, the balance sheets and results of operations of DCG, and
Vortex Ocean One, LLC are consolidated into these financial
statements





Use of estimates - The
preparation of consolidated financial statements in conformity with US GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates.





Fair value of financial instruments-The carrying values of cash equivalents, notes and loans receivable,
accounts payable, loans payable and accrued expenses approximate fair
values.





Revenue recognition -The
Company applies the provisions of Securities and Exchange Commission’s (“SEC”)
Staff Accounting Bulletin ("SAB") No. 104, “Revenue Recognition in
Financial Statements” (“SAB 104”), which provides guidance on the recognition,
presentation and disclosure of revenue in financial statements filed with the
SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosure related to revenue recognition policies.
The Company recognizes revenue when persuasive evidence of an arrangement
exists, the product or service has been delivered, fees are fixed or
determinable, collection is probable and all other significant obligations have
been fulfilled.





Revenues
from property sales are recognized when the risks and rewards of ownership are
transferred to the buyer, when the consideration received can be reasonably
determined and when Emvelco has completed its obligations to perform certain
supplementary development activities, if any exist, at the time of the sale.
Consideration is reasonably determined and considered likely of collection when
Emvelco has signed sales agreements and has determined that the buyer has
demonstrated a commitment to pay. The buyer’s commitment to pay is supported by
the level of their initial investment, Emvelco’ assessment of the buyer’s credit
standing and Emvelco’ assessment of whether the buyer’s stake in the property is
sufficient to motivate the buyer to honor their obligation to it.











Revenue
from fixed price contracts is recognized on the percentage of  
completion   method.   The   percentage of
completion method is also used for condominium projects in which the Company is
a real estate developer and all units have been sold prior to the completion of
the preliminary stage and at least 25% of the project has been carried out.
Percentage of completion is measured by the percentage of costs incurred to
balance sheet date to estimated total costs.  Selling,   general,
and administrative costs are charged to expense as incurred.  Profit
incentives are included in revenues, when their realization is reasonably
assured. Provisions for estimated losses on uncompleted projects are made in the
period in which such losses are first determined, in the amount of the
estimated loss of the full contract. Differences between estimates and actual
costs and revenues are recognized in the year in which such differences are
determined. The provision for warranties is provided at certain percentage of
revenues, based on the preliminary calculations and best estimates of the
Company's management.





Cost of revenues -Cost of
revenues includes the cost of real estate sold and rented as well as costs
directly attributable to the properties sold such as marketing, selling and
depreciation and are included in discontinued operations.





Real estate -Real estate held
for development is stated at the lower of cost or market. All direct and
indirect costs relating to the Company's development project are capitalized on
the Company’s balance sheet. Such standard requires costs associated with the
acquisition, development and construction of real estate and real estate-related
projects to be capitalized as part of that project. The realization of these
costs is predicated on the ability of the Company to successfully complete and
subsequently sell or rent the property. During 2008, the Company sold all its
real estate properties.





Treasury Stock -Treasury
stock is recorded at cost. Issuance of treasury shares is accounted for on a
first-in, first-out basis. Differences between the cost of treasury shares and
the re-issuance proceeds are charged to additional paid-in capital.





Foreign currency translation -The Company considers the United States Dollar (“US Dollar” or "$") to be
the functional currency of the Company and its subsidiaries, the prior owned
subsidiary, AGL, which reports its financial statements in New Israeli Shekel.
(“N.I.S”) The reporting currency of the Company is the US Dollar and
accordingly, all amounts included in the consolidated financial statements have
been presented or translated into US Dollars. For non-US subsidiaries that do
not utilize the US Dollar as its functional currency, assets and liabilities are
translated to US Dollars at period-end exchange rates, and income and expense
items are translated at weighted-average rates of exchange prevailing during the
period. Translation adjustments are recorded in “Accumulated other comprehensive
income” within stockholders’ equity. Foreign currency transaction gains and
losses are included in the consolidated results of operations for the periods
presented.





Cash and cash equivalents -Cash and cash equivalents include cash at bank and money market funds
with maturities of three months or less at the date of acquisition by the
Company.





Marketable securities -The
Company determines the appropriate classification of all marketable securities
as held-to-maturity, available-for-sale or trading at the time of purchase, and
re-evaluates such classification as of each balance sheet date. The Company
assesses whether temporary or other-than-temporary gains or losses on its
marketable securities have occurred due to increases or declines in fair value
or other market conditions. The Company did not have any marketable securities
within continuing operations for the year ended December 31, 2009 (other than
Treasury Stocks as disclosed).





Goodwill and intangible assets -Goodwill results from business acquisitions and represents the excess of
purchase price over the fair value of identifiable net assets acquired at the
acquisition date. There was goodwill recorded in the transaction with AGL
totaling $1.2 million as of December 31, 2007.  Since this subsidiary
was divested as of January 1, 2008 in compliance with the C Properties
Agreement, this goodwill was impaired during the first quarter of 2008 and
presented as a consulting, director and professional fees in the P&L. As a
result of the acquisition of DCG, the Company recorded Goodwill for a total of
$49,990,000 as the former members of DCG were given conversion rights under the
preferred stock arrangement for 50,000,000 common shares at a $1.00 price per
share less the contribution of $10,000. Goodwill is tested for impairment
annually and whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. Management evaluates the recoverability
of goodwill by comparing the carrying value of the Company’s reporting units to
their fair value. Fair value is determined based a market
approach.  For the year ended December 31, 2008, an analysis was
performed on the goodwill associated with the investment in DCG, and impairment
was charged against the P&L for $34,490,000 and is included in discontinued
operations.




The
Company entered into a Securities Purchase Agreement (the "Agreement") with
Trafalgar Capital Specialized Investment Fund, Luxembourg ("Buyer") on September
25, 2008 for the sale of up to $2,750,000 in convertible notes (the "Notes").
Pursuant to the terms of the Agreement, the Company and the Buyer closed on the
sale and purchase of $1,600,000 in Notes on September 25, 2008, with escrow
instruction to be closed on October 1, 2008. The Buyer, at its sole discretion,
has the option to close on a second financing for $400,000 in Notes (which has
been exercised as discussed below) and a third financing for $750,000 in Notes.
Pursuant to the terms of the Agreement, the Company agreed to pay to the Buyer a
commitment fee of 4% of the commitment amount, a structuring fee of $15,000, a
facility draw down fee of 4%, issue the Buyer 150,000 shares of common stock,
pay a due diligence fee to the Buyer of $15,000. The Company recorded as an
offset to the note payable the discount on the issuance of debt for the
conversion feature. The estimated intrinsic value of the conversion feature was
approximately $210,000 and will be reported as interest expense.









Earnings (loss) per share -Basic earnings (loss) per share are computed by dividing income (loss)
attributable to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings (loss) per share reflect the
effect of dilutive potential common shares issuable upon exercise of stock
options and warrants and convertible preferred stock.





Comprehensive income (loss) -Comprehensive income includes all changes in equity except those
resulting from investments by and distributions to shareholders.





Income taxes -Income taxes
are accounted for under the asset and liability method. 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 loss and tax credit
carry-forwards. Deferred tax assets are reduced by a valuation allowance if it
is more likely than not that some portion or all of the deferred tax asset will
not be realized. 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





Stock-based compensation -Effective January 1, 2006, the Company adopted SFAS No. 123R,
now ASC Topic 718, “Share-Based Payment” (“SFAS 123R”). Under ASC Topic
718, the Company is required to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair
value of the award. The measured cost is recognized in the statement of
operations over the period during which an employee is required to provide
service in exchange for the award. Additionally, if an award of an equity
instrument involves a performance condition, the related compensation cost is
recognized only if it is probable that the performance condition will be
achieved.


The
Company adopted ASC Topic 718 using the modified prospective method, which
requires the application of the accounting standard as of January 1, 2006,
the first day of the Company’s fiscal year 2006. Under this method,
compensation cost recognized during the year ended December 31, 2006 includes:
(a) compensation cost for all share-based payments granted prior to, but not yet
vested, as of January 1, 2006, based on the grant date fair value estimated in
accordance with the original provisions of SFAS 123 and amortized on an
straight-line basis over the requisite service period, and (b) compensation cost
for all share-based payments granted subsequent to January 1, 2006, based on the
grant date fair value estimated in accordance with the provisions of SFAS 123R
amortized on a straight-line basis over the requisite service period. Results
for prior periods have not been restated. The Company estimates the fair value
of each option award on the date of the grant using the Black-Scholes option
valuation model. Expected volatilities are based on the historical volatility of
the Company’s common stock over a period commensurate with the options’ expected
term. The expected term represents the period of time that options granted are
expected to be outstanding and is calculated in accordance with SEC guidance
provided in the SAB 107, using a “simplified” method. The risk-free interest
rate assumption is based upon observed interest rates appropriate for the
expected term of the Company’s stock options.





The
following table shows total non-cash stock-based employee compensation expense
included in the consolidated statement of operations for the year ended December
31, 2009 and the year ended December 31, 2008:




Categories
      of cost and expenses
            
            Year  ended
      December 31, 2009
            
            
            Year
      ended December 31, 2008Non-cash
      consulting, professional and directors fees
            
            
            724,300
            
            
            
            2,018,161Total
      stock-based compensation expense
            
            $
            724,300
            
            
            $
            2,018,161


Off
Balance Sheet Arrangements





There are
no materials off balance sheet arrangements.





Inflation
and Foreign Currency





The
Company maintains its books in local currency: on sold assets - Kuna for
Sitnica, N.I.S for AGL and US Dollars for the Parent Company registered in the
State of Delaware. The Company’s operations are primarily in the United States
through its wholly owned subsidiaries. Some of the Company’s customers were in
Croatia. As a result, fluctuations in currency exchange rates may significantly
affect the Company’s sales, profitability and financial position when the
foreign currencies, primarily the Croatian Kuna, of its international operations
are translated into U.S. dollars for financial reporting. In additional, we are
also subject to currency fluctuation risk with respect to certain foreign
currency denominated receivables and payables. Although the Company cannot
predict the extent to which currency fluctuations may, or will, affect the
Company’s business and financial position, there is a risk that such
fluctuations will have an adverse impact on the Company’s sales, profits and
financial position. Because differing portions of our revenues and costs are
denominated in foreign currency, movements could impact our margins by, for
example, decreasing our foreign revenues when the dollar strengthens and not
correspondingly decreasing our expenses. The Company does not currently hedge
its currency exposure. In the future, we may engage in hedging transactions to
mitigate foreign exchange risk.










Gas Rights on Real Property, plant,
and equipment -Depreciation, depletion and amortization, based on cost
less estimated salvage value of the asset, are primarily determined under either
the unit-of-production method or the straight-line method, which is based on
estimated asset service life taking obsolescence into consideration. Maintenance
and repairs, including planned major maintenance, are expensed as incurred.
Major renewals and improvements are capitalized and the assets replaced are
retired. Interest costs incurred to finance expenditures during the construction
phase of multiyear projects are capitalized as part of the historical cost of
acquiring the constructed assets. The project construction phase commences with
the development of the detailed engineering design and ends when the constructed
assets are ready for their intended use. Capitalized interest costs are included
in property, plant and equipment and are depreciated over the service life of
the related assets. The Company uses the “successful efforts” method to account
for its exploration and production activities. Under this method, costs are
accumulated on a field-by-field basis with certain exploratory expenditures and
exploratory dry holes being expensed as incurred. Costs of productive wells and
development dry holes are capitalized and amortized on the unit-of-production
method. The Company records an asset for exploratory well costs when the well
has found a sufficient quantity of reserves to justify its completion as a
producing well and where the Company is making sufficient progress assessing the
reserves and the economic and operating viability of the project. Exploratory
well costs not meeting these criteria are charged to expense. Acquisition costs
of proved properties are amortized using a unit-of-production method, computed
on the basis of total proved natural gas reserves. Significant unproved
properties are assessed for impairment individually and valuation allowances
against the capitalized costs are recorded based on the estimated economic
chance of success and the length of time that the Company expects to hold the
properties. The valuation allowances are reviewed at least
annually.  Other exploratory expenditures, including geophysical
costs, other dry hole costs and annual lease rentals, are expensed as incurred.
Unit-of-production depreciation is applied to property, plant and equipment,
including capitalized exploratory drilling and development costs, associated
with productive depletable extractive properties.  Unit-of-production
rates are based on the amount of proved developed reserves of natural gas and
other minerals that are estimated to be recoverable from existing facilities
using current operating methods. Under the unit-of-production method, natural
gas volumes are considered produced once they have been measured through meters
at custody transfer or sales transaction points at the outlet valve on the lease
or field storage tank. Gains on sales of proved and unproved properties are only
recognized when there is no uncertainty about the recovery of costs applicable
to any interest retained or where there is no substantial obligation for future
performance by the Company’s. Losses on properties sold are recognized when
incurred or when the properties are held for sale and the fair value of the
properties is less than the carrying value. Proved oil and gas properties held
and used by the Company are reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amounts may not be recoverable.
Assets are grouped at the lowest levels for which there are identifiable cash
flows that are largely independent of the cash flows of other groups of
assets.  The Company estimates the future undiscounted cash flows of
the affected properties to judge the recoverability of carrying amounts. Cash
flows used in impairment evaluations are developed using annually updated
corporate plan investment evaluation assumptions for natural gas commodity
prices. Annual volumes are based on individual field production profiles, which
are also updated annually. Cash flow estimates for impairment testing exclude
derivative instruments. Impairment analyses are generally based on proved
reserves. Where probable reserves exist, an appropriately risk-adjusted amount
of these reserves may be included in the impairment evaluation. Impairments are
measured by the amount the carrying value exceeds the fair value.





Restoration, Removal and
Environmental Liabilities -The Company is subject to extensive federal,
state and local environmental laws and regulations.  These laws
regulate the discharge of materials into the environment and may require the
Company to remove or mitigate the environmental effects of the disposal or
release of natural gas substances at various sites.  Environmental
expenditures are expensed or capitalized depending on their future economic
benefit.  Expenditures that relate to an existing condition caused by
past operations and that have no future economic benefit are expensed.
Liabilities for expenditures of a noncapital nature are recorded when
environmental assessments and/or remediation is probable, and the costs can be
reasonably estimated. Such liabilities are generally undiscounted unless the
timing of cash payments for the liability or component is fixed or reliably
determinable.





The
Company accounts for asset retirement obligations in accordance with SFAS No.
143, "Accounting for Asset
Retirement Obligations”(now ASC Topic 410). ASC Topic 410 addresses
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs.  ASC Topic 410 requires that the fair value of a liability for
an asset's retirement obligation be recorded in the period in which it is
incurred and the corresponding  cost capitalized by increasing the
carrying amount of the related long-lived asset.  The liability is
accreted to its then present value each period, and the capitalized cost is
depreciated over the useful life of the related asset.  The Company
will include estimated future costs of abandonment and dismantlement in the full
cost amortization base and amortize these costs as a component of our depletion
expense in the accompanying financial statements.










Business segment reporting -
Though the company had minor holdings of real estate properties which have been
sold, the Company manages its operations in one business segment, the Resources,
Logistic Development, Development and Mineral business.




Effect of Recent Accounting
Pronouncements




In
December 2007, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 110 (“SAB 110”). SAB 110 amends and replaces
Question 6 of Section D.2 of Topic 14, “Share-Based Payment,” of the Staff
Accounting Bulletin series. Question 6 of Section D.2 of Topic 14 expresses the
views of the staff regarding the use of the “simplified” method in developing an
estimate of the expected term of “plain vanilla” share options and allows usage
of the “simplified” method for share option grants prior to December 31,
2007. SAB 110 allows public companies which do not have historically sufficient
experience to provide a reasonable estimate to continue to use the “simplified”
method for estimating the expected term of “plain vanilla” share option grants
after December 31, 2007. The Company will continue to use the “simplified”
method until it has enough historical experience to provide a reasonable
estimate of expected term in accordance with SAB 110.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) 141-R, “Business Combinations,” now ASC Topic 805.  ASC Topic
805 retains the fundamental requirements that the acquisition method of
accounting (referred to as the purchase method) be used for all business
combinations and for an acquirer to be identified for each business combination.
It also establishes principles and requirements for how the acquirer:
(a) recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any non-controlling interest in
the acquiree; (b) recognizes and measures the goodwill acquired in the
business combination or a gain from a bargain purchase and (c) determines
what information to disclose to enable users of the financial statements to
evaluate the nature and financial effects of the business combination. ASC Topic
805 will apply prospectively to business combinations for which the acquisition
date is on or after the Company’s fiscal year beginning October 1, 2009.
While the Company has not yet evaluated the impact, if any, that ASC Topic 805
will have on its consolidated financial statements, the Company will be required
to expense costs related to any acquisitions after September 30,
2009.





In
December 2007, the FASB issued SFAS 160, “Non-controlling Interests in
Consolidated Financial Statements,,” now ASC Topic 810. This Statement amends
Accounting Research Bulletin 51 to establish accounting and reporting standards
for the non-controlling (minority) interest in a subsidiary and for the
deconsolidation of a subsidiary. It clarifies that a non-controlling interest in
a subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The Company has not
yet determined the impact, if any, that ASC Topic 810 will have on its
consolidated financial statements. ASC Topic 810 is effective for the Company’s
fiscal year beginning October 1, 2009.





In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” now ASC
Topic 820. ASC Topic 820 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, the
FASB having previously concluded in those accounting pronouncements that fair
value is the relevant measurement attribute. Accordingly, this Statement does
not require any new fair value measurements. ASC Topic 820 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. In February 2008, the FASB issued
FASB Staff Position No. FAS 157–2, “Effective Date of FASB Statement
No. 157”, which provides a one year deferral of the effective date of SFAS
157 for non–financial assets and non–financial liabilities, except those that
are recognized or disclosed in the financial statements at fair value at least
annually. Therefore, effective January 1, 2008, we adopted the provisions of ASC
Topic 820 with respect to our financial assets and liabilities only. Since the
Company has no investments available for sale, the adoption of this
pronouncement has no material impact to the financial statements.





In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities — including an amendment of
FASB Statement No. 115” now ASC Topic 825. ASC Topic 825 permits entities to
choose to measure many financial instruments and certain other items at fair
value. This statement provides entities the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. This
Statement is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007. Effective January 1, 2008, we adopted ASC
Topic 825 and have chosen not to elect the fair value option for any items that
are not already required to be measured at fair value in accordance with
accounting principles generally accepted in the United States .










