##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission File Number: 333-157360
 WELLTEK INCORPORATED
 (Exact name of registrant as specified in its charter)
 Nevada
    
    98-0610431(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 1030 North Orange Avenue, Ste. 105,
Orlando, FL 32801  (Address of principal executive offices)
 (407) 704-8950
    
    (407) 367-0950(Registrants telephone number)
    
    (Registrants former telephone number)
 Securities registered under Section 12(b) of the Exchange Act:
 Title of Each Class:
    
    Name of Each Exchange on Which Registered:
 Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.00001 per share
 Yes o No þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



WELLTEK INCORPORATED
 FORM 10-K  FOR THE YEAR ENDED DECEMBER 31, 2009
 TABLE OF CONTENTS
 Page No.PART IItem 1 Business
    
    
    3Item 1A Risk Factors
    
    
    11Item 1B Unresolved Staff Comments
    
    
    16Item 2 Properties
    
    
    16Item 3 Legal Proceedings
    
    
    16Item 4 (Removed and Reserved)
    
    
    16PART IIItem 5 Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    17Item 6 Selected Financial Data
    
    
    17Item 7 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 7A Quantitative and Qualitative Disclosure About Market Risk
    
    
    21Item 8 Financial Statements and Supplementary Data
    
    
    21Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    21Item 9A(T) Controls and Procedures
    
    
    21Item 9B Other Information
    
    
    22PART IIIItem 10 Directors, Executive Officers and Corporate Governance
    
    
    23Item 11 Executive Compensation
    
    
    24Item 12 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    25Item 13 Certain Relationships and Related Transactions, and
Director Independence
    
    
    26Item 14 Principal Accountant Fees and Services
    
    
    26PART IVItem 15 Exhibits and Financial Statement Schedules
    
    
    27Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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PART I
 This Annual Report on Form 10-K includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company has based these forward-looking statements on the Companys
current expectations and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us and the Companys
subsidiaries that may cause the Companys actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In many cases, you can
identify forward-looking statements by terminology such as anticipate, estimate, believe,
continue, could, intend, may, plan, potential, predict, should, will, expect,
objective, projection, forecast, goal, guidance, outlook, effort, target and other
similar words. However, the absence of these words does not mean that the statements are not
forward-looking. Factors that might cause or contribute to a material difference include, but are
not limited to, those discussed elsewhere in this Annual Report, including the section entitled
Risk Factors and the risks discussed in the Companys other Securities and Exchange Commission
filings. The following discussion should be read in conjunction with the Companys audited
Consolidated Financial Statements and related Notes thereto included elsewhere in this report.
 
 ITEM 1. BUSINESS
 Forward Looking Statements
  Merger Transaction
   3




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Overview
 ®
  
    
    MedX Limited:the manufacturer and distributor of MedXs line of
medical and fitness equipment.
    
    Pure HealthyBack:a company engaged in building a national network of
medical back and neck rehabilitation centers offering managed care
companies, self-insured employer groups and federal government
agencies a proprietary program which will substantially reduce spine
treatment costs and get patients out of the formal healthcare system.
 Operating Subsidiaries
 MedX Limited
 History of MedX
  ®
   4




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Restructuring
  How MedX Works
    MedX Lumbar Extension Machine
  5




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MedX Cervical Extension Machine MedX Lumbar Machine
   . Core Spinal Fitness System  .
 Sampling of Published MedX Research
  
    
    Can Spinal Surgery Be Prevented by Aggressive Strengthening Exercise?
A Prospective Study of Cervical and Lumbar Patients; Archives of
Physical Medicine & Rehabilitation; January 1999, Volume 80, Number 1;
Brian W. Nelson, MD., David M. Carpenter, MS, Thomas E. Dreisinger,
PhD; Michelle Mitchelle, PTA; Charles E. Kelly, MD; Joseph A. Wegner,
MD
 
    
    Study Outcomes and Clinical Relevance: 46 of
the 60 participants completed the program.
At an average of 16 months after completion,
38 patients were available for follow-up,
while eight patients could not be located or
contacted. Of these 38 patients, only three
required surgery after completing the
program. Patients who were informed they
required back or neck surgery had a 92%
chance of avoiding surgery with aggressive
spinal strengthening on the MedX medical
machines.
 
