UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q/A


(Amendment No. 1)





x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED June 30, 2010o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from ___________ to ____________





Commission File Number:0-21092





OCTuS, Inc.


(Exact name of registrant as specified in its charter)





Nevada
33-0013439(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)





2020 Research Park Drive, Suite 110, Davis, California 95618(Address of principal executive offices)





(530) 564-0200


(Issuer’s Telephone Number)





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





Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o   Noo





Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o
Accelerated filer
oNon-accelerated filer
o
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).o Yes   x   No





As of August 23, 2010, the registrant had 45,624,072 shares of common stock outstanding.





TABLE OF CONTENTS




PART I. FINANCIAL INFORMATION
PageExplanatory Note
1Item 1.     Financial Statements
3Consolidated Balance Sheets as of  June 30, 2010 and December 31, 2009 (Unaudited)
3Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2010 and 2009 (Unaudited)
4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2010 and 2009 (Unaudited)
5Notes to Consolidated Financial Statements (Unaudited)
6Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations
15Item 3.    Quantitative and Qualitative Disclosures About Market Risk
20Item 4.    Controls and Procedures
20PART II. OTHER INFORMATIONItem 1.    Legal Proceedings
22Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds
22Item 3.    Defaults upon Senior Securities
24Item 4.    Submission of Matters to a Vote of Security Holders
24Item 5.    Other Information
24Item 6.    Exhibits
26SIGNATURES
27




1




EXPLANATORY NOTE
 
 This Amendment No. 1 on Form 10-Q/A (the “Form 10-Q/A”) is being filed to amend our quarterly report on Form 10-Q for the period ended June 30, 2010,that we filed with the Securities and Exchange Commission (the “SEC”) on August 23, 2010.  This Form 10-Q/A revises or amends the following items, in response to comments that we received from the SEC in connection with their review of the Form 10-Q:
 
 ·
Part I, Item 1, to revise the financial statements and notes to disaggregate product revenues, and add disclosure concerning the Company’s revenue recognition policy, and to revise Note 8 to the financial statements to clarify specifc terms of a license agreement.
  ·
Part 1, Item 1 Financial Statements to add additional information related to our predecessor entity on the
 o
Consolidated Balance Sheets as of December 31, 2009;
 o
Consolidated Statements of Operations for the period from January 1, 2010 through June 29, 2010, prior to the purchase of Quantum Energy Solutions, on June 30, 2010;
 o
Consolidated Statements of Cash Flow for the same period.
 
 ·
Part 1, Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations to provide discussion on our predecessor entity’s financial condition and results of operations for periods presented in the financial statements.
 
 ·
Part I, Item 4, to revise the disclosures concerning the Company’s controls and procedures.
 
 ·
Part II, Item 2, to expand disclosures concerning recent sales of unregistered securities.
 
 This amended Form 10-Q/A does not attempt to modify or update any other disclosures set forth in the original Form 10-Q, or to provide a general update or discussion of other developments of the Company after the date of the original filing.  All information contained in this Form 10-Q/A and the original Form 10-Q is subject to updating and supplementing as provided in the periodic reports that we have filed and will file after the original filing date with the Securities and Exchange Commission.  This Form 10-Q/A does not include the items from the original Form 10-Q that are not being amended.  Accordingly, it should be read in conjunction with the original Form
10-Q and our other filings with the SEC subsequent to the filing for the Form 10-Q.
  2
 PART 1. FINANCIAL INFORMATION


Item 1.  Financial Statements


OCTuS, INC.


CONSOLIDATED BALANCE SHEETS


(Unaudited)





SUCCESSOR

COMPANY


SUCCESSOR

COMPANY


PREDECESSOR

COMPANYJune 30,

2010


December 31,

2009


December 31,

2009ASSETSCURRENT ASSETSCash

$
347,237


$
23,003


$
126,940Accounts receivable – trade


29,554



-



-Deferred financing costs, net


28,750



-



-Other current assets


1,686



1,686



-TOTAL CURRENT ASSETS


407,227



24,689



126,940Goodwill


212,782



-



-TOTAL ASSETS

$
620,009


$
24,689


$
126,940LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIESAccounts payable

$
190,490


$
102,236


$
90,885Accrued liabilities


106,040



26,750



-Accounts payable – related parties


4,993



4,993



-Accrued liabilities – related parties


119,691



63,986



-Stock payable


177,300



171,700



-Advances – related parties


-



-



109,951Notes payable – current portion


87,727



5,000



35,899Notes payable – related parties


33,250



32,750



-Convertible notes – related party – current portion


125,000



88,500



-Convertible notes payable – current portion,

netof unamortized discount of $80,743 and $0, respectively


419,257



-



-Total current liabilities


1,263,748



495,915



236,735LONG TERM LIABILITIESNotes payable – long term – less current portion


86,667



-



-Convertible notes – related party – less current portion


355,539



392,039



-Convertible notes, net of unamortized discount of $0 and $17,709, respectively


170,455



117,291



-TOTAL LIABILITIES


1,876,409



1,005,245



236,735Commitments and contingencies


-



-



-STOCKHOLDERS' DEFICITSeries A preferred stock, $0.001 par value, 300,000 sharesauthorized, no shares issued or outstanding