Critical
Accounting Estimates





Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements that have been prepared in
accordance with generally accepted accounting principles in the United States of
America (“US GAAP”). This preparation requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses, and the disclosure of contingent assets and liabilities. US GAAP
provides the framework from which to make these estimates, assumptions and
disclosures. We choose accounting policies within US GAAP that management
believes are appropriate to accurately and fairly report our operating results
and financial position in a consistent manner. Management regularly assesses
these policies in light of current and forecasted economic conditions. Although
we believe that our estimates, assumptions and judgments are reasonable, they
are based upon information presently available. Actual results may differ
significantly from these estimates under different assumptions, judgments or
conditions for a number of reasons.





Investment
in Real Estate and Commercial Leasing Assets. Real estate held for sale and
construction in progress is stated at the lower of cost or fair value less costs
to sell and includes acreage, development, construction and carrying costs and
other related costs through the development stage. Commercial leasing assets,
which are held for use, are stated at cost. When events or circumstances
indicate than an asset’s carrying amount may not be recoverable, an impairment
test is performed in accordance with the provisions of SFAS 144. For properties
held for sale, if estimated fair value less costs to sell is less than the
related carrying amount, then a reduction of the assets carrying value to fair
value less costs to sell is required. For properties held for use, if the
projected undiscounted cash flow from the asset is less than the related
carrying amount, then a reduction of the carrying amount of the asset to fair
value is required. Measurement of the impairment loss is based on the fair value
of the asset. Generally, we determine fair value using valuation techniques such
as discounted expected future cash flows.





Our
expected future cash flows are affected by many factors including:




a) The
economic condition of the US and Worldwide markets – especially during the
current worldwide financial crisis.





b) The
performance of the underlying assets in the markets where our properties are
located;




c) Our
financial condition, which may influence our ability to develop our properties;
and




d)
Government regulations.





As any
one of these factors could substantially affect our estimate of future cash
flows, significant variance between our estimates and the reality could result
in us recording an impairment loss, which may result in a significant diminution
of our net earnings.





The
estimate of our future revenues is also important because it is the basis of our
development plans and also a factor in our ability to obtain the financing
necessary to complete our development plans. If our estimates of future cash
flows from our properties differ significantly from actual performance in terms
of delivering that cash flows, then our financial and liquidity position may be
compromised, which could result in our default under certain debt instruments or
result in our suspending some or all of our development activities.




Allocation
of Overhead Costs. We periodically capitalize a portion of our overhead costs
and also allocate a portion of these overhead costs to cost of sales based on
the activities of our employees that are directly engaged in these activities.
In order to accomplish this procedure, we periodically evaluate our “corporate”
personnel activities to see what, if any, time is associated with activities
that would normally be capitalized or considered part of cost of sales. After
determining the appropriate aggregate allocation rates, we apply these factors
to our overhead costs to determine the appropriate allocations. This is a
critical accounting policy because it affects our net results of operations for
that portion which is capitalized. In accordance with GAAP, we only capitalize
direct and indirect project costs associated with the acquisition, development
and construction of a real estate project. Indirect costs include allocated
costs associated with certain pooled resources (such as office supplies,
telephone and postage) which are used to support our development projects, as
well as general and administrative functions. Allocations of pooled resources
are based only on those employees directly responsible for development (i.e.
project manager and subordinates). We charge to expense indirect costs that do
not clearly relate to a real estate project such as salaries and allocated
expenses related to the Chief Executive Officer and Chief Financial
Officer.


Accounting
for Income Taxes: We recognize deferred tax assets and liabilities for the
expected future tax consequences of transactions and events. Under this method,
deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse. If necessary, deferred tax assets are reduced by a valuation
allowance to an amount that is determined to be more likely than not
recoverable. We must make significant estimates and assumptions about future
taxable income and future tax consequences when determining the amount of the
valuation allowance. In addition, tax reserves are based on significant
estimates and assumptions as to the relative filing positions and potential
audit and litigation exposures related thereto. To the extent the Company
establishes a valuation allowance or increases this allowance in a period, the
impact will be included in the tax provision in the statement of
operations.









The
disclosed information presents the Company’s natural gas producing activities,
in accordance with GAAP.




3.
Cash, Cash Equivalent Line of Credit and Restricted Cash





The
Company’s real estate investment operations required substantial
up-front expenditures for land development contracts and construction.
Accordingly, the Company required a substantial amount of cash on hand, as well
as funds accessible through lines of credit with banks or third parties, to
conduct its business.  The Company had financed its working capital needs
on a project-by-project basis, primarily with loans from banks and debt via the
All Inclusive Trust Deed Agreement (AITDA), and with the existing cash of the
Company. On August 28, 2006, the Company entered into a $4,000,000
Revolving Line of Credit (“line of credit”) with a commercial bank. As security
for this credit facility, the Company deposited $4,000,000 into a certificate of
deposit (“CD”) as collateral for a two year period. The CD earns interest at a
rate of 5.25% annually, and any interest earned on the CD is restricted from
withdrawal and must remain in the account for the entire term. On November 21,
2006, the Company deposited an additional $4,000,000 into another CD with the
same restrictions on withdrawal. This CD matured on November 21, 2008 and the
deposit bears an interest rate of 5.12% annually. The interest rate on the line
of credit is 5.87% annually. As of December 31, 2008, the Company paid off the
lines of credit in full.





4. Investment (and loans) in Affiliates,
at equity





On June
14, 2006, Emvelco issued a $10 million line of credit to ERC. Outstanding
balances bore interest at an annual rate of 12% and the line of credit had a
maximum borrowing limit of $10 million. Initially on October 26, 2006 and then
again ratified on December 29, 2006, the Board of Directors of Emvelco approved
an increase in the borrowing limit of the line of credit to $20 million. The
Board also restricted use of the funds to real estate development.  On
November 2, 2007, the Company exercised the Verge option to purchase a multi-use
condominium and commercial property in Las Vegas, Nevada, thereby reducing the
amount outstanding by $10 million.  Additionally, the Verge option
required that the Company pay The International Holdings Group (TIHG), the then
parent of ERC, and another $5 million when construction began on the Verge
Project.  At the time of these transactions, Verge and ERC were
related entities as both had Darren Dunckel as their CEO (see Note
14).  As of December 31, 2008, the Company has accrued and recorded
that payment as a reduction to this loan receivable balance.As of December 31, 2008,
the outstanding loan receivable balances by ERC and Verge (related parties) were
charged to equity, due to the Company change of strategy, turmoil in the real
estate industry including the sub-prime crisis and the world financial crisis,
which among other factors led Verge to file for Bankruptcy
protection.





5.
Non Current assets from discontinued operations





Vortex
One entered into a sale agreement with third parties regarding specific 4 wells
assignments.


In
consideration for the sale of the Assignments, Buyer shall pay the total sum of
$2,300,000 to Seller as follows: (i) A $225,000.00 payment upon execution (paid)
(ii) A 12 month $600,000.00 secured promissory note bearing no interest with
payments to begin on the first day of the second month after the properties
contained in the Assignments begin producing. (iii) A 60 month $1,500,000.00
secured promissory note bearing no interest with payments to begin the first day
of the fourteenth month after the properties contained in the Assignments begin
producing.





As the
Note bears no interest the Company discounts it to present value (for the day of
issuing, e.g. March 1, 2009) using 12% as discount interest rate per annum +
which is the Company’s approximate cost of borrowing.





The face
value of the Notes and the discounted value per the original agreement should be
paid as follows:





Year
            Face
      Value
            DiscountedValue2009
            $450,000
            $424,0602010
            375,000
            $321,2882011
            300,000
            $226,0572012
            300,000
            $200,6142013
            300,000
            $178,0352014
            300,000
            $157,9972015
            75,000
            $36,638Total
            2,100,000
            $1,544,690









The
Company alleges that the Buyer is not performing under the notes. Per the terms
of the sale, Vortex One and the Company should be paid commencing May 1, 2009.
Vortex One and the Company agreed to give the Buyer a one-time 60 days
extension, and put them on notice for being default on said notes. To date the
operator of the wells paid Vortex One (on behalf of the Buyer) per the terms of
the agreement 3 payments (for the months of April, May and July 2009 – Operator
did not pay for the month of June 2009) amounting to $13,093.12. Vortex Ocean
One’s position is that the Buyer as well as the operator is under breach of the
Sale agreement and the Note’s terms, and notice has been issued for default. In
lieu of the non material amount, no provision was made to income of $2,617 (20%
the Company share per the operating agreement) until the Company finishes its
investigation of the subject.  The Company retained an attorney in
Texas to pursue its rights under the agreements and the collateral.




6.
Real Estate Investments for Sale





The
Company owned 100% of subsidiary 610 N. Crescent Heights, LLC, which is located
in Los Angeles, CA.  On April 2008, the Company obtained Certificate
of Occupancy from the City of Los Angles, and listed the property for sale at
selling price of $2,000,000. At December 31, 2008, the Company sold the property
for the gross sale price of $1,990,000 and recorded costs of sales totaling
$2,221,929, which were previously capitalized construction costs.  The
board resolved to discontinue real estate operations during 2008 and these
amounts are presented as part of discontinued operations (see Note
9).





The
Company owned 50% of 13059 Dickens, LLC, as reported by the Company on Form 8-K
on December 21, 2007, through a joint venture with a third party at no cost to
the Company. As all balances due under this venture is via All Inclusive Trust
Deed, and in lieu of the Company new strategy, the Company entered advanced
negotiations with regards to selling its interest to the other party, as no cost
to the Company, or liability, by conveying back title of said property, and
releasing the Company from any associated liability. During the third quarter of
2008, the project was sold back to the third party, by reversing the
transaction, at no cost to the Company.





7.
Convertible Notes Payable




Trafalgar Capital Specialized
Investment Fund, Luxembourg (“Trafalgar”)-The Company
entered into a Securities Purchase Agreement (the "Agreement") with Trafalgar
Capital Specialized Investment Fund, Luxembourg ("Buyer") on September 25, 2008
for the sale of up to $2,750,000 in convertible notes (the "Notes"). Pursuant to
the terms of the Agreement, the Company and the Buyer closed on the sale and
purchase of $1,600,000 in Notes on September 25, 2008, with escrow instruction
to be closed on October 1, 2008. The Buyer, at its sole discretion, has the
option to close on a second financing for $400,000 in Notes (which has been
exercised as discussed below) and a third financing for $750,000 in Notes.
Pursuant to the terms of the Agreement, the Company agreed to pay to the Buyer a
commitment fee of 4% of the commitment amount, a structuring fee of $15,000, a
facility draw down fee of 4%, issue the Buyer 150,000 shares of common stock,
pay a due diligence fee to the Buyer of $15,000. The Notes bear interest at 8.5%
with such interest payable on a monthly basis with the first two payments due at
closing. The Notes are due in full in September 2010. In the event of default,
the Buyer may elect to convert the interest payable in cash or in shares of
common stock at a conversion price using the closing bid price of when the
interest is due or paid. The Notes are convertible into common stock, at the
Buyer's option, at a conversion price equal to 85% of the volume weighted
average price for the ten days immediately preceding the conversion but in no
event below a price of $2.00 per share. If on the conversion or redemption of
the Notes, the Euro to US dollar spot exchange rate (the "Exchange Rate") is
higher that the Exchange Rate on the closing date, then the number of shares
shall be increased by the same percentage determined by dividing the Exchange
Rate on the date of conversion or redemption by the Exchange Rate on the closing
date ($0.68 per Euro). The Company is required to redeem the Notes starting on
the fourth month in equal installments of $56,000 with a final payment of
$480,000 with respect to the initial funding of $1,600,000. We are also required
to pay a redemption premium of 7% on the first redemption payment, which will
increase 1% per month. The Company may prepay the Notes in advance, which such
prepayment will include a redemption premium of 15%. In the event the Company
closes on a funding in excess of $4,000,000, the Buyer, in its sole election,
may require that the Company redeem the Notes in full. On any principal or
interest repayment date, in the event that the Euro to US dollar spot exchange
rate is lower than the Euro to US dollar spot exchange rate at closing, then we
will be required to pay additional funds to compensate for such
adjustment.









Pursuant
to the terms of the Notes, the Company shall default if (i) the Company fails to
pay amounts due within 15 days of maturity, (ii) failure of the Company to
comply with any provision of the Notes upon ten days written notice; (iii)
bankruptcy or insolvency or (iv) any breach of the Agreement and such breach is
not cured upon ten days written notice. Upon default by the Company, the Buyer
may accelerate full repayment of all Notes outstanding and all accrued interest
thereon, or may convert all Notes outstanding (and accrued interest thereon)
into shares of common stock (notwithstanding any limitations contained in the
Agreement and the Notes). The Buyer has a secured lien on three of our wells and
would be entitled to foreclose on such wells in the event an event of default is
entered. In the event that the foregoing was to occur, significant adverse
consequences to the Company would be reasonably anticipated.




So long
as any of the principal or interest on the Notes remains unpaid and unconverted,
the Company shall not, without the prior written consent of the Buyer, (i) issue
or sell any common stock or preferred stock, (ii) issue or sell any Company
preferred stock, warrant, option, right, contract, call, or other security or
instrument granting the holder thereof the right to acquire Common Stock, (iii)
incur debt or enter into any security instrument granting the holder a security
interest in any of the assets of the Company or (iv) file any registration
statement on Form S-8.


The Buyer
has contractually agreed to restrict their ability to convert the Notes and
receive shares of our common stock such that the number of shares of the Company
common stock held by a Buyer and its affiliates after such conversion or
exercise does not exceed 9.9% of the Company's then issued and outstanding
shares of common stock. The Buyer exercised its option to close on a second
financing for $400,000 in Notes on October 28, 2008 and still holds an option to
close on additional financing for $750,000 in Notes.  The terms of the
second financing for $400,000 are identical to the terms of the $1,600,000 Note,
as disclosed in detail on the Company filing on October 2, 2008 on Form 8-K -
Unregistered Sale of Equity Securities, Financial Statements and Exhibits. The
Notes are convertible into our common stock, at the Buyer's option, at a
conversion price equal to 85% of the volume weighed average price for the ten
days immediately preceding the conversion but in no event below a price of $2.00
per share. As of the date hereof, the Company is obligated on the Notes issued
to the Buyer in connection with this offering. The Notes are a debt obligation
arising other than in the ordinary course of business, which constitute a direct
financial obligation of the Company. The Notes were offered and sold to the
Buyer in a private placement transaction made in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule
506 promulgated there under. The Buyer is an accredited investor as defined in
Rule 501 of Regulation D promulgated under the Securities Act of 1933. The
Company recorded a discount on the issuance of debt for the conversion feature,
which decreased the note payable by the same amount.


The
Company and Trafalgar become adversaries where each party filled a lawsuit
against the other party in different jurisdictions which included California,
Nevada (indirect lawsuit filed by Verge) and Florida. On April 15, 2010 the
parties settled outstanding disputes. Based on said settlement which declared
effective as of December 31, 2009 the parties agreed that Trafalgar will convert
its notes (at agreed amount of $3,000,000) into  a new class of Series
E Preference Shares, which shall have the following terms: (i) $3 Million Face
Amount (as agreed amount between all parties) (ii) Maturity in cash in Thirty
Months (30 months) from date of issue (iii) Optional Redemption by the Company
at any time, for Face Value including accrued unpaid dividends (iv) Dividends
Accrue at 7% (seven percent) per annum.   Said Series Preferred E
share will be convertible at the Option of the Holders, into Six Hundred Million
(six hundred million) common shares of YASH, at any time upon written notice to
the company. Trafalgar will be entitled to appoint 4 directors to the Company
board.


Star Equity Ltd (“Star”) -As
reported by the Company on its Form 10-Q filed on November 14, 2008, Star Equity
Investments, LLC (“Star”) entered, on September 1, 2008, into that certain
Irrevocable Assignment of Promissory Note, which resulted in Star being a
creditor of the Company with a loan payable by the Company in the amount of
$1,000,000 (the “Debt”). No relationship exists between Star and the Company
and/or its affiliates, directors, officers or any associate of an officer or
director. On March 11, 2009, the Company entered and closed an agreement with
Star pursuant to which Star agreed to convert all principal and interest
associated with the Debt into 8,500,000 shares of common stock and released the
Company from any further claims.  The shares were issued during March
2009 on a post- split basis.





AP Holdings Limited (AP)
-  On October 1, 2008, the Company entered into a short term note
payable (6 month maturity) with AP – a foreign Company controlled by Shalom
Attia (the brother of Yossi Attia, the Company CEO – the “Holder”), a third
party, for $330,000. The note bears 12% interest commencing October 1, 2008 and
can be converted (including interest) into common shares of the Company at an
established conversion price of $0.015 per share. Holder has advised that it has
no desire to convert the AP Note into shares of the Company’s common stock at
$1.50 per share at this time as the Company’s current bid and ask is $0.23 and
$0.72, respectively, and there is virtually no liquidity in the Company’s common
stock. The Company is in default on the AP Note, and Holder has threatened to
commence litigation if it not paid in full. The Company did not have the cash
resources to pay off the AP Note due to current capital constraints. Holder has
agreed that it is willing to convert the AP Note if the conversion price is
reset to $0.04376 resulting in the issuance of 8,000,000 shares of common stock
(the “Shares”) of the Company or 7.56% of the Company assuming 105,884,347
shares of common stock outstanding (97,884,347 as of May 7, 2009 plus 8,000,000
shares issued to Holder). The parties entered a settlement agreement in May
2009.  The agreement with AP was approved by the Board of Directors
where Mr. Yossi Attia has abstained from voting due to a potential conflict of
interest.  The Company recognized approximately a $2MM non-cash loss
on the change of conversion price in the first quarter of 2009.





Priscilla Dunckel -OnAugust 12,2008the Company signed a Note Payable for
$20,000payable toMrs. Dunckel in connection with the
Company efforts to fund its drilling program (see Subsequent events for full
pay-off)..