    
    Can Exercise Therapy Improve the Outcome of Microdiscectomy?Spine;
June 2000, Volume 15, Number 25; Dolan P, Greenfield; K, Nelson; RJ,
Nelson IW; Department of Anatomy, University of Bristol, United
Kingdom
 
    
    Study Outcomes & Clinical Relevance:A
four-week postoperative exercise program can
improve pain, disability and spinal function
in patients who undergo microdiscectomy. A
brief course of active-based therapy
provided long-term (up to one year) benefits
to patients following microdiscectomy. These
exercise-induced benefits augmented the
outcomes provided by surgery. The authors
expound on the long term de-conditioning
that likely precedes surgery. A follow-up
study should thus include a pre-surgical
exercise group. If properly applied,
aggressive spinal strengthening performed
pre-surgically may have not only improved
surgical outcomes, but helped many patients
avoid surgery altogetheras previous
research has suggested.
  6




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
    
    Restorative Exercise for Clinical Low Back Pain (A Prospective
Two-Center Study With One-Year Follow Up);Spine; November 1999,
Volume 24, Number 9; Scott Leggett, MS, Vert Mooney, MD, Leonard N.
Matheson, PhD; Brian Nelson, MD; Ted Dreisinger, PhD; Jill Van
Zytveld, BA and L. Vie, BA
 
    
    Study Outcomes & Clinical Relevance: A
combined study between Physicians Neck and
Back Clinic (PNBC) and the University of
California at San Diego, using similar
exercise-only protocols, were able to
achieve comparable excellent results with
comparable spine patients. Health care
reutilization was dramatically reduced at
both clinics to almost identical levels,
thus validating the results of each. In the
year after completion of treatment, only 12%
of PNBC patients needed to re-enter the
health care system for spinal problems.
 
    
    A Preliminary Report on the Effect of Measured Strength Training in
Adolescent Idiopathic Scoliosis:Journal of Spinal Disorders, 2000,
Volume 13, Number 2, Vert Mooney, Jennifer Gulick, Robert Pozos ; US
Spine & Sport Center, Worldwide Clinical Trials, and San Diego State
University
 
    
    Study Outcomes & Clinical Relevance: The
authors studied 12 adolescent patients with
scoliosis (10 girls and 2 boys) who were 11
to 16 years old and had curvatures ranging
from 20 to 60 degrees. When tested on the
MedX Rotary Torso Machine, both sides were
unequal in their torso rotation strength in
all patients. These asymmetries were correct
completely with torso rotation, which was
associated with significant strength gains.
Strength gains ranged from 12% to 40%. A 16
year old girl with a 60 degree lumbar curve
progressed and had surgery. None of the
remaining patients progressed and 4 of the
12 had decreases in their curvatures from 20
to 28 degrees. These results are equal to or
better than 23 hour per day bracing. None of
the patients used braces during this study.
 
    
    The Role of Anticipation and Fear of Pain in the Persistence of
Avoidance Behavior in Patients with Chronic Low Back Pain;Spine; May
2000 Volume 25, Number 9; Al-Obaidi SM; Nelson RM; Al-Awadhi S;
Al-Shuwaie N; Department of Physical Therapy, Kuwait University,
Faculty of Allied Health Sciences and Nursing, Sulaibikhat, Kuwait
 
    
    Study Outcomes & Clinical Relevance:The
results of this study strongly support the
hypothesis that spinal physical capacity in
chronicity is not explained solely by the
sensory perception of pain. The anticipation
of pain and the fear-avoidance belief about
physical activities were the strongest
predictors of the variation in physical
performance. This study utilizing MedX
technology reveals that the fear of pain can
be as functionally debilitating as pain
itself. MedX is a perfect solution for
defusing fear of movement because treatment
can occur in a very restricted
range-of-motion with minimal resistance.
 Pure HealthyBack
    7




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Our Industry and Prevailing Market Opportunities
 General Health and Wellness
    The Next Trillion The Wellness Revolution
  Were Getting Older and Smarter
 st
  8




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Accent on the Future
 Chronic Orthopedic-Related Pain Issues and Disorders
    Pain  the Nations #1 Disability
    9




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Medical and Fitness Exercise Equipment
     Mind/Body Exercise and Personal Fitness Instruction
     10




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Employees
  Corporate Offices
  
 ITEM 1A. RISK FACTORS
  We are a development stage company with no operating history and no revenues, and you have no basis
on which to evaluate our ability to achieve our business objective.
  We are dependent upon our Management for the operating of the Company
  Welltek may not be able to compete successfully against current and future competitors
  Welltek must successfully develop and market new and existing products.
   11