-



-



-Series B preferred stock, $0.001 par value, 910,000 sharesauthorized, no shares issued or outstanding


-



-



-Series C 6% cumulative preferred stock, $0.001 par value,250,000 shares authorized, no shares issued and outstanding


-



-



-Undesignated  preferred stock, $0.001 par value,540,000 shares authorized,  no shares issued or outstanding


-



-



-Common stock,  $0.001 par value, 100,000,000 shares authorized,45,564,072  and 43,867,072 shares issued and outstanding, respectively.

(Predecessor entity: $0.10 par, 100,000 shares authorized, 10,000 shares issued and outstanding)


45,564



43,867



1,000Additional paid-in capital


23,741,669



23,299,212



64,937Accumulated deficit


(25,043,633
)


(24,323,635
)


(175,732
)Total stockholders' deficit


(1,256,400
)


(980,556
)


(109,795
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
620,009


$
24,689


$
126,940


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




3





OCTuS, INC.


CONSOLIDATED STATEMENTS OF OPERATIONS


FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Unaudited)





SUCCESSOR COMPANY


SUCCESSOR COMPANYTHREE MONTHS ENDED

JUNE 30,


SIX MONTHS ENDED

JUNE 30,2010


2009


2010


2009RevenuesProduct revenue

$
2,930


$
-


$
8,631


$
-Service revenue


-



-



206



-Total Revenue


2,930



-



8,837



-Cost of goods sold


16,458



-



16,458



-Gross margin


(13,528
)


-



(7,621
)


-General and administrative expenses


247,622



169,981



584,241



448,466Loss from operations


(261,150
)


(169,981
)


(591,862
)


(448,466
)Interest expense


(86,725
)


(3,055
)


(128,136
)


(11,781
)Net loss

$
(347,875
)

$
(173,036
)

$
(719,998
)

$
(460,247
)Per share information - basic and dilutedNet loss per common share

$
(0.01
)

$
(0.01
)

$
(0.02
)

$
(0.01
)Weighted average shares outstanding


45,141,599



43,612,072



44,732,796



34,573,812
 
 
 PREDECESSOR COMPANY


PREDECESSOR COMPANYFOR THE 90 DAY PERIOD FROM

APRIL 1 TO JUNE 29,


FOR THE 180-DAY PERIOD FROM

JANUARY 1, TO JUNE 29,2010


2009


2010


2009Revenues

$
18,568


$
6,585


$
95,300


$
8,356Cost of goods sold


25,081



56,339



46,542



115,488Gross margin


(6,513
)


(49,754
)


48,758



(107,132
)General and administrative expenses


(33,349
)


(78,587
)


(98,114
)


(155,423
)Loss from operations


(39,862
)


(128,341
)


(49,356
)


(262,555
)Interest expense


(513
)


(481
)


(1,531
)


(1,303
)Net loss

$
(40,375
)

$
(128,822
)

$
(50,887
)

$
(263,858
)Per share information - basic and dilutedNet loss per common share

$
(4.04
)

$
(12.88
)

$
(5.09
)

$
(26.39
)Weighted average shares outstanding


10,000



10,000



10,000



10,000


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


4
  OCTuS, INC.


CONSOLIDATED STATEMENTS OF CASH FLOWS


FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009


(Unaudited)





SUCCESSOR

COMPANY


SUCCESSOR

COMPANY


PREDECESSOR COMPANY


PREDECESSOR COMPANY2010


2009


For the 180-day period from January 1, 2010 to June 29, 2010


2009OPERATING ACTIVITIESNet loss

$
(719,998
)

$
(460,247
)

$
(50,887
)

$
(263,858
)Adjustments to reconcile net loss to net cash

used in operating activities:Share-based compensation


261,079



282,500



-



-Amortization of deferred financing cost


1,250



-



-



-Amortization of debt discount


106,921



242



-



-Changes in operating assets and liabilities:Decrease (increase) in accounts receivable


3,308



-



(38,935
)


222,032Increase (decrease) in accounts payable and accrued liabilities


104,653



147,450



(27,327
)


(4,026
)Increase in accounts payable and accrued liabilities – related parties


56,160



14,049



-



-Increase in stock payable


5,600



-



-



-Net cash used in operating activities


(181,027
)