TAS Agreement -On December 5,
2008 the Company entered into and closed an Agreement with T.A.S. Holdings
Limited (“TAS”) (the “TAS Agreement”) pursuant to which TAS agreed to cancel the
debt payable by the Company to TAS in the amount of approximately $1,065,000 and
its 15,000,000 shares of common stock it presently holds in consideration of the
Company issuing TAS 1,000,000 shares of Series B Convertible Preferred Stock,
which such shares carry a stated value equal to $1.20 per share (the “Series B
Stock”). The Series B Stock is convertible, at any time at the option of the
holder, into common shares of the Company based on a conversion price of $0.0016
per share.  The Series B Stock shall have voting rights on an as
converted basis multiplied by 6.25.  Holders of the Series B Stock are
entitled to receive, when declared by the Company’s board of directors, annual
dividends of $0.06 per share of Series B Stock paid semi-annually on June 30 and
December 31 commencing June 30, 2009. The Convertible Notes Payable and related
discount were recorded and disclosed pursuant to EITF98-5 and EITF
00-27.  The debt conversion feature or discount can be found in the
Consolidated Statements of Shareholder Equity. Intrinsic value of a conversion
feature-contingent conversion shows recording of the debt discount as an offset
against the note and also recorded as a component of shareholders’
equity.  Amortization of the debt discount utilizes the straight line
method.










On July
15, 2009 TAS which owned Series B preferred shares, converted the Series B
Preferred Shares to 7,500,000 common stock 0.001 par values per
share





Kobi
Loria– On November 23,
2009 the Company signed a Note Payable for $100,000 payable to Kobi Loria due on
March 31, 2010 at 12% per annum.   The Note includesa convertible feature into the Company
Common Stock based on conversion ratio that shall be valued at 95% of the
volume-weighted average price for 5 trading days immediately preceding the
conversion notice.On
December 23, 2009 the Company signed additional Note Payable for $50,000 to Kobi
Loria at the same terms as the prior Note. The consideration for the Notes was
cash, which the Company used for working capital. OnApril 15,the Company agreed with Mr. Loria that
as the Company does not have the cash resources to pay off the Notes due
to current capital constraints, to convey to him the Company interests in
Micrologic (which is designated for sale since 2008) as partial payments on the
Notes. The parties agreed that the Micrologic conveyed interests will be valued
at $20,000.





Tiran
Ibgui– On November 23,
2009 the Company ratifiedand issueda Note Payable for $365,000 to Tiran
Ibgui. Tiran Ibgui was a 50% member with Vortex Ocean which invested in cash
$525,000 on June 30, 2008.The Company entered numerous settlement
agreements with Mr. Ibgui in connection with Vortex Ocean, including providing
collateral in form of pledge the DCG wells to Mr. Ibgui. As disclose in this
report, on February 2009, Vortex Ocean sold its interest to third parties,
where per said sale the original balance
of Mr. Ibgui was reduced to $365,000 which remainsdue. Mr. Ibgui waivedall his membership rights, and
remainsa secure lender under said note dated
November 23, 2009 for his original investment that wasconsummatedin cash on June 30, 2008.Said Note in the amount of $365,000 is
convertible to 10,000.000 common shares of the Company. The Note has adjustment
mechanism which states that the number of Conversion Shares issuable
to the Lender shall be adjusted such that the aggregate number of Exchange
Shares issuable to the Holder is equal to (a) 10,000,000 plus the actual legal
fees and costs incurred by the Lender and the Lender’s successors, designees and
assigns, divided by (b) 75% of the volume-weighted average price for the 20
trading days following delivery of the Conversion Shares, calculated by dividing
the aggregate value of Common Stock traded on its trading market (price
multiplied by number of shares traded) by the total volume (number of shares) of
Common Stock traded on the trading market for such trading day.  If
this adjustment requires the issuance of additional Conversion Shares to the
Lender (i.e. if a total issuance of more than 10,000,000 shares is required),
such additional Conversion Shares shall be issued to the Lender or its designee
within one business day.  If this adjustment requires the return of
Conversion Shares to the Borrower (i.e. if an aggregate issuance of less than
10,000,000 shares is required), such Conversion Shares shall be promptly
returned to the Borrower.





The net amounts owed to Mr. Ibgui per the
operating agreement instructions, and settlement agreements can be summarized as
following:





Original Cash
      Investment
            525,000.00Proceeds from
      sale:Gross
amount
            (225,000.00)Fee paid by
      Ibgui
            25,000.00Company Interest 20% Per operating
      Agreement
            40,000.00Net Balance to March
      2009(date of Sale
      Ratify November 2009 via Note)
            365,000.00





Moran Atias -On December 30, 2009, the Company
entered into an Exchange Agreement with Moran Atias (“Atias”) whereby the
Company and Ms. Atias exchanged $100,000 of a promissory note in the amount of
$250,000 held by Ms. Atias into 11,903,333 shares of Common Stock of the
Company, in a transaction made pursuant to Section 3(a)(9) of the Securities Act
of 1933.  The promissory note, of which a portion was converted by Ms.
Atias, was initially issued on August 8, 2008 (see Subsequent events for further
Exchange Agreement).  Ms. Atias still holds a note payable by the
Company for $150,000.







Short
Term Loan – by Investor





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at an exercise
price of $1.50 for a period of 2 years.  The Company is contesting
said warrants entitlements to the investor, based on what it asserts to be
cause.





8.
Acquisition





Davy Crockett Gas Company, LLC (DCG)
-Based on series of agreements that were formalized on May 1, 2008, the
Company entered into an Agreement and Plan of Exchange with DCG.  (See
Notes 1, 2)




Vortex Ocean One, LLC -On
June 30, 2008, the Company formed a limited liability company with Tiran Ibgui,
an individual ("Ibgui"), named Vortex Ocean One, LLC (the "Vortex One"). The
Company and Ibgui each own a fifty percent (50%) membership interest in Vortex
One. The Company is the Manager of the Vortex One. Vortex One has been formed
and organized to raise the funds necessary for the drilling of the first well
being undertaken by the Company's wholly owned subsidiary DCG (as reported on
the Company's Form 8-Ks filed on May 7, 2008 and May 9, 2008 and amended on June
16, 2008). The Company and Ibgui entered into a Limited Liability Company
Operating Agreement which sets forth the description of the membership
interests, capital contributions, allocations and distributions, as well as
other matters relating to Vortex One.  Mr. Ibgui paid $525,000 as
consideration for his 50% ownership in Vortex One and the Company issued 5,250
common shares at an establish $1.00 per share price for its 50% ownership in
Vortex One. In October and November 2008, the Company entered into settlement
arrangements with Mr. Ibgui, whereby the Company agree to transfer the 5,250
common shares previously owned by Vortex One to Mr. Ibgui in exchange for
settlement of all disputes between the two parties, and also pledged and
assigned the DCG four term assignments. On March 2009, Vortex One exercised its
rights under the pledge and entered into a sale agreement with third party with
regards to the 4 term assignments. Said sale was given full effect in these
financial statements.




9.
Dispositions





Divesture of AGL shares -On
August 19, 2008, the Company entered into a Final Fee Agreement (the “Consultant
Agreement”) with a third party, C. Properties Ltd. (“Consultant”). Pursuant to
the Consultant Agreement, the Company agreed with the Consultant to exchange the
Company’s interest in AGL as a final fee in connection with its DCG
acquisition.  The Company had to pay Consultant certain fees in
accordance with the Consultant Agreement and the Consultant had agreed that, in
lieu of cash payment, it would receive equivalent fair value for services
rendered, which was determined to be an aggregate of up to 734,060,505 shares of
stock of the AGL.





The
Consultant was not advised about the restructuring of the acquisition of DCG by
the Company and in order to compensate the Consultant and avoid any potential
litigation, the Company has agreed to waive the above production requirements
set forth in the Consultant Agreement and to transfer all of the Company
interest in AGL immediately where such transfer shall be considered effective
January 1, 2008.





Divesture of Real Estate -On
August 16, 2008 610 N. Crescent Heights, LLC, entered into a sale and escrow
agreement with third parties, for the sale of the real property located at 610
North Crescent Heights, Los Angeles, for $1,990,000. Said escrow was closed as
of September 30, 2008.





On August
19, 2008, the Dickens LLC conveyed title and its AITD to third party, reversing
the Company’s joint venture with said third party, at no cost or liability to
the Company.





Divesture of DCG and Vortex Ocean
Wells -On March 2009 the board of directors of the company decided to
vacate the DCG project. Goodwill was impaired by approximately $35.0M in
association with this segment. Sales of 4 Wells by Vortex Ocean – On February
28, 2009 Vortex Ocean sold its term assignment interest in 4 wells to third
party. In consideration for the sale of the Assignments, Buyer shall pay the
total sum of $2,300,000 to Seller as follows: (i) A $225,000.00 payment upon
execution (paid) (ii) A 12 month $600,000.00 secured promissory note bearing no
interest with payments to begin on the first day of the second month after the
properties contained in the Assignments begin producing. (iii) A 60 month
$1,500,000.00 secured promissory note bearing no interest with payments to begin
the first day of the fourteenth month after the properties contained in the
Assignments begin producing. In the following tables we present the financial
items associated with the above described Discontinued Operations:









2009
            
            2008Discontinued
      Operations (Profit & Loss):Sale
      of real estate
            
            $
            
            
            $
            (1,990,000)Cost
      of sale of real estate
            
            
            
            
            
            2,221,929Loss
      on Hamel
            
            
            
            
            
            213,706Other
      selling, general and administrative expenses – real estate
            
            
            
            
            
            500,000Goodwill
      Impairment – DCG  project
            
            
            
            
            
            34,490,000Total
            
            $
            0
            
            $
            35,935,635





2009
            
            2008Discontinued
      Operations – Non - Current Assets:Gas
      Rights on Real property (In form of Notes)
            
            $
            1,544,690
            
            
            2,100,000Total
            
            $
            1,544,690
            
            
            2,100,000





10.
Income taxes





The net
income before income taxes by tax jurisdiction for the years ended December 31,
2009 and 2008 was as follows:





2009
            
            2008Net
      income before income taxes:Domestic
            
            $
            (6,692,603
            )
            
            $
            (51,207,461
            )Total
            
            $
            (6,692,603
            )
            
            $
            (51,207,461
            )




The
provision for income taxes from continuing operations reflected in the
consolidated statements of operations is zero; as such, there are no separate
components. The provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the loss from continuing
operations before income taxes. The sources and tax effects of the differences
for the years ended December 31, 2009 and 2008 is summarized as
follows:





2008
            
            2009Amount
            
            %
            
            Amount
            
            %Computed
      expected taxExpense/(Benefit)
            
            $
            (17,922,611)
            
            
            (35.00
            )
            $
            (2,342,411)
            
            
            (35.00)Change
      in Valuation Allowance
            
            
            17,922,611
            
            
            (35.00
            )
            
            2,342,411
            
            
            (35.00
            )Total
      expense/(benefit)
            
            $
            0
            
            
            0
            %
            $
            0
            
            
            0
            %





For U.S.
Federal income tax purposes, the Company had unused net operating loss carry
forwards at December 31, 2008 of approximately 36.6 million available to offset
future taxable income. From the 36.6 million of losses 0.5 million expires in
2009, 0.3 million expires in 2010, 1.6 million expires in 2011, 0.9 million
expires in 2012 and 33.3 million expires in various years from 2017 through
2027. The Company has no capital loss carryover for US income tax
purposes.







The Tax
Acts of some jurisdictions contain provisions which may limit the net operating
loss carry forwards available to be used in any given year if certain events
occur, including significant changes in ownership interests. As a result of
various equity transactions, management believes the Company experienced an
“ownership change” in the second half of 2006 as well as in the first half of
2008 in lieu of the DCG transaction (which was approved by the Company
shareholders as ownership change), as defined by Section 382 of the Internal
Revenue Code, which limits the annual utilization of net operating loss carry
forwards incurred prior to the ownership change. As calculated, the Section 382
limitation does not necessarily impact the ultimate recovery of the U.S. net
operating loss; although it will defer the realization of the tax benefit
associated with certain of the net operating loss carry forwards.





The
Company recorded a full valuation allowance against the net deferred tax assets.
In assessing deferred tax assets, management considers whether it is more likely
than some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
and tax loss carry forwards become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. Based upon the level of
historical taxable income and projections for future taxable income over the
periods in which the deferred tax assets are deductible, management believes
that it is more likely than not that the Company will not realize the benefit of
these deductible differences, net of existing valuation allowances at December
31, 2008. Undistributed earnings of the Company’s indirect investment into
foreign subsidiaries are currently not material. Those earnings are considered
to be indefinitely reinvested; accordingly, no provision for US federal and
state income tax has been provided thereon. Upon repatriation of those earnings,
in the form of dividends or otherwise, the Company would be subject to both U.S.
income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to the various foreign countries. Determination of the amount of
unrecognized deferred U.S. income tax liability is not practicable due to the
complexities associated with its hypothetical calculation.





10.
Stockholders’ Equity




Common
Stock:




On
February 14, 2008, the Company raised Three Hundred Thousand Dollars ($300,000)
in connection with a private offering to various accredited investors and issued
3,000 Common Shares. The offering is for Company common stock which was issued
as "restricted securities" at $1.00 per share. The money raised was used for
working capital and business operations of the Company. The private offering was
done pursuant to Rule 506. A Form D has been filed with the Securities and
Exchange Commission in compliance with Rule 506 for each Private
Placement.




On March
30, 2008, the Company raised $200,000 from a private offering and issued 2,000
Common Shares. The private placement was for Company common stock which shall be
"restricted securities", which was sold at $1.00 per share. The offering
included 200,000 warrants to be exercised at $1.50 for two years, and additional
200,000 warrants to be exercised at $2.00 for four years. The money raised from
the sale of the Company’s securities was used for working capital and business
operations of the Company. The sale of the securities was done pursuant to Rule
506. A Form D has been filed with the Securities and Exchange Commission in
compliance with Rule 506 for the sale of securities. The investor is D’vora
Greenwood (Attia), the sister of Mr. Yossi Attia. Mr. Attia did not participate
in the board meeting which approved this transaction.




On May 6,
2008 the Company issued 5,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration.




On June
6, 2008, the Company raised $300,000 from the private offering pursuant to a
Private Placement Memorandum ("PPM") and issued 3,000 Common shares. The private
placement was for Company common stock which shall be "restricted securities"
and were sold at $1.00 per share. The money raised from the private placement of
the Company’s shares was used for working capital and business operations of the
Company. The PPM was done pursuant to Rule 506. A Form D has been filed with the
Securities and Exchange Commission in compliance with Rule 506 for each Private
Placement. Based on information presented to the Company, and in lieu of the
Company position which was sent to the investor on June 18, 2008 the investor is
in default for not complying with his commitment to invest an additional
$225,000 and the Company vested said 3,000 shares under a trustee.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the "Undes Services Agreement") pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide the Company
services related to the identification, evaluation, structuring, negotiating and
closing of business acquisitions, identification of strategic partners as well
as the provision of legal services. The term of the agreement is for five years
and the Company has agreed to issue Mr. Undes 5,250 shares of common stock that
was issued on August 15, 2008.









On June
30, 2008 and concurrent with the formation and organization of Vortex One,
whereby the Company contributed 5,250 shares of common stock (the "Vortex One
Shares"), a common stock purchase warrant purchasing 2,000 shares of common
stock at an exercise price of $1.50 per share (the "Vortex One Warrant") and the
initial well that the Company drilled.  Mr. Ibgui contributed
$525,000. The Vortex One warrants were immediately transferred to Ibgui. Eighty
percent (80%) of all available cash flow shall be initially contributed to Ibgui
until the full $525,000 has been repaid and the Company shall receive the
balance. Following the payment of $525,000 to Ibgui, the cash flow shall be
split equally.




In July
2008, the Company issued 160 shares of its common stock, $0.001 par value per
share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On July
28, 2008, the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the "2008
Incentive Plan") authorized the board to issue up to 5,000,000 shares of Common
Stock under the plan.




On August
1, 2008, all holders of the Company’s preferred stock notified the Company about
converting said 100,000 preferred stock into 500,000 common shares of the
Company. The conversion of preferred shares to common shares marks the
completion of the acquisition of Davy Crockett Gas Company, LLC. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said 500,000 common shares to the former members of DCG, as
reported and detailed on the Company’s 14A filings.




On August
8, 2008, assigned holders of the Undes Convertible Note gave notices to the
Company of their intention to convert their original note dated June 5, 2007
into 250,000 common shares of the Company. The portion of the accrued interest
from inception of the note in the amount of $171,565 was not converted into
shares.  The Company accepted these notices and issued the said
shares.





On August
23, 2008, the Company issued 1,000 shares of its common stock 0.001 par value
per share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration.




On
September 25, 2008, in connection with selling a convertible note to Trafalgar
(see Note 5), the Company issued, the amount of 547 common shares at $0.001 par
value per share to Trafalgar as a fee. As part of collateral to said note, the
Company issued to Trafalgar 45,000 common stock 0.001 par values per shares, as
security for the Note. Said shares consider being escrow shares, and accordingly
are not included in the outstanding common shares of the company.




On
November 4, 2008, the Company issued 2,540 shares of its common stock 0.001 par
value per share, to one consultant (2,000 shares) and two employees (540
shares), in accordance with the instructions provided by the Company pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On
December 5, 2008 the Company cancelled 150,000 of its common shares held by
certain shareholder, per comprehensive agreement detailed in this report under
Preferred Stock section. Said shares were surrendered to the Company secretary
for cancellation.




On
December 26, 2008, the Company closed agreements with the Penalty Holders
pursuant to which the Penalty Holders agreed to cancel any rights to the Penalty
in consideration of the issuance 66,667 shares of common stock to each of the
Penalty Holders, totaling in issuing 200,000 of the Company common shares. The
shares of common stock were issued in connection with this transaction in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated there under. Each of the Penalty Holders is an accredited investor
as defined in Rule 501 of Regulation D promulgated under the Securities Act of
1933.




On
January 23, 2009, the Company completed the sale of 50,000 shares of the
Company's common stock to one accredited investor for net proceeds of $75,000
(or $0.015 per common share). The shares of common stock were issued in
connection with this transaction in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 and Rule 506 promulgated there under. The investor is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.