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Future litigation and administrative actions may result in significant costs.
  Welltek may not be able to enforce or protect its intellectual property rights, which may harm its
ability to compete and adversely affect its business. If Welltek is unsuccessful in protecting and
maintaining its intellectual property, its competitive position would be harmed.
  Welltek may be subject to claims of infringement of third-party intellectual property rights, which
could adversely affect its business.
  
    
    pay material damages for third-party infringement claims;
    
    discontinue manufacturing, using or selling the infringing products,
technology or processes;
    
    develop non-infringing product or modify products so that it is
non-infringing, which could be time consuming and costly or may not be
possible; or
    
    license rights from the third-party claiming infringement for which
the license may not be available on commercially reasonable terms or
at all.
   12




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Potential future financings could involve a dilution of the interests of the shareholders of the
company upon the issuance of additional shares of common stock and/or other securities.
  Our officers and directors will have significant voting power and may take actions that may not be
in the best interests of other shareholders.
  We do not anticipate paying dividends in the foreseeable future, and the lack of dividends may have
a negative effect on the stock price.
  Our articles of incorporation, our by-laws and Nevada law contain provisions that could discourage,
delay or prevent a change in control or management.
  
    
    limitations on the ability of shareholders to remove directors;
    
    authorization for our Board of Directors to adopt, amend or repeal our by-laws;
    
    limitations on the ability of shareholders to call special meetings of shareholders; and
  We did not obtain an opinion from an unaffiliated third party as to the fair market value of MedX
Limited or the fairness of the transaction to our stockholders and, as such, our stockholders are
relying solely on the judgment of our board of directors.
   13




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Our internal control over financial reporting may have weaknesses or inadequacies that may be
material.
  Welltek is not currently profitable and may never become profitable.
  There is not now, and there may not ever be an active market for shares of our common stock .
  Our common stock is subject to the penny stock rules of the SEC, which may make it more difficult
for stockholders to sell the common stock.
  
    
    that a broker or dealer approve a persons account for transactions in penny stocks; and
    
    the broker or dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased.
  
    
    obtain financial information and investment experience objectives of the person; and
    
    make a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
  14




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
    
    sets forth the basis on which the broker or dealer made the suitability determination; and
    
    that the broker or dealer received a signed, written agreement from the investor prior to
the transaction.
   As an issuer of penny stock, the protection provided by the federal securities laws relating to
forward looking statements does not apply to us.
  Stockholders may have difficulty trading and obtaining quotations for our common stock.
  The market price of our common stock is likely to be highly volatile and subject to wide
fluctuations.
  
    
    dilution caused by our issuance of additional shares of common stock
and other forms of equity securities, in connection with future
capital financings to fund our operations and growth, to attract and
retain valuable personnel and in connection with future strategic
partnerships with other companies;
    
    variations in our quarterly operating results;
    
    announcements that our revenue or income are below or that costs or
losses are greater than analysts expectations;
    
    the general economic slowdown;
    
    sales of large blocks of our common stock by stockholders;
    
    announcements by us or our competitors of significant contracts,
acquisitions, strategic partnerships, joint ventures or capital
commitments; and
    
    fluctuations in stock market prices and volumes;
  15




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We are subject to Sarbanes-Oxley and the reporting requirements of federal securities laws, which
can be expensive .
  Impact of corporate governance laws
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
    
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. (REMOVED AND RESERVED)
  16




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
 Market Information
  Holders
  Dividends
  
 ITEM 6. SELECTED FINANCIAL DATA
  
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 Principles of Consolidation
   17




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Management Estimates
  Revenue Recognition
  Cash and Cash Equivalents
  Accounts Receivable
  Inventories
  Property and Equipment
   Long-lived Assets
   18




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Intangible Assets
  Stock-Based Compensation
  Advertising
  Product Warranties
  Comprehensive Income (Loss)
  Income Taxes
  Net Income (Loss) Per Share
   19




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Fair Value of Financial Instruments
   RESULTS OF OPERATIONS
 Welltek Comparison of Three Months Ended December 31, 2009 and 2008
      Welltek Comparison of Twelve Months Ended December 31, 2009 and 2008
     20




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Liquidity and Capital Resources
  Off Balance Sheet Arrangements
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  Index to Financial StatementsReports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets As of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations For The Years Ended December 31, 2009 and 2008
    
    
    F-4Consolidated Statements of Stockholders Equity For The Years Ended December 31,
2009 and 2008
    