(16,006
)


(117,149
)


(45,852
)INVESTING ACTIVITIESDeposits paid


-



(1,175
)


-



-Net cash used by investing activities


-



(1,175
)


-



-FINANCING ACTIVITIESCash paid for deferred financing costs


(30,000
)


-



-



-Payment on line of credit


(859
)


-



(4,217
)


(3,814
)Cash distributions to owners


-



-



(36,353
)


(23,057
)Cash contributions from owners


-



-



-



9,465Proceeds from convertible notes payable


630,000



100,000



-



-Payments on convertible notes payable


(100,000
)


-



-



-Proceeds from short term debt – related party


500



10,000



20,049



86,000Proceeds from exercise of warrants


5,620



-



-



-Proceeds from notes payable


-



5,000



14,000



20,200Net cash provided by financing activities


505,261



115,000



(6,521
)


88,794Net change in cash


324,234



97,819



(123,670
)


42,942CASH AT BEGINNING OF PERIOD


23,003



-



126,940



33,129CASH AT END OF PERIOD

$
347,237


$
97,819


$
3,270


$
76,071SUPPLEMENTAL CASH FLOW INFORMATIONCash paid for interest

$
1,922


$
-


$
1,531


$
1,303Cash paid for income taxes

$
-


$
-



-



-NONCASH INVESTING AND FINANCING ACTIVITIESConversion of note payable and accrued interest into convertible note payable

$
5,455


$
-


$



$Debt discount from warrants issued with convertible debt

$
169,955


$
100,000


$



$Conversion of accrued interest into convertible note payable - related party

$
-


$
38,686


$



$
-Net assets acquired in business combination for common stock

$
7,500


$
-


$



$


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


5
  OCTuS, Inc.


Notes to Consolidated Financial Statements


(Unaudited)





Note 1 – Summary of Significant Accounting Policies





Financial Statement Presentation





The accompanying unaudited interim consolidated financial statements of  OCTuS, Inc. (“OCTuS”) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements and should be read in conjunction with  Management's Discussion and Analysis and the audited financial statements and notes thereto contained in our 2009 Annual Report filed with the Securities and Exchange Commission on Form 10-K. In
the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for 2009 as reported on Form 10-K have been omitted.




The Company received an SEC Comment letter dated November 5, 2010, where the SEC questioned the Company as to the treatment of Quantum Energy Solutions, Inc., as its predecessor entity as Quantum’s historical operations were significantly larger than the historical operations of OCTuS.  For purposes of financial statements, designation of an acquired business as a predecessor is required if a registrant succeeds to the business of another entity and the registrant’s own operations prior to the succession appear insignificant relative to the operations assumed or acquired.  As such, OCTuS has included the historical financial statements of Quantum as its
predecessor entity.





Principles of Consolidation





The financial statements include the business combination of Quantum Energy Solutions, Inc. as of June 30, 2010.   All significant intercompany transactions and balances, if any, have been eliminated in consolidation.





Estimates





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




Revenue Recognition


Revenue is derived primarily from providing services under short-term negotiated fixed and variable fee arrangements.  Revenue is recognized when it is earned, typically when our services have been rendered.  Upon execution of an agreement, if services have not been provided then the amount to be paid as a deposit under such agreement is recorded as deferred revenue on the balance sheet and is reclassified as revenue on the statement of operations after services have been provided and such revenue earned.  Any amount that has been earned, but not yet billed, is recorded as work in process or unbilled at the balance sheet date.  Our product revenue is
recognized upon delivery to the customer.




Loss Per Share





Basic loss per common share (“EPS”) calculations were determined by dividing net loss by the weighted average number of shares of common stock outstanding during the years.  Diluted loss per common share calculations were determined by dividing the net loss by the weighted average number of common shares and dilutive common share equivalents outstanding.  During the six months ending June 30, 2010 and 2009 common stock equivalents were not included in the calculation, as their effect would be anti-dilutive.





Share-Based Compensation





OCTuS provides compensation costs for our stock option plans based on estimated fair values. OCTuS estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model and provides for expense recognition over the service period, if any, of the stock option.





Subsequent Events





OCTuS has evaluated all transactions through the original financial statement issuance date for subsequent event disclosure consideration.


6





OCTuS, Inc.


Notes to Consolidated Financial Statements


(Unaudited)





Note 2 – Going Concern





The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of OCTuS as a going concern.  OCTuS has a working capital deficit of $856,521, a stockholders’ deficit of $1,256,400 and an accumulated deficit of $25,043,633 as of June 30, 2010.  In addition, OCTuS has generated net losses of $719,998 and $460,247 during the six months ending June 30, 2010 and 2009, respectively, and currently has minimal revenue generated from operations.