On March
5, 2009, the Company and Yasheng Group implemented an amendment to the Term
Sheet pursuant to which the parties agreed to explore further business
opportunities including the potential lease of an existing logistics center
located in Inland Empire, California, and/or alliance with other major groups
complimenting and/or synergetic to the Company/Yasheng JV as approved by the
board of directors on March 9, 2009. Further, in accordance with the amendment,
the Company has agreed to issue 50,000,000 shares to Yasheng and 38,461,538
shares to Capitol Properties in consideration for exploring the business
opportunities, providing business plans, know-how, contacts etc’ - based on the
pro-ration set in the January Term Sheet. The shares of common stock were issued
based on the Board consent on March 9, 2009, in connection with this transaction
in a private transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and/or Rule 506
promulgated there under. Yasheng and Capitol are accredited investors as defined
in Rule 501 of Regulation D promulgated under the Securities Act of 1933. The
Company calculated its direct costs associated with the transaction as $348,240,
and expensed that amount.










As
reported by the Company on its Form 10-Q filed on November 14, 2008, Star Equity
Investments, LLC (“Star”) entered, on September 1, 2008, into that certain
Irrevocable Assignment of Promissory Note, which resulted in Star being a
creditor of the Company with a loan payable by the Company in the amount of
$1,000,000 (the “Debt”). No relationship exists between Star and the Company
and/or its affiliates, directors, officers or any associate of an officer or
director.  On March 11, 2009, the Company entered and closed an
agreement with Star pursuant to which Star agreed to convert all principal and
interest associated with the Debt into 8,500,000 shares of common stock and
released the Company from any further claims.





On
October 1, 2008, the Company entered into a short term note payable (6 month
maturity) with AP – a foreign Company controlled by Shalom Attia (the brother of
Yossi Attia, the Company CEO – the “Holder”), a third party, for $330,000. The
note had 12% interest commencing October 1, 2008 and can be converted (including
interest) into common shares of the Company at an established conversion price
of $0.015 per share. Holder has advised that it has no desire to convert the AP
Note into shares of the Company’s common stock at $1.50 per share at this time
as the Company’s current bid and ask is $0.23 and $0.72, respectively, and there
was virtually no liquidity in the Company’s common stock. The Company was in
default on the AP Note, and Holder has threatened to commence litigation if it
not paid in full. The Company does not have the cash resources to pay off the AP
Note due to current capital constraints. Holder has agreed that it is willing to
convert the AP Note if the conversion price is reset to $0.04376 resulting in
the issuance of 8,000,000 shares of common stock (the “Shares”) of the Company
or 7.56% of the Company assuming 105,884,347 shares of common stock outstanding
(97,884,347 as of May 7, 2009 plus 8,000,000 shares issued to Holder). The
parties entered a settlement agreement in May 2009.  The agreement
with AP was approved by the Board of Directors where Mr. Yossi Attia has
abstained from voting due to a potential conflict of interest.





On July
15, 2009 TAS which owned Series B preferred shares, converted the Series B
Preferred Shares to 7,500,000 common stock 0.001 par values per
share.





On July
23, 2009, the Company issued 46,460 shares of its common stock 0.001 par value
per share, to Stephen M. Fleming, the Company’s securities counsel pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.




On August
17, 2009, the Company entered into a Subscription Agreement with an accredited
investor pursuant to which the investor agreed to acquire up $400,000 in shares
of common stock of the Company at a per share purchase price equal to the
average closing price for the five trading days prior to close. On August 17,
2009, the accredited investor purchased 350,877 restricted shares of common each
at $0.57 per share for an aggregate purchase price of $200,000, which was paid
in cash. On August 31, 2009, the accredited investor purchased an additional
150,060 shares of common stock at $.3332 per share for an aggregate purchase
price of $50,000, which was paid in cash. On September 4, 2009, an accredited
investor purchased 574,718 restricted shares of common each at $.22136 per share
for an aggregate purchase price of $127,219.48, which was paid in cash. The
shares of common stock were offered and sold to the accredited investor in a
private placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and/or Rule 506
promulgated thereunder. The investor is an accredited investor as defined in
Rule 501 of Regulation D promulgated under the Securities Act of
1933.




On
October 22, 2009, the Company issued Corporate Evolutions, Inc. 500,000 shares
of common stock. Corporate Evolutions, Inc. provides investor relation services
to the Company and is an accredited investor as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933. The shares were
issued in reliance upon exemptions from registration pursuant to Section 4(2)
under the Securities Act of 1933 and/or Rule 506 promulgated
thereunder.





On or
around October 28, 2009 the Company and all other parties settled the Rusk
dispute for $400,000 to be paid within 75 days from settlement. As the Company
does not have sufficient funds to pay the Settlement Amount, and Emvelco RE
Corp.  (“Emvelco RE Corp.”) has agreed indemnify the Company and pay
the Settlement Amount if the Company issues Emvelco RE 4,000,000 shares of
common stock of the Company (the “Shares”)., the Company authorized to issue
Emvelco RE the Shares which shall be issued under Section 4(2) of the Securities
Act of 1933, as amended, and which shall be considered validly issued and duly
authorized.





On December 30, 2009, the Company
entered into a Preferred Stock Purchase Agreement dated as of December 30,
2009 (the “Agreement”). Pursuant to the Agreement, the Company agreed to pay the
Investor a commitment fee of $250,000 (the “Commitment Fee”), payable at the
earlier of the six monthly anniversary of the execution of the Agreement or the
first tranche.  The Company has the right to elect to pay the
Commitment Fee in immediately available funds or by issuance of shares of Common
Stock. As such the Company issued to the Investor 10,000,000 shares of Common
Stock of the Company, in a transaction made pursuant to Section 3(a)(9) of the
Securities Act of 1933.










On December 30, 2009, the Company
entered into an Exchange Agreement with Moran Atias (“Atias”) whereby the
Company and Ms. Atias exchanged $100,000 of a promissory note in the amount of
$250,000 held by Ms. Atias into 11,903,333 shares of Common Stock of the
Company, in a transaction made pursuant to Section 3(a)(9) of the Securities Act
of 1933.  The promissory note, of which a portion was converted by Ms.
Atias, was initially issued on August 8, 2008 (See also subsequent
events).  Ms. Atias still holds a note payable by the Company for
$150,000 (see subsequent events for pay-off).




Preferred
Stock:




Series A - As disclosed in
Form 8-Ks filed on May 7, 2008 and May 9, 2008, on May 1, 2008, the Company
entered into an Agreement and Plan of Exchange (the "DCG Agreement") with DCG
and the members of DCG Members. Pursuant to the DCG Agreement, the Company
acquired and, the DCG Members sold, 100% of the outstanding securities in DCG.
DCG is a limited liability company organized under the laws of the State of
Nevada and headquartered in Bel Air; California is a newly formed designated LLC
which holds certain development rights for gas drilling in Crockett County,
Texas.  In consideration for 100% of the outstanding securities in
DCG, the Company issued the DCG Members promissory notes in the aggregate amount
of $25,000,000 payable together with interest in May 2010 (the "DCG Notes"). On
August 1, 2008, all holders of the Company’s preferred stock Series A, notified
the Company of their intention to convert said 100,000 preferred stock into
500,000 common shares of the Company. The conversion of preferred shares to
common shares marks the completion of the acquisition of DCG. The Company
accepted such notice and instructed the Company’s transfer agent on August 15,
2008 to issue said common shares to the former members of DCG, as reported and
detailed on the Company’s 14A filings.




Series B - On December 5, 2008
the Company entered into and closed end Agreement with T.A.S. Holdings Limited
("TAS") (the "TAS Agreement") pursuant to which TAS agreed to cancel the debt
payable by the Company to TAS in the amount of approximately $1,065,000 and its
150,000 shares of common stock it presently holds in consideration of the
Company issuing TAS 1,000,000 shares of Series B Convertible Preferred Stock,
which such shares carry a stated value equal to $1.20 per share (the "Series B
Stock"). The Series B Stock is convertible, at any time at the option of the
holder, into common shares of the Company based on a conversion price of $0.0016
per share. The Series B Stock shall have voting rights on an as converted basis
multiplied by 6.25. Holders of the Series B Stock are entitled to receive, when
declared by the Company's board of directors, annual dividends of $0.06 per
share of Series B Stock paid semi-annually on June 30 and December 31 commencing
June 30, 2009. In the event of any liquidation or winding up of the Company, the
holders of Series B Stock will be entitled to receive, in preference to holders
of common stock, an amount equal to the stated value plus interest of 15% per
year. The Series B Stock restricts the ability of the holder to convert the
Series B Stock and receive shares of the Company's common stock such that the
number of shares of the Company common stock held by TAS and its affiliates
after such conversion does not exceed 4.9% of the Company's then issued and
outstanding shares of common stock. The Series B Stock was offered and sold to
TAS in a private placement transaction made in reliance upon exemptions from
registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule
506 promulgated there under. TAS is an accredited investor as defined in Rule
501 of Regulation D promulgated under the Securities Act of 1933. The Company
filed its Certificate of Designation of Preferences, Rights and Limitations of
Series B Preferred Stock with the State of Delaware. The preferred shares were
subsequently converted to 7,500,000 shares of common stock and are included in
the EPS calculation.





Series C- On November 26, 2009, the Company
issued 210,087 shares of Series C Preferred Stock for aggregate consideration of
$4,945.  Each six shares of Series C Preferred Stock is convertible
into one share of common stock; provided, however, in the event that the shares
of Series C Preferred Stock have been outstanding for a period of one year, then
it shall be automatically converted into shares of common stock in accordance
with the aforementioned conversion formula.  The Company issued the
securities to one non-U.S. persons (as that term is defined in Regulation S of
the Securities Act of 1933) in an offshore transaction relying on Regulation S
and/or Section 4(2) of the Securities Act of 1933.





11.
Stock Option Plan and Employee Options





2004
Incentive Plan





a) Stock
option plans





In 2004,
the Board of Directors established the “2004 Incentive Plan” (“the Plan”), with
an aggregate of 800,000 shares of common stock authorized for issuance under the
Plan. The Plan was approved by the Company’s Annual Meeting of Stockholders in
May 2004. In 2005, the Plan was adjusted to increase the number of shares of
common stock issuable under such plan from 800,000 shares to 1,200,000 shares.
The adjustment was approved at the Company’s Annual Meeting of Stockholders in
June 2005. The Plan provides that incentive and nonqualified options may be
granted to key employees, officers, directors and consultants of the Company for
the purpose of providing an incentive to those persons. The Plan may be
administered by either the Board of Directors or a committee of two directors
appointed by the Board of Directors (the "Committee"). The Board of Directors or
Committee determines, among other things, the persons to whom stock options are
granted, the number of shares subject to each option, the date or dates upon
which each option may be exercised and the exercise price per share. Options
granted under the Plan are generally exercisable for a period of up to ten years
from the date of grant. Incentive options granted to stockholders that hold
in excess of 10% of the total combined voting power or value of all classes of
stock of the Company must have an exercise price of not less than 110% of the
fair market value of the underlying stock on the date of the grant. The Company
will not grant a nonqualified option with an exercise price less than 85% of the
fair market value of the underlying common stock on the date of the
grant.










(b) Other
Options





As of
December 31, 2009, there were 330,000 options outstanding with a weighted
average exercise price of $3.77.





No
options were exercised during the year ended December 31, 2009 and the year
ended December 31, 2008.





The
following table summarizes information about shares subject to outstanding
options as of December 31, 2009, which was issued to current or former
employees, consultants or directors pursuant to the 2004 Incentive Plan and
grants to Directors:




Options
      Outstanding
            
            Options
      ExercisableNumber
              Outstanding
            
            Range
      of
              Exercise Prices
            
            Weighted-
              Average
              Exercise Price
            
            Weighted-
              Average
      Remaining
              Life in Years
            
            Number
              Exercisable
            
            Weighted-
              Average
              Exercise Price100,000
            
            $
            4.21
            
            $
            4.21
            
            
            1.79
            
            
            100,000
            
            $
            4.2130,000
            
            $
            4.78
            
            $
            4.78
            
            
            2.32
            
            
            30,000
            
            $
            4.78200,000
            
            $
            3.40
            
            $
            3.40
            
            
            3.31
            
            
            150,000
            
            $
            3.40330,000
            
            $
            3.40-$4.78
            
            $
            3.77
            
            
            2.66
            
            
            280,000
            
            $
            3.84





(c)
Warrants





On June
7, 2005, the Company granted 100,000 warrants to a consulting company as
compensation for investor relations services at exercise prices as follows:
40,000 warrants at $3.50 per share, 20,000 warrants at $4.25 per share, 20,000
warrants at $4.75 per share and 20,000 warrants at $5 per share. The warrants
have a term of five years and increments vest proportionately at a rate of a
total 8,333 warrants per month over a one year period. The warrants are being
expensed over the performance period of one year. In February 2006, the Company
terminated its contract with the consultant company providing investor relation
services. The warrants granted under the contract were reduced
time-proportionally to 83,330, based on the time in service by the consultant
company.





As part
of some Private Placement Memorandums the Company issued warrants that can be
summarized in the following table:





Name
            Date
            Terms
            No.
      of Warrants
            Exercise
      PriceParty
      1
            3/30/2008
            2
      years from Issuing
            200,000
            $1.50Party
      1
            3/30/2008
            2
      years from Issuing
            200,000
            $2.00Party
      2
            6/05/2008
            2
      years from Issuing
            300,000
            $1.50Party
      3
            6/30/2008
            2
      years from Issuing
            200,000
            $1.50Party
      4
            9/5/2008
            2
      years from Issuing
            200,000
            $1.50





None of
the warrants were exercised to the date of this filling.










Cashless
Warrants:





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes a third party, for a short term loan (“bridge”) of up to $275,000 to
bridge the drilling program of the Company. As a consideration for said
facility, the Company grants the investor with 100% cashless warrants coverage
for two years at exercise price of 1.50 per share. The investor made a loan of
$220,000 to the company on September 15, 2008, that was paid in full on October
8, 2008. Accordingly the investor is entitled to 200,000 cashless warrants as
from September 15, 2008 at exercise price of $1.50 for a period of 2 years. The
Company contests the validity of said warrants.





(d)
Shares





On May 6,
2008 the Company issued 5,000 shares of its common stock, $0.001 par value per
share, to Stephen Martin Durante in accordance with the instructions provided by
the Company pursuant to the 2004 Employee Stock Incentive Plan registered on
Form S-8 Registration.




On June
11, 2008, the Company entered into a Services Agreement with Mehmet Haluk Undes
(the "Undes Services Agreement") pursuant to which the Company engaged Mr. Undes
for purposes of assisting the Company in identifying, evaluating and structuring
mergers, consolidations, acquisitions, joint ventures and strategic alliances in
Southeast Europe, Middle East and the Turkic Republics of Central Asia. Pursuant
to the Undes Services Agreement, Mr. Undes has agreed to provide us services
related to the identification, evaluation, structuring, negotiating and closing
of business acquisitions, identification of strategic partners as well as the
provision of legal services. The term of the agreement is for five years and the
Company has agreed to issue Mr. Undes 5,250 shares of common stock that shall be
registered on a Form S8 no later than July 1, 2008.




On August
13, 2008, the Company issued 160 shares of its common stock, $0.001 par value
per share, to Robin Ann Gorelick, the Company Secretary, in accordance with the
instructions provided by the Company pursuant to the 2004 Employee Stock
Incentive Plan registered on Form S-8 Registration.





Following
the above securities issuance, the 2004 Plan was closed, and no more securities
can be issued under this plan.





2008 Stock Incentive
Plan:





On July
28, 2008 - the Company held a special meeting of the shareholders for four
initiatives, consisting of approval of a new board of directors, approval of the
conversion of preferred shares to common shares, an increase in the authorized
shares and a stock incentive plan. All initiatives were approved by the majority
of shareholders.  The 2008 Employee Stock Incentive Plan (the "2008
Incentive Plan") authorized the board to issue up to 50,000 shares of Common
Stock under the plan.





On August
23 the Company issued 1,000 shares of its common stock 0.001 par value per
share, to Robert M. Yaspan, the Company lawyer, in accordance with the
instructions provided by the Company pursuant to the 2008 Employee Stock
Incentive Plan registered on Form S-8 Registration.





On
November 4, 2008, the Company issued 2,540 shares of its common stock 0.001 par
value per share, to one consultant (2,000 shares) and two employees (540
shares), in accordance with the instructions provided by the Company pursuant to
the 2008 Employee Stock Incentive Plan registered on Form S-8
Registration.





On July
23, 2009 - , the Company issued 46,460 shares of its common stock 0.001 par
value per share, to Stephen M. Fleming, the Company’s securities counsel
pursuant to the 2008 Employee Stock Incentive Plan,





Following
the above securities issuance, the 2008 Plan was closed, and no more securities
can be issued under this plan.





12.
Related party transactions





During
the years 2009 and 2008, Yossi Attia paid substantial expenses for the Company
and also deferred his salary. As of December 31, 2009, the Company owes Mr.,
Attia approximately 883 thousand dollars.





Mr.
Darren Dunckel, a former member of the Board (resigned on April 1, 2009), serves
as CEO and President of ERC as well as Verge, which are both Nevada corporations
and former subsidiaries of the Company. As President, he oversees management of
real estate acquisitions, development and sales in the United States and in
Croatia where ERC holds properties. Concurrently, Mr. Dunckel is the Managing
Director of The International Holdings Group Ltd. ("TIHG"), the sole shareholder
of ERC and as such manages the investment portfolio of this holding company. Mr.
Dunckel has entered into various transactions and agreements with the Company on
behalf of ERC, Verge and TIHG (all of which are related entities given Mr.
Dunckel involvement as their CEO). On December 31, 2006, Mr. Dunckel executed
the Agreement and Plan of Exchange on behalf of TIHG which was issued shares in
ERC in consideration for the exchange of TIHG's interest in Verge. Pursuant to
that certain Stock Transfer and Assignment of Contract Rights Agreement dated as
of May 14, 2007, the Company transferred its shares in ERC in consideration for
the assignment of rights to that certain Investment and Option Agreement, and
amendments thereto, dated as of June 19, 2006 which gives rights to certain
interests and assets. Mr. Dunckel has represented and executed the foregoing
agreements on behalf of ERC, Verge and TIHG as well as executed agreements on
behalf of Verge to transfer 100% of Verge. Effective July 1, 2006, Verge entered
into a non written year employment agreement with Darren C Dunckel as the
President of Verge which commenced on July 11, 2006 and provides for annual
compensation in the amount of $120,000, the employment expense of which was
capitalized related to such agreement was $120,000 for each year ended December
31, 2008 and 2007. Verge loaned to Mr. Darren Dunckel, the sum of $93,822, of
which $90,000 was paid-off via Mr. Dunckel employment agreement, and the balance
of $3,822 is included in Prepaid and other current assets as of December 31,
2006. As of December 31, 2007, the balance for advances to Mr. Dunckel was paid
off. On October 2008 a group of investors associated with Mr. Dunckel acquired
Verge from AGL in a transaction to which the company is not a
party.  Upon closing the acquisition of AGL Mr. Attia was appointed as
the CEO of AGL. Mr. Yossi Attia serves as Chairman of the board of
AGL.