    
    F-5Consolidated Statements of Cash Flows For The Years Ended December 31, 2009 and 2008
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
  
 ITEM 9A(T). CONTROLS AND PROCEDURES
 Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
   21




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Managements Annual Report on Internal Control over Financial Reporting.
    Change in Internal Controls
  Report of the Companys Independent Registered Public Accounting Firm
  
 ITEM 9B. OTHER INFORMATION
   22




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PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Directors and Executive Officers
  Name
    
    Age
    
    Position
    
    AppointedRandy Lubinsky
    
    
    58
    
    
    C.E.O., Chairman and Director
    
    November 12, 2009Mark Szporka
    
    
    54
    
    
    C.F.O., Secretary, and Director
    
    November 12, 2009
 Randy Lubinsky, Chief Executive Officer and Chairman of the Board.
 Mark Szporka, Chief Financial Officer, Secretary and Director.
  23




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Code of Conduct and Ethics
 .
 Compliance With Section 16(a) of the Exchange Act
  
 ITEM 11. EXECUTIVE COMPENSATION
 Summary Compensation Table
   Non-Equity
    
    
    NonqualifiedOption
    
    
    Incentive Plan
    
    
    DeferredCurrent Officers
    
    
    
    
    
    Salary
    
    
    Bonus
    
    
    Stock
    
    
    Awards
    
    
    Compensation
    
    
    Compensation
    
    
    All Other
    
    
    TotalName & Principal Position
    
    Year
    
    
    ($)
    
    
    ($)
    
    
    ($)(1)
    
    
    ($)
    
    
    ($)
    
    
    Earnings ($)
    
    
    Compensation ($)
    
    
    ($)Randy Lubinsky
    
    
    2008
    
    
    
    0
    (1)
    
    
    0
    
    
    
    52,575
    
    
    
    52,575
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    105,150CEO, Chairman & Director
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    143,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,216
    
    
    
    179,531Mark Szporka
    
    
    2008
    
    
    
    0
    (1)
    
    
    0
    
    
    
    52,575
    
    
    
    52,575
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    105,150CFO, Secretary & Director
    
    
    2009
    
    
    
    
    
    
    
    
    
    
    
    143,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,216
    
    
    
    170,531
 (1)
    
    Mr. Lubinsky and Mr. Szporka waived all salary to which they were entitled in 2008 and 2009. Options
  Employment Arrangements with Named Executive Officers and Post-Employment Compensation
    24




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Compensation of the Board of Directors
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 ( Equity Compensation Plan
  Number of
    
    
    
    
    
    
    Number of SecuritiesSecurities to
    
    
    
    
    
    
    Remaining Availablebe Issued
    
    
    Weighted-Average
    
    
    for Future IssuanceUpon Exercise
    
    
    Exercise Price of
    
    
    Under Equityof Outstanding
    
    
    Outstanding
    
    
    Compensation PlanOptions, Warrants
    
    
    Options, Warrants
    
    
    (Excluding SecuritiesPlan Category
    
    and Rights
    
    
    and Rights
    
    
    Reflected in Column)Equity compensation plans approved
by security holders
    
    
    6,847,138
    
    
    $
    0.11
    
    
    
    9,391,134Equity compensation plans not
approved by security holders
    
    
    1,813,273
    
    
    $
    0.13
    
    
    
    08,660,411
    
    
    $
    0.11
    
    
    
    9,391,134
 ( Security Ownership
   25




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Amount and Nature ofName of Beneficial Owner
    
    Beneficial Ownership
    
    
    Percent of ClassRandy Lubinsky, C.E.O. and Chairman of the Board
    
    
    15,923,667
    (1)
    
    
    18.6
    %Mark Szporka, C.F.O., Secretary and Director
    
    
    15,977,794
    (2)
    
    
    18.6
    %Richard and Noelle Siegel
    
    
    5,412,757
    
    
    
    6.3
    %James Byrd, Jr.
    
    
    5,954,033
    (3)
    
    
    6.9
    %Executive Officers and Directors as a Group:
    
    
    31,901,461
    
    
    
    37.2
    %
 1.
    
    Includes options to purchase 1,353,189 shares of common stock at $0.09 per share.2.
    
    Includes options to purchase 1,353,189 shares of common stock at $0.09 per share.3.
    