We have licensed technologies and initiated energy savings projects and are actively seeking to continue development of technologies and business opportunities in the smart energy sector, which may include the additional licensing, acquisition or development of smart energy and energy efficiency products or technologies as part of the OCTuSSEP (Smart Energy Platform). We anticipate the need for additional debt or equity financing, and if OCTuS raises additional funds through equity financing transactions, the issuance of additional shares would dilute the ownership of existing shareholders.  However, OCTuS has no commitment from any party to provide additional capital, and there is
no assurance that such funding will be available when needed, or if available, that its terms will be favorable or acceptable to OCTuS.





The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of OCTuS to continue as a going concern.





Note 3 – Business Combination





Purchase of Quantum Energy Solutions, Inc.





On June 10, 2010, OCTuS entered into an Asset Purchase Agreement and related agreements with Quantum Energy Solutions, Inc., a California corporation (“Quantum”).  Effective June 30, 2010, the acquisition of Quantum has been accounted for using purchase accounting since OCTuS acquired substantially all of the assets, debts, employees, intangible contracts and business of Quantum.





The purchase price included 150,000 shares of OCTuS common stock, valued at $7,500 on the date of the transaction closing which was June 10, 2010, at $0.05 per share, plus assumption of approximately $62,891 in accounts payable and accrued expenses; assumption of a line of credit facility with a balance of $45,253 and assumption of a 3-year promissory note to the seller for $130,000.





OCTuS entered into various employment and consulting arrangements with Quantum employees and a former owner where OCTuS issued 700,000 stock options to purchase common stock at exercise prices ranging from $0.06 to $0.11 per share.  OCTuS estimated the fair market value of these stock options to be $38,513 using a Black Scholes pricing model and will be amortized over the future requisite service period.  During the six months ended June 30, 2010, $1,870 of share based compensation relating to these options was recognized.   The two year consulting arrangement with a former owner of Quantum included additional compensation of (i) a monthly cash payment of $5,000
and (ii) commissions on contracts originated by the consultant on Quantum projects of 10% of the gross margin payable in common stock; 30% of the gross margin payable in cash on projects invoiced in the first 90 days after consummation of the purchase; 20% of the gross margin payable in cash on projects invoiced in the second 90 days after purchase; and 10% of the gross margin payable in cash for projects invoiced thereafter through the end of the two year term.  All additional compensation described above occurs after the purchased accounts payable have been paid for.





On June 10, 2010, OCTuS assumed a three-year promissory note with the former principal owner of Quantum in the amount of $130,000.  The note has a simple interest rate of 6% per year.  No later than the 10th day of each month, OCTuS shall pay 36 equal monthly payments of $3,955 for principal and interest (assuming no further principal payments are made as further described) and make principal reduction payments as may occur of 10% of the gross margin of revenue received over the prior 30 days from projects initiated by former Quantum employees or principals.  OCTuS may prepay any or this
entire note and accrued interest with no penalty any time before the maturity of the note.  In June 2010, the former principal of Quantum and OCTuS agreed to assign this note to a trust administered by the former principal owner of Quantum.    In addition, OCTuS assumed the outstanding balance of $45,253 owed under a Line of Credit Facility with a variable interest rate currently at 7.25%.  The total line of credit capacity is $50,000, but OCTuS cannot borrow under the line of credit.




7





OCTuS, Inc.


Notes to Consolidated Financial Statements


(Unaudited)




The acquisition price was allocated to the assets acquired and liabilities assumed based upon their estimated fair values with the excess being recorded in goodwill.  The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:





Cash and cash equivalents

$
-Accounts receivable


32,862Goodwill


212,782Total assets acquired


245,644Accounts payable and accrued expenses


62,891Line of credit


45,253Long term debt


130,000Total liabilities assumed


238,144Net assets acquired

$
7,500





The allocation of the purchase price was based on preliminary estimates and is provisional.  Estimates and assumptions are subject to change upon the receipt of management’s review of the final amounts and final tax returns.  This final evaluation of net assets acquired is expected to be completed as soon as a final accounting is performed but no later than one year from the acquisition date.  Any future changes in the value of the net assets acquired will be offset by a corresponding change in goodwill.





The following unaudited pro-forma combined condensed financial statements are based on the unaudited historical financial statements of Quantum and OCTuS after giving effect to the acquisition of Quantum. The unaudited pro-forma condensed combined statements of operations for the six months ended June 30, 2010 and 2009 and three months ended June 30, 2010 and 2009, is presented as if the acquisition had taken place on the first day of each period by combining the unaudited historical results of Quantum and OCTuS.