The board
of directors of AGL approved an employment agreement between the Company and Mr.
Shalom Attia, the controlling shareholder and CEO of AP Holdings
Ltd.  The agreement goes into effect on the date that the
aforementioned allotments are consummated and stipulates that Mr. Shalom Attia
will serve as the VP – European Operations of AGL in return for a salary that
costs the Company an amount of US$ 10 thousand a month.  Mr. Attia is
also entitled to reimbursement of expenses in connection with the affairs of the
Company, in accordance with Company policy, as set from time to
time.  In addition, Mr. Shalom Attia is entitled to an annual bonus of
2.5% of the net, pre-tax income of AGL in excess of NIS 8 million. The agreement
was ratified by the general shareholders meeting of AGL on 30 October
2007.




On March
31, 2008, the Company raised $200,000 from a private offering of its securities
pursuant to a Private Placement Memorandum (“PPM”). The private placement was
for Company common stock which shall be “restricted securities” and were sold at
$1.00 per share. The offering included 200,000 warrants to be exercised at $1.50
for two years (for 200,000 shares of the Company common stock), and an
additional 200,000 warrants to be exercised at $2.00 for four years (for 200,000
shares of the Company common stock). Said Warrants may be exercised to ordinary
common shares of the Company only if the Company issues subsequent to the date
of the PPM, 25 million or more shares of its common stock. The money raised from
the private placement of the Company’s shares will be used for working capital
and business operations of the Company. The PPM was done pursuant to Rule 506. A
Form D has been filed with the Securities and Exchange Commission in compliance
with Rule 506 for each Private Placement. The investor is D’vora Greenwood
(Attia), the sister of Mr. Yossi Attia. Mr. Attia abstained from voting on this
matter in the board meeting which approved this PPM.




On
September 1, 2008 Star Equity Investment LLC a third party acquired from Mr.
Attia, a $1 million note due by the Company since January 1, 2008. Said note is
bearing 12% interest commencing October 1st, 2008 and can be converted
(including interest) into common shares of the Company at a fixed price of $0.75
per share.  Star Equity Investment LLC noticed the Company that due to
the Company default on said note, it willing to enter negotiations to modify its
instrument. The parties agreed to settle by converting the note including
interest into 8.5 million common shares of the Company.





On
September 5, 2008 the Company entered a short term loan memorandum, with Mehmet
Haluk Undes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 200,000 cashless warrants from September 15, 2008 at exercise
price of $1.50 for a period of 2 years.  The Company contest said
warrants entitlements to the investor, based on a cause.




On
December 5, 2008 the Company entered into and closed an
Agreement  with T.A.S. Holdings Limited (“TAS”) (the “TAS Agreement”)
pursuant to which TAS agreed to cancel the debt payable by the Company to TAS in
the amount of approximately $1,065,000 and its 15,000,000 shares of common stock
it presently holds in consideration of the Company issuing TAS 1,000,000 shares
of Series B Convertible Preferred Stock, which such shares carry a stated value
equal to $1.20 per share (the “Series B Stock”).





The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company’s board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30, 2009.
In the event of any liquidation or winding up of the Company, the holders of
Series B Stock will be entitled to receive, in preference to holders of common
stock, an amount equal to the stated value plus interest of 15% per year. The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company’s common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company’s then issued and outstanding shares of
common stock. The Series B Stock was offered and sold to TAS in a private
placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated there under. TAS is an accredited investor as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933. The Company filed its
Certificate of Designation of Preferences, Rights and Limitations of Series B
Preferred Stock with the State of Delaware. Based on agreements that the company
is not side too, Dr. Rubin was partial owner of T.A.S. Dr. Rubin resigned from
the Company Board of Directors on April 7, 2010 to pursue other
opportunities.










13.
Treasury Stock




Treasury Stock Repurchase -In
June 2006, the Company's Board of Directors approved a program to repurchase,
from time to time, at management's discretion, up to 700,000 shares of the
Company's common stock in the open market or in private transactions commencing
on June 20, 2006 and continuing through December 15, 2006 at prevailing market
prices. Repurchases will be made under the program using our own cash resources
and will be in accordance with Rule 10b-18 under the Securities Exchange Act of
1934 and other applicable laws, rules and regulations. A licensed Stock Broker
Firm is acting as agent for our stock repurchase program. Pursuant to the
unanimous consent of the Board of Directors in September 2006, the number of
shares that may be purchased under the Repurchase Program was increased from
700,000 to 1,500,000 shares of common stock and the Repurchase Program was
extended until October 1, 2007, or until the increased amount of shares is
purchased. Pursuant to the Sale Agreement of Navigator, the Company got on
closing (February 2, 2007) 622,531 shares of the Company’s common stock as
partial consideration. The Company shares were valued at $1.34 per share,
representing the closing price of the Company on the NASDAQ Capital Market on
February 16, 2007, the closing of the sale. The Company canceled the common
stock acquired during the disposition in the amount of $834,192. All, the
Company 660,362 treasury shares were retired and canceled during August and
September 2008. On November 20, 2008, the Company issued a press release
announcing that its Board of Directors has approved a share repurchase program.
Under the program the Company is authorized to purchase up to 100,000 of its
shares of common stock in open market transactions at the discretion of
management. All stock repurchases will be subject to the requirements of Rule
10b-18 under the Exchange Act and other rules that govern such
purchases.





As of
December 31, 2009 the Company has 1,000 treasury shares in its possession (which
been purchased in the open market per the above program) scheduled to be
cancelled.




14.
Change in the Reporting Entity





In
accordance with Financial Accounting Standards, FAS 154, Accounting Changes and Error
Corrections, when an accounting change results in financial statements
that are, in effect, the statements of a different reporting entity, the change
shall be retrospectively applied to the financial statements of all prior
periods presented to show financial information for the new reporting entity for
those periods. Previously issued interim financial information shall be
presented on a retrospective basis.





On August 19, 2008 the Company entered
into final fee agreement with C. Properties (“Consultant”), where the Company
had to pay Consultant certain fees in accordance with the agreement entered with
the Consultant, the Consultant has agreed that, in lieu of cash payment, it will
receive an aggregate of up to 734,060,505 shares of stock of the AGL, and the
Consultant was not advised on the restructuring of the acquisition of DCG by the
Corporation, and in order to compensate the Consultant and avoid any potential
litigation, the Company has agreed to waive the above production requirements
and convey all its holdings with AGL immediately, with such transfer considered
effective January 1, 2008. Based on the agreement, the Company disposed all its
holdings in AGL effective January 1, 2008, and these financials reflect such
disposal.  Further, the Company previously issued interim financial
statements dated as of March 31, 2008 and for the three month period ending
March 31, 2008.  Those financial statements included the consolidation
of the AGL.  Since the agreement with Consultant was retroactively
applied to January 1, 2008, the following tables explain the effect of the
change of the Company’s financial balances without consolidating
AGL:




Three
      Months Ended
              March
      31, 2008Previously
      issued interim Q1 financial statements (Unaudited)
            
            
            Effect
      of change of reporting entity (Unaudited)
            
            
            Revised
      Balances (Audited)Revenues
            
            $
            ---
            
            
            $
            ---
            
            
            $
            ---Cost
      of revenues
            
            
            ---
            
            
            
            ---
            
            
            
            ---Total
      operating expenses
            
            
            3,003,060
            
            
            
            7,307,247
            
            
            
            10,310,307Operating
      loss
            
            
            (3,003,060
            )
            
            
            (7,307,247
            )
            
            
            (10,310,307
            )Net
      (loss) before minority interest
            
            
            (2,911,208
            )
            
            
            (7,363,366
            )
            
            
            (10,274,573
            )Less
      minority interest in loss of consolidated subsidiary
            
            
            69,419
            
            
            
            (69,419
            )
            
            
            ---Net
      (loss)
            
            
            (2,841,789
            )
            
            
            (7,432,785
            )
            
            
            (10,274,573
            )Other
      comprehensive income (loss)
            
            
            427,022
            
            
            
            (427,022
            )
            
            
            ---Comprehensive
      (loss)
            
            $
            (2,414,767
            )
            
            $
            (7,859,807
            )
            
            $
            (10,274,573
            )Net
      (loss) per share, basic and diluted
            
            $
            (0.59
            
            
            $
            
            
            
            $
            (2.14
            )Weighted
      average number of shares outstanding, basic and diluted
            
            
            4,797,055
            
            
            
            
            
            
            
            4,797,055










15.
Subsequent events





On January 20, 2010, the Company, in an
effort to reduce outstanding debt of the Company, entered into an Exchange
Agreement with Moran Atias (“Atias”) whereby the Company and Ms. Atias exchanged
$100,000 of a promissory note in the amount of $250,000 held by Ms. Atias into
13,000,000 shares of common stock of the Company, in a transaction made pursuant
to Section 3(a)(9) of the Securities Act of 1933.  The promissory
note, of which a portion was converted by Ms. Atias (see above), was initially
issued on August 8, 2008.   The Company’s issuance of the
securities described in the preceding sentence is exempt from registration under
the Securities Act of 1933 pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 for a transaction not
involving a public offering of securities.   On April 9, 2010,
the Company, in an effort to reduce outstanding debt of the Company, entered
into an Exchange Agreement with  Atias whereby the Company and Ms.
Atias exchanged $50,000 of a promissory note in the amount of $250,000 held by
Ms. Atias – which is the remaining balance on said Note -  into
12,714,286 shares of common stock of the Company, in a transaction made pursuant
to Section 3(a)(9) of the Securities Act of 1933.  The promissory
note, of which a portion was converted by Ms. Atias (see above), was initially
issued on August 8, 2008.   The Company’s issuance of the
securities described in the preceding sentence is exempt from registration under
the Securities Act of 1933 pursuant to the exemption from registration provided
by Section 4(2) of the Securities Act of 1933 for a transaction not
involving a public offering of securities. Post said agreement, the Company paid
in full the Atias Note.





On March 23, 2010, the Company issued
8,000,000 shares of its common stockat0.001 par values to Donfeld, Kelley
& Rollman(“Kelley”), the Company
lawyer, as partial payment for legal fees due.The promissory note, which was
converted by Kelley, was issued on August 30, 2009.   The
Company’s issuance of the securities described in the preceding sentence is
exempt from registration under the Securities Act of 1933 pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act
of 1933 for a transaction not involving a public offering of
securities





On April 9, 2010, the Company, in an
effort to reduce outstanding debt of the Company, entered into an Exchange
Agreement with Priscilla Dunckel whereby the Company and Mrs. Dunckel exchanged
$20,000 of a promissory note in the amount of $20,000 held by hers – which is
the total balance on said Note -  into 5,085,714 shares of common
stock of the Company, in a transaction made pursuant to Section 3(a)(9) of the
Securities Act of 1933.  The Company’s issuance of the securities
described in the preceding sentence is exempt from registration under the
Securities Act of 1933 pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act of 1933 for a transaction not involving
a public offering of securities. Post said agreement; the Company paid in full
the Dunckel Note.





On April
5, 2010 the Company issued a formal request to Yasheng demanding that they
surrender of the 50,000,000 shares that were issued to them, as well as
reimburse the Company for its expenses associated with the transaction in the
amount of $348,240.





Dr. Rubin
resigned from the Company Board of Directors on April 7, 2010 to pursue other
opportunities. As Dr. Rubin was the catalyst for the proposed transaction with
Yasheng Group, the Company is presently seeking to add additional officers or
directors to assist in implementing the Company's strategy of developing a
logistics center.





On April
15, 2010 effective December 31, 2009 the company and Trafalgar settled their
outstanding disputes. The parties agreed that the debts owe to Trafalgar will be
set as $3,000,000 with maturity of 30 months from date of issuing carry a 7%
annual interest. Trafalgar was issued Preferred Stock of the Company, which is
convertible to common shares at the option of the holders, into 600,000,000
common shares of the Company, which is more than the total authorized shares, at
any time upon written notice to the company; in the event of conversion of the
note, the Company will authorize more shares to be issued at that
point.  Trafalgar will appoint 4 directors to the Company’s Board of
Directors. Under the terms of the settlement, Trafalgar agreed to continue and
pursue the core business of the Company.











16.  Supplemental
Oil and Gas Disclosures





The
accompanying table presents information concerning the Company's natural gas
producing activities (as the assets been divested – see Note 5) as required by
Statement of Financial Accounting   Standards No.  69,
“Disclosures about Oil and Gas Producing Activities." Capitalized costs relating
to oil and gas producing activities from continuing operations for the year
ended on December 31, 2008 are as follows (said assets was disposed during the
first quarter of 2009):





As
      of December 31, 2008Proved
      undeveloped natural properties – Direct investment
            $
            2,300,000Unproved
      properties – option exercised
            
            50,000Total
            
            2,350,000Accumulated
      depreciation, depletion, amortization , and impairment
            
            --Net
      capitalized costs
            $
            2,350,000





All of
these reserves are located in DCG field located in the USA.




Estimated
Quantities of Proved Oil and Gas Reserves





The
following table presents the Company's estimate of its net proved crude oil and
natural gas reserves as of September 30, 2008 elated to
continuing   operations.   The  Company's  management  emphasizes  that  reserve
estimates are  inherently  imprecise and that estimates of
new  discoveries  are more imprecise than those of producing
oil and gas properties.  Accordingly, the estimates are expected to
change as future information becomes available.  The estimates have
been prepared by independent natural gas reserve engineers.




MMCF
              (thousand
      cubic feet)Proved
      undeveloped natural gas reserves at February 22, 2008
            
            --Purchases
      of drilling rights for minerals in place for period February 22, 2008
      (inception of DCG) to December 31, 2008 – 4 wells at 355 MCF
      each
            
            1,420Revisions
      of previous estimates *)
            
            (180)Extensions
      and discoveries**)
            
            --Sales
      of minerals in place
            
            --Proved
      undeveloped natural gas reserves at December 31, 2008
            
            1,420


*) the
current reserve report revised to include revision by decreasing the MMCF from
1,600 to 1,420 based on 355 MCF compare to 400 MCF in prior report.





Standardized
Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas
Reserves





The
following disclosures concerning the standardized measure of future cash flows
from proved crude oil and natural gas are presented in accordance with SFAS No.
69. The standardized measure does not purport to represent the fair market value
of the Company's proved crude oil and natural gas reserves. An estimate of fair
market value would also take into account, among other factors, the recovery of
reserves not classified as proved, anticipated future changes in prices and
costs, and a discount factor more representative of the time value of money and
the risks inherent in reserve estimates. Under
the  standardized  measure,  future
cash  inflows  were  estimated by
applying  period-end  prices  at  December  31,  2008  adjusted  for  fixed  and
determinable escalations,  to the estimated future production of
year-end proved reserves.  Future cash inflows were reduced by
estimated future production and development costs based on year-end costs to
determine pre-tax cash inflows. Future income taxes were computed by applying
the statutory tax rate to the excess of pre-tax cash inflows over the tax basis
of the properties.  Operating loss  carry
forwards,  tax  credits,  and  permanent  differences  to
the  extent estimated  to
be  available  in the future  were
also  considered  in the future income tax calculations,
thereby reducing the expected tax expense. Future net cash inflows after income
taxes were discounted using a 10% annual discount rate to arrive at the
Standardized Measure.











Set forth
below is the Standardized Measure relating to proved undeveloped natural gas
reserves for the period ending December 31, 2008:




Period
      ending December 31, 2008 (in thousands of $)
            Period
      ending March 30, 2008 (in thousands of $)Future
      cash inflows, net of royalties
            109,890
            231,230Future
      production costs
            (32,964)
            (38,702)Future
      development costs
            (43,050)
            (25,800)Future
      income tax expense
            
            --Net
      future cash flows
            33,876
            166,728Discount
            (33,296)
            (117,475)Standardized
      Measure of discounted future net cash relating to proved
      reserves
            580
            49,253





Changes
in Standardized Measure of Discounted Future Net Cash Flows Relating to Proved
Natural Gas Reserves. The table above shows the second standardized measure of
discounted future net cash flows for the Company since
inception.  Accordingly, there are material changes to disclose, which
in essence were contributed by substantial decline in gas prices in lieu of the
financial turmoil that the USA (and the world) is facing.




Drilling
Contract:




On July
1, 2008, DCG entered into a Drilling Contract (Model Turnkey Contract)
("Drilling Contract") with Ozona Natural Gas Company LLC ("Ozona"). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells shall take place in
secession. The drilling operations on the first well are due to funding provided
by Vortex One. Such drilling took place, and the Vortex One well has
successfully hit natural gas at a depth of 4,783 feet.  As disclosed
on this report Vortex one entered into sale agreements of said four assignments,
and allows 60 days extension (until July 1, 2009) to both Buyer and operator, to
commence payments.





17.  Earnings (loss) per
Share





Below is
a reconciliation of earnings (loss) per share and weighted average common shares
outstanding for purposes of calculating basic and diluted earnings (loss) per
share.