    Includes options to purchase 541,276 shares of common stock at $0.28 per share; and 1,623,827 shares of common stock held by the
James S. Byrd, Jr. SEP IRA. 
 ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 Certain Relationships and Related Transactions
   Board Independence and Committees
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  Year Ended
    
    
    Year Ended12/31/ 2009
    
    
    12/31/08Audit Fees
    
    $
    22,500
    
    
    $
    15,000Audit-Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    Total
    
    $
    22,500
    
    
    $
    15,000
  26




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Audit Fees
 Audit-Related Fees
 Tax Fees
 Overview
 
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 Financial Statements
  Index to Financial StatementsReports of Independent Registered Public Accounting Firms
    
    
    F-2Consolidated Balance Sheets As of December 31, 2009 and 2008
    
    
    F-3Consolidated Statements of Operations For The Years Ended December 31, 2009 and 2008
    
    
    F-4Consolidated Statements of Stockholders Equity For The Years Ended December 31, 2009 and 2008
    
    
    F-5Consolidated Statements of Cash Flows For The Years Ended December 31, 2009 and 2008
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 Exhibits
  Exhibit No.
    
    Description3.1
    (i)
    
    Articles of Incorporation (2)3.1
    (ii)
    
    Certificate of Amendment to Articles of Incorporation, filed November 12, 2009 (1)3.2
    
    
    Bylaws (2)10.1
    
    
    Agreement and Plan of Merger, dated September 1, 2009 (3)
  27




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Exhibit No.
    
    Description10.2
    
    
    Employment Agreement with Randy Lubinsky, dated November 1, 2008 (1)10.3
    
    
    Employment Agreement with Mark Szporka, dated November 1, 2008 (1)10.4
    
    
    Welltek Incorporated 2008 Equity Incentive Plan (1)21
    
    
    Subsidiaries (1)31.1
    
    
    Certification of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    
    Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the
purposes of Section 18 of the Securities Exchange Act of 1934, as amended or
otherwise subject to the liability of that section. Further, this exhibit shall
not be deemed incorporated by reference into any other filing under the Security
Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)32.2
    
    
    Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. (This exhibit shall not be deemed filed for the
purposes of Section 18 of the Securities Exchange Act of 1934 as amended or
otherwise subject to the liability of that section. Further, this exhibit shall
not be deemed incorporated by reference into any other filing under the Security
Act of 1933, as amended, or by the Security Exchange Act of 1934, as amended.)
 (1)
    
    Incorporated by reference from the Form 8-K filed by the Company on November 18, 2009(2)
    
    Incorporated by reference from the Form S-1 filed by the Company on February 17, 2009(3)
    
    Incorporated by reference from the Form 8-K filed by the Company on September 15, 2009  28




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SIGNATURES
  Dated: April 29, 2010
    WELLTEK INCORPORATEDBy:
    /s/ Randy LubinskyRandy LubinskyChief Executive Officer  /s/ Randy Lubinsky

Randy Lubinsky 
Chief Executive Officer, Chairman of the Board and Director

(Principal Executive Officer)
    
    April 29, 2010/s/ Mark Szporka

Mark Szporka 
Chief Financial Officer, Secretary and Director

(Principal Financial Officer and Principal Accounting
Officer)
    
    April 29, 2010
  29




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##### Table of Contents



/s/ Jewett, Schwartz, Wolfe & Associates
 
  F-2




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##### Table of Contents



December 31, 2009
    
    
    December 31, 2008(Audited)
    
    
    (Audited)ASSETSCurrent Assets:Cash
    
    $
    34,270
    
    
    $
    Accounts receivable, net
    
    
    194,386
    
    
    
    272,120Prepaid expenses
    
    
    16,654
    
    
    
    27,146Inventories, net
    
    
    97,220
    
    
    
    271,222Total current assets
    
    
    342,530
    
    
    
    570,488Property, plant and equipment-net
    
    
    264,775
    
    
    
    380,959Investment in shell
    
    
    100,000
    
    
    
    Total assets
    
    $
    707,305
    
    
    $
    951,447LIABILITIES AND STOCKHOLDERS DEFICITCurrent Liabilities:Bank overdraft
    
    $
    
    
    
    $
    8,134Accounts payable
    
    
    387,086
    
    
    
    598,728Accrued expenses
    
    
    396,059
    
    
    
    109,692Warranty and obsolescence provision
    
    
    40,000
    
    
    
    40,000Customer deposits
    
    
    54,142
    
    
    
    87,407Current portion capital lease payable
    
    
    23,355
    
    
    
    40,336Notes payable
    
    
    577,918
    
    
    