The unaudited pro-forma results were as follows:




OCTuS, Inc.Unaudited Pro-forma Statements of Operations




For the Six Months Ended June 30, 2010Historical OCTuS, Inc.


Historical Quantum


Pro-forma Adjustments


Pro-forma Condensed CombinedRevenues

$
8,837


$
95,300


$
-


$
104,137Cost of sales


16,458



46,542



-



63,000Gross profit (loss)


(7,621
)


48,758



-



41,137Operating expenses


(584,241
)


(98,114
)


-



(682,355
)Interest expense


(128,136
)


(1,531
)


-



(129,667
)Net loss

$
(719,998
)

$
(50,877
)

$
-


$
(770,875
)Net loss per share - basic and diluted

$
(0.02
)









$
(0.02
)Weighted average shares outstanding -basic and diluted


44,732,796







150,000(a)



44,882,796


8





OCTuS, Inc.


Notes to Consolidated Financial Statements


(Unaudited)




For the Six Months Ended June 30, 2009Historical OCTuS, Inc.


Historical Quantum


Pro-forma Adjustments


Pro-forma Condensed CombinedRevenues

$
-


$
8,356


$
-


$
8,356Cost of sales


-



115,488



-



115,488Gross profit (loss)


-



(107,132
)


-



(107,132
)Operating expenses


(448,466
)


(155,423
)


-



(603,889
)Interest expense


(11,781
)


(1,303
)


-



(13,084
)Net income (loss)

$
(460,247
)

$
(263,858
)

$
-


$
(724,105
)Net loss per share - basic and diluted

$
(0.01
)









$
(0.02
)Weighted average shares outstanding -basic and  diluted


34,573,812







150,000(a)



34,723,812





The unaudited pro-forma condensed combined statements of operations for the three months ending June 30, 2010 and 2009, respectively is presented as if the acquisition had taken place on January 1, 2010 and 2009, respectively by combining the unaudited historical results of Quantum and OCTuS.





For the Three Months Ended June 30, 2010Historical OCTuS, Inc.


Historical Quantum


Pro-forma Adjustments


Pro-forma Condensed CombinedRevenues
$
2,930


$
18,568


$
-


$
21,498Cost of sales

16,458



25,081



-



41,539Gross profit (loss)

(13,528
)


(6,513
)


-



(20,041
)Operating expenses

(247,622
)


(33,349
)


-



(280,971
)Interest expense

(86,725
)


(513
)


-



(87,238
)Net loss
$
(347,875
)

$
(40,375
)

$



$
(388,250
)Net loss per share - basic and diluted
$
(0.01
)









$
(0.01
)Weighted average shares outstanding -basic and diluted

45,141,599







150,000(a)



45,291,599





For the Three Months Ended June 30, 2009Historical OCTuS, Inc.


Historical Quantum


Pro-forma Adjustments


Pro-forma Condensed CombinedRevenues
$
-


$
6,585


$
-


$
6,585Cost of sales

-



56,339



-



56,339Gross profit (loss)

-



(49,754
)


-



(49,754
)Operating expenses

(169,981
)


(78,587
)


-



(248,568
)Interest expense

(3,055
)


(481
)


-



(3,536
)Net loss
$
(173,036
)

$
(128,822
)

$
-


$
(301,858
)Net loss per share - basic and diluted
$
(0.01
)









$
(0.01
)Weighted average shares outstanding -basic and diluted

43,612,072







150,000(a)



43,762,072





(a)
OCTuS issued 150,000 shares as consideration of the purchase of Quantum.  The pro-forma adjustment treats the shares as having been issued at the first day of each period.




9





OCTuS, Inc.


Notes to Consolidated Financial Statements


(Unaudited)




Note 4 – Related Party Transactions





On February 24, 2009, OCTuS entered into employment agreements with Christian J. Soderquist and George M. Ecker pursuant to which Mr. Soderquist will serve as Chief Executive Officer of OCTuS and Mr. Ecker will serve as Chief Financial Officer of OCTuS. Mr. Soderquist and Mr. Ecker were also appointed directors of OCTuS. Concurrently, OCTuS executed restricted stock purchase agreements dated February 24, 2009, with each of Mr. Soderquist and Mr. Ecker.