2009
            
            2008Net
      Loss from continuing operations
            (6,692,603)
            
            (15,215,295)Net
      Loss from discontinued operations
            0
            
            (35,935,636)Weighted
      average shares outstanding, basic
            88,985,544
            
            19,496,690Convertible
      preferred stock – if converted (diluted) – 6.25 to 1
            0
            
            520,833Weighted
      average shares for purpose of computing diluted loss per
    share
            88,985,544
            
            20,017,424Weighted
      average number of shares outstanding, basic (1:100 reverse
      split)
            88,985,544
            
            194,967Weighted
      average number of shares outstanding, diluted (1:100 reverse
      split)
            88,985,544
            
            200,174Loss
      per share from continuing operations, basic
            (0.08)
            
            (78.04)Loss
      per share from discontinued operations, basic
            NA
            
            (184.32)Net
      loss per share, basic
            (0.08)
            
            (262.36)Loss
      per share from continuing operations, diluted
            (0.08)
            
            (76.01)Loss
      per share from discontinued operations, diluted
            NA
            
            (179.52)Net
      loss per share, diluted
            (0.08)
            
            (255.53)











18.  Restatement





We have
restated our balance sheet at December 31, 2008 and statements of income,
stockholders’ equity and cash flows for the year ended December 31, 2008. 
The restatement in 2008 did not have a material impact on (x) the net loss
reported; (y) loss per share; and (z) the negative equity position of the
Company from what the Company had previously reported for the year ended
December 31, 2008.




19. Commitments and
Contingencies





(a)
Employment Agreements





Effective
July 1, 2006, the Company entered into a five-year employment agreement with
Yossi Attia as the President and provides for annual compensation in the amount
of $240,000, an annual bonus not less than $120,000 per year, and an annual car
allowance. During the  years 2009 and 2008, Yossi Attia paid
substantial expenses for the Company and also deferred his salary. As of
December 31, 2009, the Company owes Mr., Attia approximately 883 thousand
dollars. The Company relay upon Mr. Attia financing. There is no assurance that
Mr. Attia will continue to provide the Company with funding.





On August
19, 2008, the Company entered into that certain Employment Agreement with Mike
Mustafoglu, effective July 1, 2008, pursuant to which Mr. Mustafoglu agreed to
serve as the Chairman of the Board of Directors of the Company for a period of
five years. Mr. Mustafoglu will receive (i) a salary of $240,000; (ii) a
performance bonus of 10% of net income before taxes, which will be allocated by
Mr. Mustafoglu and other key executives at the sole discretion of Mr.
Mustafoglu; and (iii) a warrant to purchase 10 million shares of common stock of
the Company at an exercise price equal to  the lesser of $.50 or 50%
of the average market price of the Company’s common stock during the 20 day
period prior to exercise on a cashless basis (the “Mustafoglu Warrant”). The
Mustafoglu Warrant shall be released from escrow on an equal basis over the
employment period of five years. As a result, 20,000 shares of the Mustafoglu
Warrant would vest per year.  On December 24, 2008, Mike Mustafoglu
resigned as Chairman of the Board of Directors of the Company to pursue other
business interests. Effective July 16, 2008, the Board of Directors of the
Company approved that certain Mergers and Acquisitions Consulting Agreement (the
"M&A Agreement") between the Company and TransGlobal Financial LLC, a
California limited liability company ("TransGlobal"). Pursuant to the M&A
Agreement, TransGlobal agreed to assist the Company in the identification,
evaluation, structuring, negotiation and closing of business acquisitions for a
term of five years. As compensation for entering into the M&A Agreement,
TransGlobal shall receive a 20% carried interest in any transaction introduced
by TransGlobal to the Company that is closed by the Company. At TransGlobal's
election, such compensation may be paid in restricted shares of common stock of
the Company equal to 20% of the transaction value. Mike Mustafoglu, who is the
Chairman of Transglobal Financial, was elected on July 28, 2008 at a special
shareholder meeting as the Company’s Chairman of the Board of
Directors.  Further to Mr. Mustafoglu resignation, that certain
Mergers and Acquisitions Consulting Agreement between the Company and
TransGlobal Financial LLC, a California limited liability company was
terminated. Mr. Mustafoglu is the Chairman of said LLC.





(b)
Construction Loans





During
2007, the Company entered into several loan agreements with different financial
institutions in connection with the financing of the different real estate
projects. All balances of said loan were paid-off during 2008.





(c) AGL
Transaction:





Based on
series of agreements commencing June 5, 2007 and following by July 23, 2007 AGL
become subsidiary of the Company.  During 2008 via a fee agreement
with third party, the Company divested all its interest in AGL, effective
January 1, 2008, and the company financials reflect such disposal. During the
first quarter of 2009, third party (Upswing Ltd) filed a complaint in Israel
against AGL, Mr. Yossi Attia and Mr. Shalom Attia with regards to certain stock
certificates of which the Company was the beneficiary owner at the relevant
times. The company was not named as a party to said litigation. Mr. Attia
notified the Company that he holds it responsible to all the damages he may
suffer, as the underlying assets that are subject to the litigation in Israel
were assets of the Company which were purchased by him from a third party that
acquired said assets from the Company. As such, the Company is examining its
potential legal options. Mr. attia  inform the Company that he settled
all the adversaries proceeding, where he paid or cause his parties to pay to the
third party 2,250,00 AGL shares with market value of about $400,000. To date Mr.
Attia did not demand the Company for participation.










As part
of the AGL closing, the Company undertook to indemnify the AGL in respect of any
tax to be paid by Verge, deriving from the difference between (a) Verge's
taxable income from the Las Vegas project, up to an amount of $21.7 million and
(b) the book value of the project in Las Vegas for tax purposes on the books of
Verge, at the date of the closing of the transfer of the shares of Verge to the
Company.  Accordingly, the amount of the indemnification is expected
to be the amount of the tax in respect of the aforementioned difference, up to a
maximum difference of $11 million. The Company believes it as no exposure under
said indemnification. Attia Project undertook to indemnify AGL in respect of any
tax to be paid by Sitnica, deriving from the difference between (a) Verge's
taxable income from the Samobor project, up to an amount of $5.14 million and
(b) the book value of the project in Samobor for tax purposes on the books of
Sitnica, at the date of the closing of the transfer of the shares of Sitnica to
the Company.  Accordingly, the amount of the indemnification is
expected to be the amount of the tax in respect of the aforementioned
difference, up to a maximum difference of $0.9 million. The Attia Project
undertook to bear any additional purchase tax (if any is applicable) that
Sitnica would have to pay in respect of the transfer of the contractual rights
in investment real estate in Croatia, from the Attia Project to
Sitnica.





(d)
Lease Agreements





The
Company head office was located at 9107 Wilshire Blvd., Suite 450, Beverly
Hills, CA 90210, based on a month-to-month basis (The Company noticed the
landlord that effective December 1, 2009 it will terminate and vacate the
premises), paying $219 per month. The Company’s operation office (and
headquarter from December 1, 2009) is located at 1061 1⁄2 N Spaulding Ave, West
Hollywood, CA 90046, paying $2,500 per month (lease term until June 2011).
Effective December 1, 2009 the Company will operate only from its operational
offices located in West Hollywood, California.





Future
minimum payments of obligations under operating lease at December 31, 2009 are
as follows:





2010
            
            2011
            
            
            
            
            
            
            
            Thereafter$
            30,000
            
            $
            15,000
            
            
            
            
            
            
            
            
            
            
            $
            ---





(e) Legal
Proceedings





From time
to time, we are a party to litigation or other legal proceedings that we
consider to be a part of the ordinary course of our business. We are not
involved currently in legal proceedings other than detailed below that could
reasonably be expected to have a material adverse effect on our business,
prospects, financial condition or results of operations. We may become involved
in material legal proceedings in the future.




Navigator
– Registration Rights - The Company entered into a registration rights agreement
dated July 21, 2005, whereby it agreed to file a registration statement
registering the 441,566 shares of Company common stock issued in connection with
the Navigator acquisition within 75 days of the closing of the transaction. The
Company also agreed to have such registration statement declared effective
within 150 days from the filing thereof. In the event that Company failed to
meet its obligations to register the shares, it may have been required to pay a
penalty equal to 1% of the value of the shares per month. The Company obtained a
written waiver from the seller stating that the seller would not raise any
claims in connection with the filing of registration statement through May 30,
2006. The Company since received another waiver extending the registration
deadline through May 30, 2007 without penalty. As of June 30, 2008 (effective
March 31, 2008), the Company was in default of the Registration Rights Agreement
and therefore made a provision for compensation for $150,000 to represent agreed
final compensation (the "Penalty"). The holder of the Penalty subsequently
assigned the Penalty to three unaffiliated parties (the "Penalty Holders"). On
December 26, 2008, the Company closed agreements with the Penalty Holders
pursuant to which the Penalty Holders agreed to cancel any rights to the Penalty
in consideration of the issuance 66,667 shares of common stock to each of the
Penalty Holders. The shares of common stock were issued in connection with this
transaction in a private placement transaction made in reliance upon exemptions
from registration pursuant to Section 4(2) under the Securities Act of 1933 and
Rule 506 promulgated there under. Each of the Penalty Holders is an accredited
investor as defined in Rule 501 of Regulation D promulgated under the Securities
Act of 1933.





Trafalgar
Capital Specialized Investment Fund, Luxembourg - The Company via series of
agreements (directly or via affiliates) with European based alternative
investment fund - Trafalgar Capital Specialized Investment Fund, Luxembourg
(“Trafalgar”) established financial relationship which should create source of
funding to the Company and its subsidiaries (see detailed description of said
series of agreements in the Company filling). The Company position is that the
DCG transactions (among others) would not have been closed by the Company,
unless Trafalgar will provide the needed financing needed for the drilling
program.  On April 14, 2009, the Company filed a complaint in Superior
Court of California, County of Los Angeles, and Case No. BC 411768 against
Trafalgar Capital Specialized Investment Fund, Luxembourg and its affiliates
(which was served on June 5, 2009 via registered mail and on September 10, 2009
in personal service), alleging breach of contract and fraud and alleged damages
in the amount of $30,000,000.  On or about August 2008, Trafalgar
obtained a default judgment against the Company in a lawsuit brought by it (but
never served on the Company) in Florida (Case No. 09-60980) for $2,434,196.06.
the Company appealed said judgment, based on non-service. On April 15, 2010
effective December 31, 2009 the company and Trafalgar settled all their
adversaries. The parties agreed that the debts owe to Trafalgar will be set as
$3,000,000 with maturity of 30 months from date of issuing carry a 7% annual
interest. Via mechanism of Preferred Stocks, the debt is Convertible at the
Option of the Holders, into Six Hundred Million (six hundred million) common
shares of the Company, at any time upon written notice to the company; Trafalgar
will appoint 4 directors to the Company’s Board of Directors. Trafalgar agree to
continue and pursue the core business of the Company.










Verge
Bankruptcy & Rusk Litigation - On January 23, 2009, Verge Living
Corporation (the “Debtor”),a former wholly owned subsidiary of Atia
Group Limited (“AGL), a former subsidiary of the Company, filed a voluntary petition (the “Chapter
11 Petitions”) for relief under Chapter 11 of Title 11 of the United States Code
(the “Bankruptcy Code”) in the United States Bankruptcy Court for the District
of California (the “Bankruptcy Court”).  The Chapter 11 Petitions are
being administered under the caption  In re: verge Living Corporation,
et al., Chapter 11 Case No. ND 09-10177 (the “Chapter 11
Proceedings”).  The Bankruptcy Court assumed jurisdiction over the
assets of the Debtors as of the date of the filing of the Chapter 11
Petitions.  . On April 28, 2009, Chapter 11 Proceedings changed venue
to the United States Bankruptcy Court for the District of Nevada,Chapter 11 Case No BK-S-09-16295-BAM. As
Debtor as well as its parent AGL were subsidiaries of the Company at time when
material agreements where executed between the parties, the Company may become
part of the proceeding.In August 2008, Dennis E. Rusk Architect LLC and
Dennis E. Rusk, (“Rusk”) were terminated by a former affiliate of the Company.
Rusk filed a lawsuit against the Debtor, the Company and multiple other parties
in Clark County, Nevada, Case No. A-564309. The Rusk parties seek monetary
damages for breach of contract. The Company has taken the position that the
Company will have no liability in this matter as it never entered an agreement
with Rusk. The court handling the Verge bankruptcy entered an automatic stay for
this matter. On or about October 28, 2009 the parties settled said complaint,
where the other parties agreed to pay the Rusk parties the sum of $400,000. The
amount of $37,500 was advanced by the other parties to the Rusk parties. The
Company’s Board of Directors agreed to issue to the other parties 4 million
shares of the Company, as the Company participation in said settlement, which
was done on October 2008. The shares of common stock were issued in connection
with this transaction in a private placement transaction made in reliance upon
exemptions from registration pursuant to Section 4(2) under the Securities Act
of 1933 and Rule 506 promulgated there under. Each of the Penalty Holders is an
accredited investor as defined in Rule 501 of Regulation D promulgated under the
Securities Act of 1933.





Yalon
Hecht - On February 14, 2007, the Company filed a complaint in the Superior
Court of California, County of Los Angeles against Yalon Hecht, a foreign
attorney alleging fraud and seeking the return of funds held in escrow, and
sought damages in the amount of approximately 250,000 Euros (approximately
$316,000 as of the date of actual transferring the funds), plus interest, costs
and fees. On April 2007, Mr. Hecht returned $92,694 (70,000 Euros on the date of
transfer) to the Company which netted $72,694.  On June 2007, the
Company filed a claim seeking a   default judgment against Yalon
Hecht. On October 25, 2007, the Company obtained a default judgment against
Yalon Hecht for the sum of $249,340.65. As of today, the Company has not
commenced procedures to collect on the default judgment.





Vortex
One - The Company via Vortex One commended its DCG’s drilling program, where
Vortex One via its former member, was the first cash investor. Since said cash
investment was done in July 2008, the Company defaulted on terms, period and
presentations (based on third parties presentations). Based on series of
defaults of third parties, Vortex One entered into a sale agreement with third
parties regarding specific 4 wells assignments. Per the terms of the sale,
Vortex One and the Company should be paid commencing May 1, 2009. Vortex One and
the Company agreed to give the Buyer a one-time 60 days extension, and put them
on notice for being default on said notes. To date the operator of the wells
paid Vortex One (on behalf of the Buyer) per the terms of the agreement 3
payments (for the months of April, May and July 2009 – Operator did not pay for
the month of June 2009) amounting to $13,093.12. Vortex One position is that the
Buyer as well as the operator is under breach of the Sale agreement and the
Note’s terms, and notice has been issued for default. The Company learning the
operator report, and in lieu of the non material amount, no provision was made
to income of $2,617 (20% the Company share per the operating agreement) until
the Company finish its investigation of the subject.




On July
1, 2008, DCG entered into a Drilling Contract (Model Turnkey Contract)
("Drilling Contract") with Ozona Natural Gas Company LLC ("Ozona"). Pursuant to
the Drilling Contract, Ozona has been engaged to drill four wells in Crockett
County, Texas. The drilling of the first well commenced immediately at the cost
of $525,000 and the drilling of the subsequent three wells scheduled for as
later phase, by Ozona and Mr. Mustafoglu, as well as the wells locations. Based
on Mr. Mustafoglu negligence and executed un-authorized agreements with third
parties, the Company may have hold Ozona and others responsible for damages to
the Company with regards to surface rights, wells locations and further charges
of Ozona which are not acceptable to the Company. The Company did not commence
legal acts yet, and evaluate its rights with its legal consultants.




Wang -On August 4, 2009, the Company filed a
Form 8-K Current Report with the Securities and Exchange Commission advising
that Eric Ian Wang(“Wang”)was appointed as a director
of the Company on August 3, 2009. Mr. Yang was nominated as a director at the
suggestion of Yasheng which approved the filing of the initial Form 8-K. On
August 5, 2009, Mr. Wang contacted the Company advising that he has not
consented to such appointment. Accordingly, Mr. Wang has been nominated as a
director of the Company but has not accepted such nomination and is not
considered a director of the Company. Mr. Wang's nomination was subsequently
withdrawn. Furthermore, although no longer relevant, Mr. Wang's work history as
disclosed on the initial Form 8K was derived from a resume provided by Mr. Wang.
Subsequent to the filing of the Form 8-K, Mr. Wang advised that the disclosure
regarding his work history was inaccurate. As a result, the disclosure relating
to Mr. Wang's work history should be completely disregarded.The Company believe that at the time that these willful,
malicious, false and fraudulent representations were made by Wang to the
company, Wang knew that the representations were false and that he never
intended to be appointed to the board. The company informed and believe the
delivery of the resumes, and the later demand for a retraction of the resumes,
were part of a scheme (with others) to injure the business reputation of the
company to otherwise damages its credibility such that the Company would have a
lesser bargaining position in the finalization of
the documents relating to the Yasheng transaction. As such the Company filled on
September 2009 a complaint against Wang in California Superior Court – San
Bernardino County – Case No.: CIVRS909705. On or about January 4, 2010 the
parties settled all their adversaries. Under said settlement, Wangrepresents, warrants, and agrees that
the information about him that was contained in the 8K Filing and other
disclosure documents was supplied by him.  Any alleged inaccuracies,
misrepresentations, and/or misstatements in the 8K Filing and other disclosure
documents, regarding his resume, background and/or qualifications, if any exist,
were based upon the information he provided to the Company.









Sharp -
On October 20, 2009, an alleged former shareholder of the Company (Mr. Sharp),
has filed a lawsuit against the Company and Mr. Attia in San Diego County,
California (case number SC105331). Mr. Sharp subsequently attempted to settle
the matter for a nominal fee, which the Company refused to accept. The Company
disputes all of Mr. Sharp’s claims as meritless, frivolous and unsubstantiated
and believes that it has substantial and meritorious legal and factual defenses,
which the Company intends to pursue vigorously. The Company filed a motion to
change venue which was successfully granted by court. On December 17, 2009 on
the 8:30 a.m. calendar a hearing was held on an ex parte motion by Sharp to
advance the hearing on his motions to compel or continue the motion to
transfer.  Judge Oberholtzer indicated words to the effect that Sharp’s
lawsuit and tactics indicated “every indication of harassment.”  The Court
denied Sharp’s ex parte application. On January 15, 2010 a hearing was held on
Yasheng and Attia’s motion to transfer on the 10:30 a.m. calendar.  On that
date the Court stated words to the effect “Abuse is on my mind.  This is a
case in terms of special damages that ought to be in small claims court.” 
The Court also stated words to the effect “Your intention, it seems to me, is to
use the C.C.P. [California Code of Civil Procedure] to harass them instead of
seeking restitution.” On that date the Court issued an Order transferring the
case to Los Angeles.  The Court also imposed sanctions upon Sharp to be
paid to Defendants no later than February 8 in the amount of $1,250.00. 
The Order was entered January 25, 2010. Despite several requests, Sharp has not
paid the sanctions. As such the case is being transferred to Los
Angeles.