    151,103Due to related party
    
    
    110,000
    
    
    
    105,182Total current liabilities
    
    
    1,588,560
    
    
    
    1,140,582Total Liabilities
    
    
    1,588,560
    
    
    
    1,140,582Commitments and contingenciesStockholders DeficitCommon stock, $.00001 par value, 200,000,000 shares authorized,
85,783,828 and 54,239,146 shares issued and outstanding at
December 31, 2009 and December 31, 2008, respectively
    
    
    858
    
    
    
    523Treasury stock
    
    
    (120,000
    )
    
    
    (120,000
    )Additional paid in capital
    
    
    3,149,262
    
    
    
    2,118,499Accumulated deficit
    
    
    (3,911,375
    )
    
    
    (2,188,157
    )Total stockholders deficit
    
    
    (881,255
    )
    
    
    (189,135
    )Total liabilities and stockholders deficit
    
    $
    707,305
    
    
    $
    951,447
   F-3




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##### Table of Contents



From June 8, 2008Twelve Months Ended
    
    
    (inception) throughDecember 31, 2009
    
    
    December 31, 2008Revenues
    
    $
    2,541,012
    
    
    $
    2,201,868Cost of revenues
    
    
    1,283,382
    
    
    
    1,615,769Gross profit
    
    
    1,257,630
    
    
    
    586,099Operating expenses:Selling expense
    
    
    288,391
    
    
    
    379,555General and administrative
    
    
    2,240,249
    
    
    
    2,275,848Depreciation
    
    
    115,720
    
    
    
    67,581Total operating expenses
    
    
    2,644,360
    
    
    
    2,722,984Operating loss
    
    
    (1,386,730
    )
    
    
    (2,136,885
    )Other income (expense)
    
    
    
    
    
    
    (46,520
    )Interest expense
    
    
    (336,488
    )
    
    
    (4,752
    )Net loss
    
    $
    (1,723,218
    )
    
    $
    (2,188,157
    )Net loss per shareBasic
    
    $
    (0.03
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.04
    )Weighted average number of shares outstandingBasic
    
    
    63,759,960
    
    
    
    45,913,035Diluted
    
    
    71,518,245
    
    
    
    51,410,849
   F-4




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##### Table of Contents



RetainedEarningsCommon Stock $.00001 par
    
    
    Treasury
    
    
    Additional
    
    
    Accumulated
    
    
    ShareholdersShares
    
    
    Par Value
    
    
    Stock
    
    
    Paid in Capital
    
    
    Deficit
    
    
    EquityBEGINNING BALANCE AT JUNE 2008
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    239,000
    
    
    $
    
    
    
    $
    239,000Shares issued for:Founders
    
    
    39,365,453
    
    
    
    394
    
    
    
    
    
    
    
    (394
    )
    
    
    
    
    
    
    (0
    )Merger
    
    
    427,028
    
    
    
    4
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    0Cash
    
    
    7,139,424
    
    
    
    71
    
    
    
    
    
    
    
    858,281
    
    
    
    
    
    
    
    858,352Consulting
    
    
    5,377,097
    
    
    
    54
    
    
    
    
    
    
    
    591,250
    
    
    
    
    
    
    
    591,304Employee options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    359,915
    
    
    
    
    
    
    
    359,915Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,451
    
    
    
    
    
    
    
    70,451Treasury stock
    
    
    
    
    
    
    
    
    
    
    (120,000
    )
    
    
    
    
    
    
    
    
    
    
    (120,000
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,188,157
    )
    
    
    (2,188,157
    )ENDING BALANCE AT DECEMBER 31, 2008
    
    
    52,309,002
    
    
    $
    523
    
    
    $
    (120,000
    )
    
    $
    2,118,499
    
    
    $
    (2,188,157
    )
    
    $
    (189,135
    )Shares issued for:Founders
    
    
    3,988,952
    
    
    
    40
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40Merger
    
    
    16,160,000
    
    
    
    162
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162Cash
    
    
    4,276,077
    
    
    
    43
    
    
    
    
    
    
    
    533,169
    
    
    
    
    
    
    
    533,212Consulting
    
    
    1,823,768
    
    
    
    18
    
    
    
    
    
    
    
    150,079
    
    
    
    
    
    
    
    150,097Finance Charges
    
    
    7,226,028
    
    
    
    72
    
    
    
    
    
    
    
    337,000
    
    
    
    
    
    
    
    337,072Employee options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,515
    
    
    
    
    
    
    