Both employment agreements have a term of three years, through February 23, 2012, with the term extended automatically for successive one-year terms unless either party notifies the other in writing at least 90 days prior to the expiration of the then-effective term of such party’s intention not to renew the agreement.  Pursuant to the employment agreement, OCTuS will pay Mr. Soderquist and Mr. Ecker a base annual salary of $180,000 each, which will increase annually by the increase in the consumer price index from the prior year (the “Base Salary”).The officers have agreed to
irrevocably waive all ac crued salaries during 2009 in the amount of $181,538 and have accepted annual base salaries of $120,000 each from January through June 2010 initiating the agreed salaries of $180,000 beginning July 1, 2010.  Each officer will be eligible for an annual bonus of up to 50% of his base annual salary as then in effect, as determined by OCTuS’ Compensation Committee or Board of Directors.  OCTuS issued to each person 15,000,000 shares of common stock.  These shares were valued at $270,000 and recorded as share-based compensation during the six months ended June 30, 2009.





Under the terms of the restricted stock purchase agreements, a portion of the shares were subject to repurchase by OCTuS if four business milestones were not achieved before the first anniversary of the date of the purchase agreements.  For each of the business milestones that were not achieved before the first anniversary of the date of the purchase agreements, 25% of the shares were subject to repurchase by OCTuS at the original purchase price per share.  As determined by the Board of Directors on May 1, 2010 all four milestones have been achieved, and the repurchase rights of OCTuS lapsed.





There were 43,437,072 shares of common stock outstanding after the issuance of the shares in accordance with the purchase agreements.





Each employment agreement provides that if the employment of the officer is terminated by OCTuS without cause (as defined in the employment agreement) or by the officer for good reason (as defined in the employment agreement) or upon his death, the officer (or his estate) is entitled to receive in cash payment an amount equal to all previously accrued but unpaid compensation as of the date of such termination, and a lump sum payment equal to the amount of the Base Salary that the officer would have earned if the officer had remained employed with OCTuS during the remaining portion of the then-current term.




Effective March 31, 2009, a convertible promissory note with a principal balance of $328,106 and accrued interest of $38,686 held by Grupo Dynastia SA was sold to another party who already held a promissory note in the amount of $113,747.  The terms of the new combined $480,539 note were modified such that the principal and interest will be paid over 60 months. The convertible promissory note can be converted into common stock at a rate of $0.10 per share and bears interest at an annual rate of 8% until converted or paid.  Total interest expense under borrowings from this party during the six months
ending June 30, 2010 was $6,408.  The current portion of this note is $125,000 at June 30, 2010. 
 Note 5 – Notes Payable





During April 2009, a third party loaned OCTuS $5,000 to provide short-term working capital.  This loan bears interest at 10% and is due upon demand.  In February 2010, the loan balance of $5,000 and related accrued interest of $455 was converted into a convertible note payable bearing interest at 10% and further described in Note 7.





Note 6 – Notes Payable - Related Parties





During April 2009, two of our officers and directors, Christian J. Soderquist and George M. Ecker, each loaned OCTuS $5,000 to provide short-term working capital.  These loans bear interest at 10% and are due upon demand.





During the year ended December 31, 2009 and in February 2010, Mr. Soderquist loaned OCTuS $27,750 and $500, respectively, for total proceeds of $28,250 to the Company.  These loans bear interest at 10% and are due upon demand.




10


OCTuS, Inc.
 Notes to Consolidated Financial Statements
 (Unaudited)


Note 7 – Convertible Notes Payable




For the year ended December 31, 2009 and during the six months ended June 30, 2010, OCTuS issued convertible secured promissory notes with a principal amount of $135,000 and $30,000, respectively, to investors.  The notes bear interest at a rate of 10% per annum and is due one year from the date of issuance.  Accrued interest is paid semi-annually, with the first payment due six months after the date the notes are issued.  At OCTuS’ option, OCTuS may make any interest payment either in cash or by delivery of a number of shares of common stock with a value equal to the amount of interest due and payable, calculated based on the average closing price of the common
stock on the OTC Bulletin Board (or whatever exchange, market or quotation system the common stock is then traded), for the ten trading days ending three days before the date that such payment is due.  OCTuS granted to the holder of the notes a security interest of all assets of OCTuS, ranking before all preferred and common shareholders and subordinated to the existing senior convertible debt.  The notes may be converted to common stock at 70% of the price per share paid for securities in a financing of at least $1,000,000 or at any time after 90 days after issuance at the greater of $0.30 per share or 70% of the average closing price of the common stock for the ten trading days ending five days before the conversion date.  In conjunction with the issuance of the notes, OCTuS issued warrants to the note holders to purchase 540,000 and 120,000,
respectively, shares of OCTuS common stock at an exercise price of $0.01 per share.  The term of the warrants is 18 months. The relative fair value of the warrants was $59,000 and $32,954, respectively.  The intrinsic value of the conversion feature totaled $63,817 and $13,112, respectively, resulting in a discount of $122,817 and $32,210, respectively, to the notes payable.