Except as
set forth above, there are no known significant legal proceedings that have been
filed and are outstanding or pending against the Company.





(f)
Sub-Prime Crisis and Financials Markets Crisis





The
global recession has negatively affected the pricing of commodities such as oil
and natural gas.  In order to reduce the Company risks and more
effectively manage its business and to enable Company management to better focus
on its business on developing the natural gas drilling rights, the board of
directors had a discussion and resolution vacating the DCG project entirely. Per
the recap change in the Mineral Industries, the Company Board revisits its prior
resolution.




(g)
Voluntarily delisting from The NASDAQ Stock Market




On June
6, 2008, the Company provided NASDAQ with notice of its intent to voluntarily
delist from The NASDAQ Stock Market, which notice was amended on June 10, 2008.
The Company is voluntarily delisting to reduce and more effectively manage its
regulatory and administrative costs, and to enable Company management to better
focus on its business. The Company requested that its shares be suspended from
trading on NASDAQ at the open of the market on June 16, 2008, which was done.
Following clearance by the Financial Industry Regulatory Authority ("FINRA") of
a Form 211 application was filed by a market maker in the Company's
stock.




(h)
Vortex Ocean One, LLC




On June
30, 2008, the Company formed a limited liability company with third party, an
individual ("TI"), named Vortex Ocean One, LLC (the "Vortex One"). The Company
and TI each owned a fifty percent (50%) membership Interest in Vortex One. The
Company is the Manager of the Vortex One. Vortex One has been formed and
organized to raise the funds necessary for the drilling of the first well being
undertaken by the Company's wholly owned subsidiary. To date there has been no
production or limited production. As such a dispute has arisen between the
Parties with regards to the Vortex One and other matters, so in order to fulfill
its obligations to Investor and avoid any potential litigation, Vortex One has
agreed to issue the Shares directly into the name of the TI, as well as pledging
the 4 term assignments to secure the investment and future proceeds per the LLC
operating agreement (where the investor entitled to 80% of any future cash flow
proceeds, until he recover his investments in full, then after the parties will
share the cash flow equally). As disclosed before, said 4 wells were sold to a
third party. The Company via its sub, completed the drilling of all 4 wells at
the estimated cost of $2,100,000 for four wells (not including option payments).
The Company also exercised its fifth well option (by paying per the master
agreement $50,000 option fee on November 5, 2008).  In lieu of the
world financial markets crisis, the Company approached the land owners on DCG
mineral rights, requesting an amendment to allow DCG an additional six (6)
months before it is required to exercise another option to secure a Term
Assignment of Oil and Gas Lease pursuant to the terms of the original Agreement
dated March 5, 2008. The land owner’s representative has answered the Company’s
request with discrepancies about the date as effective date. During 2009 the
Company received production reports from third party that appear to be
inaccurate. To date, the Company investigating its possibilities. On November
2009 the Company agreed with TI that his up-paid balance will prevail as a note,
and all his equity interest will be belong to the Company.










(i)
Potential exposure due to Pending Project under Due Diligence:




Barnett
Shale, Fort Worth area of Texas Project - On September 2, 2008, the Company
entered into a Memorandum of Understanding (the "MOU") to enter into a
definitive asset purchase agreement with Blackhawk Investments Limited, a Turks
& Caicos company ("Blackhawk") based in London, England. Blackhawk exercised
its exclusive option to acquire all of the issued and allotted share capital in
Sand haven Securities Limited ("SSL"), and its underlying oil and gas assets in
NT Energy. SSL owns approximately 62% of the outstanding securities of NT
Energy, Inc., a Delaware company ("NT Energy"). NT energy holds rights to
mineral leases covering approximately 12,972 acres in the Barnett Shale, Fort
Worth area of Texas containing proved and probable undeveloped natural gas
reserves. SSL was a wholly owned subsidiary of Sand haven Resources plc ("Sand
haven"), a public company registered in Ireland, and listed on the Plus exchange
in London.  In lieu of hindering the due diligence process by Sand
haven officers, the Company could not complete adequately its due diligence, and
said transaction was null and void.




(j)
Trafalgar Convertible Note:





In
connection with said note and as collateral for performance by the Company under
the terms of said note, the Company issued to Trafalgar 45,000 common shares to
be placed as security for said note. Said shares considered by the Company to be
escrow shares, and as such are not included in the Company outstanding common
shares.





(k) Short
Term Loan – by Investor:





On
September 5, 2008 the Company entered a short term loan memorandum, with Mahomet
Hauk Nudes, for a short term loan (“bridge”) of $220,000 to bridge the drilling
program of the Company. As a consideration for said facility, the Company grants
the investor with 100% cashless warrants coverage for two years at exercise
price of $1.50 per share. The investor made a loan of $220,000 to the company on
September 15, 2008 (where said funds were wired to the company drilling
contractor), that was paid in full on October 8, 2008. Accordingly the investor
is entitled to 2,000 cashless warrants from September 15, 2008 at exercise price
of $1.50 for a period of 2 years.  The Company contests the validity
of said warrants for a cause.





(l)  DCG
Drilling Rights:





On
November 6, 2008, the Company exercised an option to drill its fifth well in the
Adams-Baggett field in West Texas. The Company has 120 days to drill the lease
to be assigned to it as a result of the option exercise. Pipeline construction
related to connecting wells 42-105-40868 and 42-105-40820 had been completed.
Per the owners of the land the assignment of the lease will terminate effective
March 3, 2009 in the event that the Company does not drill and complete a well
that is producing or capable of producing oil and/or gas in paying quantities.
The Company contests the owner termination dates.





As
detailed above and in Note 5 to this report, the Buyer is not performing under
the notes. The Company retained an attorney in Texas to pursue its rights under
the agreements and the collateral.





(m) Lines
of Credit and Restricted Cash





The
Company’s real estate investment operations required substantial
up-front expenditures for land development contracts and construction.
Accordingly, the Company required a substantial amount of cash on hand, as well
as funds accessible through lines of credit with banks or third parties, to
conduct its business.  The Company had financed its working capital needs
on a project-by-project basis, primarily with loans from banks and debt via the
All Inclusive Trust Deed Agreement (AITDA), and with the existing cash of the
Company.  The Company paid off the lines of credit in full during
2008.











(n)
Investment (and loans) in Affiliates, at equity





On June
14, 2006, Emvelco issued a $10 million line of credit to ERC. Outstanding
balances bore interest at an annual rate of 12% and the line of credit had a
maximum borrowing limit of $10 million. Initially on October 26, 2006 and then
again ratified on December 29, 2006, the Board of Directors of Emvelco approved
an increase in the borrowing limit of the line of credit to $20 million. The
Board also restricted use of the funds to real estate development.  On
November 2, 2007, the Company exercised the Verge option to purchase a multi-use
condominium and commercial property in Las Vegas, Nevada, thereby reducing the
amount outstanding by $10 million.  Additionally, the Verge option
required that the Company pays The International Holdings Group (TIHG), the then
parent of ERC, and another $5 million when construction began on the Verge
Project.  As of December 31, 2008, the Company has accrued and
recorded that payment as a reduction to this loan receivable
balance.  As of December 31, 2008, the outstanding loan receivable
balances by ERC and Verge were charged to bad debt expense on the statement of
operations, due to the Company change of strategy, turmoil in the real estate
industry including the sub-prime crisis and world financial crisis, which among
other factor lead Verge to file for Bankruptcy protection.





(0) Real
Estate Investments for Sale





The
Company owned 100% of subsidiary 610 N. Crescent Heights, LLC, which is located
in Los Angeles, CA.  On April 2008, the Company obtained Certificate
of Occupancy from the City of Los Angles, and listed the property for sale at
selling price of $2,000,000. At September 30, 2008, the Company sold the
property for the gross sale price of $1,990,000 and recorded costs of sales
totaling $1,933,569, which were previously capitalized construction
costs.




The
Company owned 50% of 13059 Dickens, LLC, as reported by the Company on Form 8-K
on December 21, 2007, through a joint venture with a third party at no cost to
the Company. As all balances due under this venture is via All Inclusive Trust
Deed, and in lieu of the Company new strategy, the Company entered advanced
negotiations with regards to selling its interest to the other party, as no cost
to the Company, or liability, by conveying back title of said property, and
releasing the Company from any associated liability. During, 2008, the project
was sold back to the third party, by reversing the transaction, at no cost to
the Company.




(p)
Issuance of Preferred Stock:




The
Company entered into and closed an Agreement (the "TAS Agreement") with T.A.S.
Holdings Limited ("TAS") pursuant to which TAS agreed to cancel the debt payable
by the Company to TAS in the amount of approximately $1,065,000 and its 150,000
shares of common stock it presently holds in consideration of the Company
issuing TAS 1,000,000 shares of Series B Convertible Preferred Stock, which such
shares carry a stated value equal to $1.20 per share (the "Series B Stock"). The
Series B Stock is convertible, at any time at the option of the holder, into
common shares of the Company based on a conversion price of $0.0016 per share.
The Series B Stock shall have voting rights on an as converted basis multiplied
by 6.25. Holders of the Series B Stock are entitled to receive, when declared by
the Company's board of directors, annual dividends of $0.06 per share of Series
B Stock paid semi-annually on June 30 and December 31 commencing June 30, 2009.
In the event of any liquidation or winding up of the Company, the holders of
Series B Stock will be entitled to receive, in preference to holders of common
stock, an amount equal to the stated value plus interest of 15% per year. The
Series B Stock restricts the ability of the holder to convert the Series B Stock
and receive shares of the Company's common stock such that the number of shares
of the Company common stock held by TAS and its affiliates after such conversion
does not exceed 4.9% of the Company's then issued and outstanding shares of
common stock. The Series B Stock was offered and sold to TAS in a private
placement transaction made in reliance upon exemptions from registration
pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506
promulgated there under. TAS is an accredited investor as defined in Rule 501 of
Regulation D promulgated under the Securities Act of 1933. The Company filed its
Certificate of Designation of Preferences, Rights and Limitations of Series B
Preferred Stock with the State of Delaware. On July 15, 2009 TAS which owned
Series B preferred shares, converted the Series B Preferred Shares to 7,500,000
common stock 0.001 par values per share.




Series D– Not issued yet - On December 30,
2009, the Company entered into a Preferred Stock Purchase Agreement dated as of
December 30, 2009 (the “Agreement”) with Socius Capital Group, LLC, a
Delaware limited liability company d/b/a Socius Life Sciences Capital Group, LLC
including its designees, successors and assigns (the “Investor”). Pursuant to
the Agreement, the Company will issue to the Investor up to $5,000,000 of the
Company’s newly created Series D Preferred Stock (the “Preferred Stock”). The
purchase price of the Preferred Stock is $10,000 per share. The shares of
Preferred Stock that are issued to the Investor will bear a cumulative dividend
of 10.0% per annum, payable in shares of Preferred Stock, will be
redeemable under certain circumstances and will not be convertible into shares
of the Company’s common stock (the “Common Stock”). Subject to the terms and
conditions of the Agreement, the Company has the right to determine (1) the
number of shares of Preferred Stock that it will require the Investor to
purchase from the Company, up to a maximum purchase price of $5,000,000,
(2) whether it will require the Investor to purchase Preferred Stock in one
or more tranches, and (3) the timing of such required purchase or purchases
of Preferred Stock. The terms of the Preferred Stock are set forth in a
Certificate of Designations of Preferences, Rights and Limitations of Series D
Preferred Stock (the “Preferred Stock Certificate”) that the Company filed with
the Delaware Secretary of State on December 18, 2009. Pursuant to the
Agreement, the Company agreed to pay the Investor a commitment fee of $250,000
(the “Commitment Fee”), payable at the earlier of the six monthly anniversary of
the execution of the Agreement or the first tranche.  The Company has
the right to elect to pay the Commitment Fee in immediately available funds or
by issuance of shares of Common Stock. Concurrently with its execution of the
Agreement, the Company issued to the Investor a warrant (the “Warrant”) to
purchase shares of Common Stock with an aggregate exercise price of up to
$6,750,000 depending upon the amount of Preferred Stock that is purchased by the
Investor. Each time that the Company requires the Investor to purchase shares of
Preferred Stock, a portion of the Warrant will become exercisable by the
Investor over a five-year period for a number of shares of Common Stock equal to
(1) the aggregate purchase price payable by the Investor for such shares of
Preferred Stock multiplied by 135%, with such amount divided by (2) the per
share Warrant exercise price. The initial exercise price under the Warrant is
$0.022 per share of Common Stock. Thereafter, the exercise price for each
portion of the Warrant that becomes exercisable upon the Company’s election to
require the Investor to purchase Preferred Stock will equal the closing price of
the Common Stock on the date that the Company delivers its election notice. The
Investor is entitled to pay the Warrant exercise price in immediately available
funds, by delivery of cash, a secured promissory note or, if a registration
statement covering the resale of the Common Stock subject to the Warrant is not
in effect, on a cashless basis. Pursuant to the Agreement, the Company agreed to
file with the Securities and Exchange Commission a registration statement
covering the resale of the shares of Common Stock that are issuable to the
Investor under the Warrant and in satisfaction of the Commitment
Fee.










Series E– Not issued yet –On April 15, 2010the Company’s Board of Director
approved settlement agreement with Trafalgareffective December 31, 2009
(see Item III – Legal Proceedings). The parties agreed that the debts owe to
Trafalgar will be set as $3,000,000 with maturity of 30 months from date of
issuing carry a 7% annual interest. Via mechanism of Preferred Stocks, the debt
is Convertible at the Option of the Holders, into Six Hundred Million (six
hundred million) common shares of the Company, at any time upon written notice
to the company




(q)
Status as Vendor with the Federal Government:




The
Company updated its vendor status with the Central Contractor Registration which
is the primary registrant database for the US Federal government that collects,
validates, stores, and disseminates data in support of agency acquisition
missions, including Federal agency contract and assistance awards.




(r)
Potential exposure due to AGL and Trafalgar Transaction:




On
January 30, 2008, AGL of which the Company was a principal shareholder notified
the Company that it had entered into two (2) material agreements (wherein the
Company was not a party but will be directly affected by their terms) with
Trafalgar Capital Specialized Investment Fund ("Trafalgar"). Specifically, AGL
and Trafalgar entered into a Committed Equity Facility Agreement ("CEF") in the
amount of 45,683,750 New Israeli Shekels (approximately US$12,000,000.00 per the
exchange rate at the Closing) and a Loan Agreement ("Loan Agreement") in the
amount of US $500,000 (collectively, the "Finance Documents") pursuant to which
Trafalgar grants AGL financial backing. The Company is not a party to the
Finance Documents. The CEF sets forth the terms and conditions upon which
Trafalgar will advance funds to AGL. Trafalgar is committed under the CEF until
the earliest to occur of: (i) the date on which Trafalgar has made payments in
the aggregate amount of the commitment amount (45,683,750 New Israeli Shekels);
(ii) termination of the CEF; and (iii) thirty-six (36) months. In consideration
for Trafalgar providing funding under the CEF, the AGL will issue Trafalgar
ordinary shares, as existing on the dual listing on the Tel Aviv Stock Exchange
(TASE) and the London Stock Exchange (LSE) in accordance with the CEF. As a
further inducement for Trafalgar entering into the CEF, Trafalgar shall receive
that number of ordinary shares as have an aggregate value calculated pursuant to
the CEF, of U.S. $1,500,000. The Loan Agreement provides for a discretionary
loan in the amount of $500,000 ("Loan") and bears interest at the rate of eight
and one-half percent (81⁄2%) per annum. The security for the Loan shall be a
pledge of AGL’s shareholder equity (75,000 shares) in Verge Living Corporation.
Simultaneously, on the same date as the aforementioned Finance Documents, the
Company entered into a Share Exchange Agreement (the "Share Exchange Agreement")
with Trafalgar. The Share Exchange Agreement provides that the Company must
deliver, from time to time, and at the request of Trafalgar, those shares of
AGL, in the event that the ordinary shares issued by AGL pursuant to the terms
of the Finance Documents are not freely tradable on the Tel Aviv Stock Exchange
or the London Stock Exchange. In the event that an exchange occurs, the Company
will receive from Trafalgar the same amount of shares that were exchanged. The
closing and transfer of each increment of the Exchange Shares shall take place
as reasonably practicable after receipt by the Company of a written notice from
Trafalgar that it wishes to enter into such an exchange transaction. To date,
all of the Company's shares in AGL are restricted by Israel law for a period of
six (6) months since the issuance date, and then such shares may be released in
the amount of one percent (1%) (From the total outstanding shares of AGL which
is the equivalent of approximately 1,250,000 shares per quarter), subject to
volume trading restrictions. Further to the signing of the investment agreement
with Trafalgar, the board of directors of AGL decided to allot Trafalgar
69,375,000 ordinary shares of AGL, no par value each (the "offered shares")
which, following the allotment, will constitute 5.22% of the capital rights and
voting rights in AGL, both immediately following the allotment and fully
diluted. The offered shares will be allotted piecemeal, at the following dates:
(i) 18,920,454 shares will be allotted immediately following receipt of approval
of the stock exchange to the listing for trade of the offered shares. (ii)
25,227,273 of the offered shares will be allotted immediately following receipt
of all of the necessary approvals in order for the offered shares to be swapped
on 30 April 2008 against a quantity of shares equal to those held by Emvelco
Corp. at that same date. The balance of the offered shares, a quantity of up to
25,277,273 shares, will be allotted immediately after receipt of the approval of
the Israel Securities Authority for the issuance of a shelf
prospectus.  Notwithstanding, if the approval of the shelf prospectus
will not be granted by the Israel Securities Authority by the beginning of May
2008, only 12,613,636 shares will be allotted to Trafalgar at that same date.
Despite assurances from Trafalgar to both AGL and Verge that the Share Exchange
Agreement ("SEA") was legally permitted in Israel, AGL and Trafalgar could not
implement the above transaction because of objections of the Israeli Securities
Authority to the SEA, and, therefore, AGL caused Verge to pay off the original
loan amount plus interest accrued and premium for early pay-off, transaction
that AGL had entered into. On April 29, 2008, the Company entered into Amendment
No. 1 ("Amendment No. 1") to that certain Share Exchange Agreement between the
Company and Trafalgar Capital Specialized Investment Fund, ("Trafalgar").
Amendment No. 1 states that due to the fact that the Israeli Securities
Authority ("ISA") delayed the issuance of the Implementation Shares issuable
from the Attia Group to Trafalgar, that the Share Exchange Agreement shall not
apply to 69,375,000 of the Implementation Shares issuable under the CEF. All
other terms of the Share Exchange Agreement remain in full force and
effect.