    10,515Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,723,218
    )
    
    
    (1,723,218
    )ENDING BALANCE AT DECEMBER 31, 2009
    
    
    85,783,827
    
    
    $
    858
    
    
    $
    (120,000
    )
    
    $
    3,149,262
    
    
    $
    (3,911,375
    )
    
    $
    (881,255
    )
   F-5




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##### Table of Contents



From June 8, 2008(inception) throughDecember 31, 2009
    
    
    December 31, 2008Cash flows from operating activities:Net loss
    
    $
    (1,723,218
    )
    
    $
    (2,188,157
    )Adjustments to reconcile net loss to net cash used in
operating activities:Depreciation
    
    
    115,720
    
    
    
    67,581Stock based compensation
    
    
    10,515
    
    
    
    359,915Stock issued for consulting services
    
    
    150,079
    
    
    
    591,250Stock issued for finance charges
    
    
    337,000
    
    
    
    Warranty and obsolesence provisions
    
    
    
    
    
    
    40,000Changes in operating assets and liabilities:Accounts receivable
    
    
    77,734
    
    
    
    (272,120
    )Prepaid expenses
    
    
    10,492
    
    
    
    (27,145
    )Inventories, net
    
    
    174,002
    
    
    
    (271,222
    )Accounts payable and accrued expenses
    
    
    75,481
    
    
    
    707,226Customer deposits
    
    
    (33,265
    )
    
    
    87,407Net cash used in operating activities
    
    
    (805,460
    )
    
    
    (905,265
    )Cash flows used in investing activity:Purchase of shell corporation
    
    
    (100,000
    )
    
    
    (448,540
    )Cash received in acquisition in excess of cash paid
    
    
    
    
    
    
    (1
    )Net cash provided by (used in) investing activity
    
    
    (100,000
    )
    
    
    (448,541
    )Cash flows from financing activities:Proceeds from related party loan
    
    
    4,818
    
    
    
    105,182Payment of related party loan
    
    
    
    
    
    
    Proceeds from notes payable
    
    
    426,815
    
    
    
    151,103Proceeds from the sale of common stock
    
    
    533,212
    
    
    
    859,600Proceeds from issue of warrants
    
    
    
    
    
    
    70,451Proceeds from initial capital contribution
    
    
    
    
    
    
    239,000Purchase of treasury stock
    
    
    
    
    
    
    (120,000
    )Proceeds from capital lease
    
    
    
    
    
    
    70,214Proceeds from subscription receivable
    
    
    
    
    
    
    Payment of capital lease
    
    
    (16,981
    )
    
    
    (29,878
    )Net cash provided by financing activities
    
    
    947,864
    
    
    
    1,345,672Net increase in cash
    
    
    42,404
    
    
    
    (8,134
    )Cash, beginning of year
    
    
    (8,134
    )
    
    
    Cash, end of period
    
    $
    34,270
    
    
    $
    (8,134
    )Supplemental disclosures of cash flow information:Cash paid for taxes
    
    $
    
    
    
    $
    Cash paid for interest
    
    $
    
    
    
    $
    Non-cash transactions:Stock based compensation
    
    $
    10,515
    
    
    $
    359,915Stock issued for consulting services
    
    $
    150,079
    
    
    $
    591,250
   F-6




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##### Table of Contents



Going Concern
   Basis of Presentation
  Principles of Consolidation
  Management Estimates
   F-7




---



##### Table of Contents



Codification
  Revenue Recognition
  Cash and Cash Equivalents
  Accounts Receivable
   F-8




---



##### Table of Contents



Inventories
  Property and Equipment
   Long-lived Assets
  Intangible Assets
  Stock-Based Compensation
   F-9




---



##### Table of Contents



Advertising
  Product Warranties
  Comprehensive Income (Loss)
  Income Taxes
  Net Income (Loss) Per Share
   F-10




---



##### Table of Contents



ACCOUNTING STANDARDS UPDATES
      F-11




---



##### Table of Contents




    
    Level 1  inputs are based upon unadjusted quoted prices for identical instruments
traded in active markets.
 
    
    Level 2  inputs are based upon quoted prices for similar instruments in active
markets, quoted prices for identical or similar instruments in markets that are not active,
and model-based valuation techniques for which all significant assumptions are observable
in the market or can be corroborated
by observable market data for substantially the full term of the assets or liabilities.
 