In May 2010, OCTuS issued a convertible secured promissory note with a principal value of $100,000 to an investor.  The note had a stated interest rate of 10% and is due May 2013.  Accrued interest was to be paid semi-annually with the first payment due six months after the date the note was issued.  The note contained a conversion option where the unpaid principal and interest due could be converted to common stock at 70% of the price per share paid for securities in a financing of at least $1,000,000 or at any time after 90 days after issuance at the greater of $0.30 per share or 70% of the average closing price of the common stock for the ten trading days ending
five days before the conversion date.  In conjunction with the issuance of the note, OCTuS issued warrants to the same investor to purchase 400,000 shares of common stock at an exercise price of $0.01 per share.  The term of the warrants was eighteen months.  The relative fair value of the warrants was $38,544 resulting in an initial discount.  The conversion feature had no intrinsic value at the date of inception.  In June, OCTuS repaid the $100,000 note and cancelled the outstanding warrants resulting in the accelerated amortization of the discount of $38,544 into interest expense.





In June 2010, OCTuS issued a convertible secured promissory note with a principal value of $500,000 to an investor.  The note has a stated interest rate of 12% and is due in June, 2011.  No payments of principal or interest are due to be paid until the date of maturity.  At any time commencing ninety (90) days after the date of issuance of this note and before the maturity date or earlier conversion of this note, the holder, at holder’s option and upon five (5) days prior written notice to the Company, may convert in whole or in part the outstanding principal and accrued but unpaid interest of this note into a number of shares of common stock determined by the
greater of $0.30 per share or at 70% of the average closing price of the common stock on, for the ten trading days ending five days before the conversion date.  OCTuS issued warrants in conjunction with this note to purchase 2,500,000 shares of common stock at an exercise price of $0.01 per share.  The term of the warrants is eighteen months.  The relative fair vale of the warrants was $98,201 resulting in an initial discount.  The conversion feature had no intrinsic value at the date of inception.  OCTuS recorded a deferred financing cost associated with a payment of $30,000 to an unrelated third party as a finder’s fee for this note.  The deferred financing cost is being amortized over the one-year maturity period of the convertible note resulting in $1,250 in interest expense for the six-months ended June 30,
2010.




The respective discounts will be amortized over the period from the commitment date until the notes become convertible by the holder.  The details are as follows:





Face value of convertible notes payable

$
1,150,994Less: discount related to warrants


(215,843
)discount related to conversion feature


(76,929
)Add: amortization of debt discount


212,029Carrying value of notes at June 30, 2010

$
1,070,251




11


OCTuS, Inc.
 Notes to Consolidated Financial Statements
 (Unaudited)





Note 8 – Equity





In June 2009, OCTuS entered into a twelve-month consulting agreement which calls for OCTuS to issue 10,000 shares of common stock each month the contract is in force.  OCTuS issued 50,000 shares under this agreement during the six months ended June 30, 2010, valued at $9,300 and recorded as share-based compensation.




In October 2009, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 20,000 shares of common stock each month the contract is in force.  During the six months ended June 30, 2010 OCTuS accrued $5,600 of stock payable for the 20,000 shares due in January 2010 per the agreement.  As of June 30, 2010, OCTuS had a total stock payable of $177,300 for unissued common shares to various consultants.





On December 6, 2009, OCTuS entered into a “Reserve Equity Financing Agreement” with AGS Capital Group, LLC (the “Facility”).  The signed agreement authorized OCTuS to issue and sell up to $5,000,000 of the Company’s fully registered and tradable common stock.  These transactions will be made in compliance with the provisions of “Regulation D” of the Securities Act of 1933.   As of June 30, 2010, there have been no issuances under the Facility.





In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock to an employee upon execution of the agreement as a signing bonus, 10,000 shares of common stock each month, and pay a $4,000 stipend each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the six months ended June 30, 2010, valued at $13,350 and recorded as share-based compensation.





In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock each month the contract is in force.  The consultant terminated the contract in March 2010. OCTuS issued 60,000 shares under this agreement during the six months ended June 30, 2010, valued at $18,900 and recorded as share-based compensation.





In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock to a consultant each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the quarter ended June 30,, 2010, valued at $26,100, and recorded as share-based compensation.





In January 2010, OCTuS entered into a three-month consulting agreement which calls for OCTuS to issue 30,000 shares of common stock each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the quarter ended M arch 31, 2010, valued at $23,400 and recorded as share-based compensation.  At the end of May 2010, OCTuS entered into a new six month consulting agreement with the same consultant which calls for OCTuS to issue 25,000 shares of common stock each month the contract is in force.  OCTuS issued 50,000 shares, valued at $4,345, and recorded
as share-based compensation for the three months ended June 30, 2010.