Trafalgar
is an unrelated third party comprised of a European Euro Fund registered in
Luxembourg. The Company, its subsidiaries, officers and directors are not
affiliates of Trafalgar.




(s)  International
Treasure Finders Incorporated




On
January 13, 2009, the Company entered into a Non Binding Term Sheet (the "Term
Sheet") to enter into a definitive asset purchase agreement with Grand Pacaraima
Gold Corp. ("Grand"), which owns 80% of the issued and outstanding securities of
International Treasure Finders Incorporated to acquire certain oil and gas
rights on approximately 481 acres located in Woodward County, Texas (the
"Woodward County Rights"). In consideration for the Woodward County Rights, the
Company will pay Grand an amount equal to 50% of the current reserves. The
consideration shall be paid half in shares of common stock of the Company and
half in the form of a note. The number of shares to be delivered by the Company
will be calculated based upon the volume weighted average price ("VWAP") for the
ten days preceding the closing date. The note will mature on December 31, 2009
and carry interest of 9% per annum payable monthly. In addition, the note will
be convertible into shares of common stock of the Company at a 10% discount to
the VWAP for the ten days preceding conversion. At the Company election, the
Company may enter into this transaction utilizing a subsidiary to be traded on
the Swiss Stock Exchange. On February 3, 2009the Company announced it has
expanded negotiations to purchase all of the outstanding shares of International
Treasure Finders Incorporated. The above transaction is subject to the receipt
of a reserve report, drafting and negotiation of a final definitive agreement,
performing due diligence as well as board approval of the Company. As such,
there is no guarantee that the Company will be able to successfully close the
above transaction. Dr. Gregory Rubin, a director of the Company, is an affiliate
of ITFI and, as a result, voided himself from any discussions regarding this
matter.




(t)
Reverse Split and Name changed




Effective
February 24, 2009, the Company affected a reverse split of its issued and
outstanding shares of common stock on a 100 for one basis.    As a
result of the reverse split, the issued and outstanding shares of common stock
been reduced from 92,280,919 to 922,809.  The authorized shares of common
stock will remain as 400,000,000 and the par value will remain the same. New
CUSIP was issued for the Company's common stock which is 92905M
203.  The symbol of the Company was changed from VTEX into
VXRC.  Effective July 15, 2009, the Company changed its name from
Vortex Resources Corp. to Yasheng Eco-Trade Corporation.  In addition,
effective July 15, 2009, the Company’s quotation symbol on the Over-the-Counter
Bulletin Board was changed from VXRC to YASH. As such a new CUSIP number was
issued on July 5, 2009. The new number is: 985085109.





(u)
Pending Transactions and exposure associated with the Yasheng Group





As
detailed before, the Company entered into series of agreements with Yasheng
Group. Yasheng Group failed to comply with the Company due diligence procedure,
and as such terminated the definitive agreement with the Company on November
2009. . In connection to the Yasheng agreements, the Company entered agreements
or arrangement or negotiations as followings:





(i) On
July 2009 the Company signed a financial advisor engagement letter with
Cukierman & Co. Investment House Ltd – a foreign Investment banking firm
(“CIH”) to obtain bank financing for the Yasheng Russia Breading Complex as was
signed in June with Create (See note Commitments and contingencies). CIH has
retained Dr. Sam Frankel to assist in obtaining funds from semi-governmental
funding sources. Per the agreement the Company will pay CIH a monthly retainer
fee of $3,750. A millstone payment of $25,000 will be paid to CIH provided that
CIH will present a banking institution which in principal will secure minimum
$25 million financing to the Create joint venture.





(ii) On
July 2009 the Company signed an agreement with Better Online Solutions (“BOSC”)
for consulting services for the Company logistic center, as well as for the
Crate joint venture. Said agreement was signed for the purpose of establishing
supply chain solutions and RFID protocols. In return the Company will provide
BOSC with first right of refusal matching bid contract for supply said
services.










(iii) On
July 2009 the Company has entered negotiations with Management Consulting
Company (“MCC”) to explore further expansion and acquisitions for Yasheng Russia
(See Create Joint Venture). MCC is a division of IFD Capital Group in
Russia.





(iv) On
January 20, 2009, the Company entered into a non-binding Term Sheet (the "Term
Sheet") with Yasheng in connection with the development of a logistics centre.
Pursuant to the Term Sheet, the Company granted Yasheng an irrevocable option to
merge all or part of its assets into the Company (the "Yasheng Option"). If
Yasheng exercises the Yasheng Option, as consideration for the transaction to be
completed between the parties, the Company will issue Yasheng such number of
shares of the Company's common stock calculated by dividing the value of the
assets which will be included in the transaction with the Company by the volume
weighted average price of the Company's common stock as quoted on a national
securities exchange or the Over-the-Counter Bulletin Board for the ten days
preceding the closing date of such transaction. The value of the assets
contributed by Yasheng will be based upon the asset value set forth in Bashing’s
audited financial statements provided to the Company prior to the closing of any
such transaction. On June 18, 2009, as a result of Bashing’s efforts, Change
Golden Dragon Industrial Co., Ltd., a company which is not affiliated with
Yasheng ("Golden Dragon"), delivered a notice whereby it has advised that it
wishes to exercise the Yasheng Option by merging into the Company in
consideration of shares of preferred stock with a stated value in the amount of
$220,000,000 that may be converted at a $1.10 per share, a premium to the
Company's current market price, into 200,000,000 shares of common stock of the
Company. The shareholders of Golden Dragon (the "Shareholders") are all foreign
citizens. As a result, the issuance, if consummated will be in accordance with
Regulation S as adopted under the Securities Act of 1933, as amended. Further,
the Shareholders are entitled to assign such shares as each deems appropriate.
In addition, the Company is required to raise $20,000,000 to be used by Golden
Dragon for working capital purposes. Golden Dragon is a Chinese corporation with
primary operation in Gansu province of China. The Company designs, develops,
manufactures and markets farming and sideline products including fruits, barley,
hops and agricultural materials.





(v) On
August 7, 2009, the Company has entered into a Memorandum of Terms in
which it will provide an equity line in the amount up to $1,000,000 to Golden
Water Agriculture, a corporation to be formed in Israel (“Golden
Water”).  Upon funding the equity line, the Company will receive
shares of Series A Preferred Stock (the “Golden Water Preferred”) convertible
into 30% of Golden Water, which assumes that the full $1,000,000 is
funded.   The Company will be entitled to convert the Golden
Water Preferred into the most senior class of shares of Golden Water at a 15%
discount to any recent round of financing.  The Company shall be
required to convert the Golden Water Preferred in the event of an initial public
offering based on a valuation three times the valuation of the
investment.  To date, no consideration has been exchanged between the
Company and Golden Water. Golden Water has developed a process by which gaseous
oxygen can be introduced into water at the molecular level and retained at a
high concentration for a long period of time, as well as the ability to add
gaseous elements including nitrogen, carbon dioxide and more. The parties that
are forming Golden Water have filed for patents in the United States and
Israel.





(vi) On
January 20, 2009, the Company entered into a Letter of Intent (the "Letter of
Intent") with Yasheng in connection with the development of a logistics centre.
In addition, pursuant to the Letter of Intent, the Company granted Yasheng an
irrevocable option to merge all or part of its assets into the Company (the
"Yasheng Option"). In lieu of merging its assets into the Company, the Company
and Yasheng entered into an additional Letter of Intent on June 12, 2009 whereby
Yasheng agreed to use its best efforts to have the majority stockholders of
Yasheng (the "Group Stockholders") enter and close an agreement with the Company
whereby the Company would acquire approximately 55% of the issued and
outstanding securities of Yasheng from the Group Stockholders in consideration
of 300,000,000 shares of common stock of the Company. The June 12, 2009 letter
of intent was approved by the Company's Board of Directors on August 12, 2009.
The Company and Yasheng initially contemplated a closing date of July 15,
2009.




(vii)
Logistics Center - On August 12, 2009, the Company entered into a 45 day
exclusivity period to finalize an "Option to Buy" on a lease agreement for a
"big box" facility located in Southern, California (the "Facility"). The
Facility consists of approximately 1,000,010 square feet industrial building
located in Victorville, California and the lease is expected to commence
November 1, 2009 and continue for a period of seven years, with two five-year
extension periods The Company advanced a $25,000 non-refundable deposit
representing 10% of the required security deposit for the entire lease. The
non-refundable deposit  allowed the Company to exclusively negotiate
the option to buy the Facility as all other terms of the lease have been agreed
upon in principal. The Company is also pursuing certain tax and economic
incentives associated with the establishment and development of the Yasheng Asia
Pacific Cooperative Zone – its core business. These incentives include LAMBRA
Enterprise Zone Sales and Use Tax Credit (7% of qualified capital equipment
expenses), LAMBRA Enterprise Zone Hiring Credit (50% of qualified employees
wages reducing 10% each year for 5 years), County of San Bernardino Economic
Development Agency assistance in employee recruitment screening and
qualification and filing for LAMBRA benefits (estimated value $8,000 per
qualified employee).




Assuming
that the option to purchase was finalized, the economic terms of the lease
agreement of the Facility (as all other terms of the lease have been agreed upon
in principal) would have been be as follows:




Year
            Rent
            Security
            R/E
      tax (est.)
            Mica
      (est.)
            
            TotalBegin
            -
            252,500.00
            -
            100,000.00
            
            352,500.001
            575,700.00
            -
            360,000.00
            56,964.00
            
            992,664.002
            2,302,800.00
            -
            360,000.00
            56,964.00
            
            2,719,764.003
            2,545,200.00
            -
            360,000.00
            56,964.00
            
            2,962,164.004
            2,545,200.00
            -
            360,000.00
            56,964.00
            
            2,962,164.005
            2,787,600.00
            -
            360,000.00
            56,964.00
            
            3,204,564.006
            3,030,000.00
            -
            360,000.00
            56,964.00
            
            3,446,964.007
            3,030,000.00
            -
            360,000.00
            56,964.00
            
            3,446,964.00-Total
            16,816,500.00
            252,500.00
            2,520,000.00
            498,748.00
            
            20,087,748.00










Per
authorization received from Yasheng Group the Company entered negotiations with
the owner of the Facility to acquire the “big box” with financing from the
owner. The Company exchanged a few counter offers with the Facility’s owner. As
disclosed by the Company (see below and Subsequent events), Yasheng BVI noticed
the Company of termination of the Exchange Agreement, and as such the Company,
which is still pursuing its core business (developing of a logistics center),
instructed it’s listing agents to locate a smaller Facility for the company than
the above.




(viii) On
August 5, 2009, the Company together with Yasheng Group, a California
corporation ("Yasheng" and together with the Company, the "Yasheng Parties")
entered a Memorandum of Understanding ("MOU")with Pfau, Pfau & Pfau LLC
("Pfau") a Florida limited liability company for the purpose of creating a joint
venture for the development and operation of three properties owned by Pfau. The
Company received Paul’s countersigned MOU on August 16, 2009. Pfau owns three
properties including (i) approximately 28,000 acres in Southeastern San Benito
County, California which includes approximately 12,000 acres designated and
planned by Pfau for olive trees, an olive oil milling and bottling plant and
potential oil wells (nine wells exiting on the property, where only one well is
producing), (ii) approximately 45 acres in Kona, Hawaii which is planned to be
developed by Pfau into a coffee plantation and (iii) approximately 502 acres in
San Marcos, California planned to be developed by Pfau into about 750 residences
and an off-site 1.5 million square feet of commercial/mixed use land. The
intentions of the parties to this proposed joint venture are (i) to re-finance
the existing liens to provide that the new loans in the approximate amount of
$50 million (the "New Loan"), which debt can be serviced through the proceeds
generated from the properties, and (ii) to obtain financing (a development line
of credit in the additional amount of $85 million) (the "Line of Credit") for
further implementation of the Pfau properties' agricultural, crude oil and
residential development. Pfau members shall deposit into an escrow account 50%
ownership of Pfau, which will be released to the Yasheng Parties upon the
funding and the release of any existing liens on Pfau and its properties. In
return for the 50% ownership of Pfau, Yasheng Parties will guaranty the New Loan
and the Line of Credit, if needed, , subject to acceptance by the Yasheng
Parties of the terms and conditions of the funding. Pfau will allow Yasheng
Parties to use its collateral to obtain the New Loan and the Line of Credit. As
Pfau is has filed for Chapter 11 protection with the U.S. Bankruptcy Court for
the Southern District of California (case # is 08-12840-PB11), it is intended
that the signing of the MOU or the Yasheng Parties ownership of 50% of Pfau,
will in no way subject the Yasheng Parties or any of their officers or directors
to liability to the existing creditors of Pfau or to any third party. As such
any funding obtained by Yasheng Parties, if at all, and the execution of
definitive joint venture documents, will be subject to Court approval. Pfau is
has filed for Chapter 11 protection with the U.S. Bankruptcy Court for the
Southern District of California (case # is 08-12840-PB11). On October 22, 2009,
Pfau reached an agreement with its secured creditors for extension of the first
mortgage amounting to approximately $22.8M until May 2010, which may be extended
further until September 2010. The second and third secured creditors represent
about $28M in debt have consented to the extension. Pfau is in active
negotiations with the holders of the second and third position in order to
re-structure this debt as well. There is no guaranty that Pfau will be
successful in re-structuring this debt. The agreement providing for the
extension of the first position holder was approved by the Court. As such any
funding obtained by Yasheng Parties, if at all, and the execution of definitive
joint venture documents, will be subject to Court approval as well as the
approval of the Board of Directors of the Company.




(ix) On
August 26, 2009, the Company entered into an agreement with Yasheng Group, a
California corporation ("Group"), pursuant to which the Company agreed to
acquire 49% of the outstanding securities (the "Yasheng Logistic Securities") of
Yasheng (the United States) Logistic Service Company Incorporated ("Yasheng
Logistic"), a California corporation and a wholly owned subsidiary of Group. In
consideration of the Yasheng Logistic Securities, the Company will issue Group
100,000,000 restricted shares of common stock of the Company (the "Company
Shares"). The Company is required to issue the Company Shares and Yasheng
Logistic is required to issue the Yasheng Logistic Securities within 32 days of
the Agreement. Further, Group has agreed to cancel the 50,000,000 shares of the
Company that were previously issued to Group. The sole asset of Yasheng Logistic
is the certificate of approval for Chinese enterprises investing in foreign
countries granted by the Ministry of Commerce of the People's Republic of
China.




(x) On
August 26, 2009, the Company entered into a Stock Exchange Agreement (the
“Exchange Agreement”) with Yasheng Group (BVI), a British Virgin Island
corporation (“Yasheng-BVI”), pursuant to which Yasheng-BVI agreed to sell the
Company 75,000,000 shares (the “Group Shares”) of common stock of Yasheng Group,
a California corporation (“Group”) in consideration of 396,668,000 shares (the
“Company Shares”) of common stock of the Company (the “Exchange”).









(xi)On October 29, 2009, the Company entered
into a Collaboration Agreement (the "Agreement") with IPF-AGRO Management
Company ("IPF"), Yasheng Group ("Yasheng") and Cukierman & Co. Consulting
(the Company, IPF and Yasheng herein collectively referred to as the "Parties")
for the purpose of creating a joint venture on the basis of joining the
agricultural and financial assets of the Parties and developing business
contacts of the Parties.The Parties will collaborate on various
investment projects associated with agricultural industry development in Russia,
including the production, storage and marketing of potatoes and barley, cattle
breeding and the trading of agricultural products on an international basis. The
establishment of the joint venture is subject to the drafting of a definitive
agreement and board approval of each of the Parties. There is no guarantee that
the Company will enter into a definitive agreement in connection with this joint
venture. Further, as discussed with respect to the proposed closing of the
acquisition of an equity interest in Yasheng (the "Yasheng Acquisition") in the
Form 8-K/A filed with the Securities and Exchange Commission on October 23,
2009, the Company is continuing its due diligence of Yasheng as well as the
other parties associated with this proposed joint venture and, as a result, the
closing of the Yasheng Acquisition and the development of the joint venture are
subject to successfully completing this due diligence.






Under the
Exchange Agreement, the Exchange Agreement may be terminated by written consent
of both parties, by either party if the other party has breached the Exchange
Agreement or if the closing conditions are not satisfied or by either party if
the exchange is not closed by September 30, 2009 (the “Closing
Date”).  As previously disclosed, the Exchange was not closed by the
Closing  and as part of the closing procedure, the Company requested
that Yasheng-BVI provide a current legal opinion from a reputable Chinese law
firm attesting to the fact that no further regulatory approval from the Chinese
government is required as well as other closing conditions to close the
Exchange.    On November 3, 2009, the Company sent Group and
Yasheng-BVI a letter demanding various closing items.  Group and
Yasheng-BVI did not deliver the requested items and, on November 9, 2009, after
verbally  consulting management of the Company with respect to the
hardship and delays expected consolidating both companies audits, Group and
Yasheng-BVI  sent a termination notice to the Company advising that
the Exchange Agreement has been terminated.




The
Company is presently evaluating its options in moving forward with respect to
Group based on various letters of intent and agreements with Group regarding
various matters and is presently determining whether it should cease all
activities with Group. As stated in Group press release: “Yasheng Group has
other agreements with or involving Yasheng Eco Trade Corp as previously
announced by Yasheng Eco Trade Corp and Yasheng Group can provide no assurances
at this time that those agreements will be consummated”.  As such, the
closing of any of the above (i) to (xi) business opportunities by the Company,
if at all, will require the completion of definitive documentations and
completion of due diligence by the Company.   There is no guarantee
that the parties will reach final agreements or that the transactions will close
on the terms set forth above. Cukierman & Co. Investment House Ltd – a
foreign Investment banking firm, as an advisor to the Company, is currently
working with Yasheng Group trying to complete the due diligence package needed
for the Company to acquire a stake in Yasheng Group or to proceed with any of
the above,  if at all.