    
    Level 3  inputs are generally unobservable and typically reflect managements
estimates of assumptions that market participants would use in pricing the asset or
liability. The fair values are therefore determined using model-based techniques that
include option pricing models, discontinued cash flow models, and similar techniques.
   Fair Value Measurements at December 31, 2009Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Investment in Shell Corporation
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000Total Assets:
    
    $
    100,000
    
    
    $
    
    
    
    $
    
    
    
    $
    100,000
  F-12




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##### Table of Contents



Fair Value Measurements at December 31, 2008Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Assets:Investment in Shell Corporation
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total Assets:
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Fair Value Measurements Using Significant Unobservable Inputs (Level 3):Description
    
    (Level 3)Assets:Balance at January 1, 2009
    
    $
    Cumulative effect of the change in accounting
principal, January 1, 2009
    
    
    Change in fair value included in operations
    
    
    100,000Balance, December 31, 2009
    
    $
    100,000
      2009
    
    
    2008Computers and Software
    
    $
    11,010
    
    
    $
    11,010Manufacturing machinery and equipment
    
    
    14,250
    
    
    
    15,000Furniture and Fixtures
    
    
    422,530
    
    
    
    422,530Less: accumulated deprecation
    
    
    (183,016
    )
    
    
    (67,581
    )$
    264,775
    
    
    $
    380,959
   F-13




---



##### Table of Contents



2009
    
    
    200815% Secured Notes
    
    $
    400,000
    
    
    $
    010% Notes
    
    
    50,000
    
    
    
    010% Notes
    
    
    95,000
    
    
    
    45,000Other
    
    
    32,918
    
    
    
    106,103$
    577,918
    
    
    $
    151,103
 15% Secured Notes
  10% Notes
     F-14




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##### Table of Contents



Year Ending December 31, 2009Total minimum lease payments
    
    
    40,336Less amount representing interest
    
    
    (16,981
    )Present value of net minimum lease payments
    
    $
    23,355
  Financial instruments
      st nd
  F-15




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##### Table of Contents



Risk-Free
    
    
    2.24
    %Expected volatility
    
    
    108.9
    %Forfeiture Rate
    
    
    0.0
    %Expected life
    
    5 Years
    F-16




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##### Table of Contents



Three Months Ended
    
    
    Twelve Months EndedDecember 31
    
    
    December 312009
    
    
    2008
    
    
    2009
    
    
    2008Net loss available
for common
shareholders
    
    $
    (859,755
    )
    
    $
    (2,030,297
    )
    
    $
    (1,723,218
    )
    
    $
    (2,188,157
    )Weighted average
outstanding shares
of common stock
    
    
    80,397,152
    
    
    
    49,630,753
    
    
    
    63,759,960
    
    
    
    45,913,035Dilutive effect of
employee stock
options, awards and
warrants
    
    
    8,119,135
    
    
    
    6,350,968
    
    
    
    7,758,285
    
    
    
    5,497,814Common stock and
common stock
equivalents
    
    
    88,516,287
    
    
    
    55,981,721
    
    
    
    71,518,245
    
    
    
    51,410,849Earnings per share:Basic
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.03
    )
    
    $
    (0.05
    )Diluted
    
    $
    (0.01
    )
    
    $
    (0.04
    )
    
    $
    (0.02
    )
    
    $
    (0.04
    )
  F-17




---



##### Table of Contents



2009
    
    
    2008Current:Federal
    
    $
    (588,975
    )
    
    $
    (726,974
    )Deferred:Federal
    
    
    
    
    
    
    Tax (benefit) from the decrease in valuation
allowance
    
    
    (588,975
    )
    
    
    726,974Provision (benefit) for income taxes, net
    
    $
    
    
    
    $
    
  Statutory federal income tax rate
    
    
    34.0
    %Decrease in valuation allowance
    
    
    (0.0
    )%Other
    
    
    0.0
    %Valuation allowance
    
    
    (34.0
    )%Effective tax rate
    
    
    0.0
    %
  Deferred tax assets:Current
    
    $
    588,975
    
    
    $
    726,974Non-current
    
    
    
    
    
    
    Less: valuation allowance
    
    
    (588,975
    )
    
    
    (726,974
    )Net deferred income tax assets
    
    $
    
    
    
    $
    Deferred tax liabilities:Current
    
    $
    
    
    
    $
    Non-current
    
    
    
    
    
    
    Less: valuation allowance
    
    
    
    
    
    
    Net deferred income tax
liabilities
    
    $
    
    
    
    $
    
  F-18




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##### Table of Contents



F-19