In February 2010, OCTuS entered into a three-month consulting agreement which call for OCTuS to issue 15,000 shares of common stock each month the contract is in force. OCTuS issued 30,000 shares under this agreement during the quarter ended March 31, 2010, valued at $6,900, and recorded as share-based compensation. In June, 2010, OCTuS entered into a new consulting agreement with this same consultant which calls for OCTuS to issue 10,000 shares of common stock each month the agreement is in force.  OCTuS a total of 25,000 shares under the old and new consulting agreements for the three months
ended June 30, 2010 valued at $2,000, and recorded as share-based compensation.





In February 2010, OCTuS entered into a six-month consulting agreement which calls for OCTuS to issue 1,000,000 shares of common stock for services.  All services were not preformed as originally agreed and 500,000 shares were returned by the consultant and cancelled by OCTuS.  For the services that were performed, OCTuS agreed that the consultant could keep the remaining 500,000 shares which were valued at $150,000 and recorded as share-based compensation.





During the six months ended June 30, 2010, OCTuS issued 562,000 common shares in connection with the exercise of warrants for $5,620.





In June 2010, OCTuS entered into various employment and consulting arrangements with Quantum employees and a former owner where OCTuS issued 700,000 stock options to purchase common stock at exercise prices ranging from $0.06 to $0.11 per share.  OCTuS estimated the fair market value of these stock options to be $38,513 using a Black Scholes pricing model and will be amortized over the future requisite service period.  During the six months ended June 30, 2010, $1,870 of share based compensation relating to these options was recognized.





12
 
 
 OCTuS, Inc.
 Notes to Consolidated Financial Statements
 (Unaudited)


Warrant and option activity during the six-months ended June 30, 2010 is as follows:





Warrants


Weighted Average Exercise Price


Weighted Average Remaining Contractual Term

(in Years)Outstanding at December 31, 2009


540,000


$
0.01



1.10Granted


3,102,000



0.01



1.45Exercised


(562,000
)


0.01



-Forfeited or cancelled


(500,000
)


-



-Outstanding and exercisable at June 30, 2010


2,580,000


$
0.01



1.45





As of June 30, 2010, all warrants outstanding had an intrinsic value of $180,600.




Options


Weighted Average

Exercise Price


Weighted Average

Remaining Contractual Term

(in Years)Outstanding at December 31, 2009


60,000


$
0.36



2.60Granted


700,000



0.07



1.63Exercised


-



-



-Forfeited


-



-



-Outstanding and exercisable at June 30, 2010


760,000


$
0.10



1.80





For the six months ended June 30, 2010, OCTuS amortized $6,784 of share-based compensation relating to the options.  As of June 30, 2010, all options outstanding had intrinsic value of $11,000 and unamortized share-based compensation of $36,643.





OCTuS estimates the fair value of each warrant and option at the grant date by using the Black-Scholes option-pricing model with the following range of assumptions used for grants during the six months ended June 30, 2010 as follows:





June 30, 2010Dividend yield
0.00%Expected volatility
158% - 318%Risk free interest rate
0.74% - 0.82%Expected lives in years
1.5-3.0




13


OCTuS, Inc.
 Notes to Consolidated Financial Statements
 (Unaudited)





Note 9 – License Agreements





On August 28, 2009, OCTuS entered into an exclusive license agreement with The Regents of the University of California (the “University”) pursuant to which OCTuS acquired exclusive rights under a provisional U.S. patent application and related intellectual property relating to an evaporative cooling technology known as “Wickool.”  The application relates to the passive evaporative cooling of rooftop HVAC units, whereby Wickool repurposes the condensate generated by HVAC equipment to cool incoming air and thereby increase energy efficiency and reduce peak-demand electricity use.  The Wickool system can be used to retrofit presently installed HVAC units
in addition to integration in new building construction design and is best suited for large scale, commercial installations. Wickool was developed by the University of California, Davis Western Cooling Efficiency Center, and is being commercially tested by major retailers. The license covers the United States and, to the extent available, foreign rights, exclusively covers all fields of use and includes the right to sublicense, subject to standard University terms applying to sublicenses.




Under the agreement, OCTuS will pay the University a nominal annual minimum cash payment each year until the year following the year of the first sale of a licensed product.  Upon commencement of commercial sales, OCTuS will pay the University the greater of a minimal annual fee of $2,000 or royalties based on net sales of licensed products, licensed services, and other revenue resulting directly from use of the licensed products.  The agreement also provides that OCTuS will pay the University one and one half (11⁄2%) percent of net sales of any consideration received by OCTuS for the grant of
rights under a sublicense from OCTuS.  OCTuS is responsible for reimbursing the University for prior patent costs incurred, which are not material, and subsequent legal fees and patent costs incurred in connection with prosecuting the application and maintaining any patents that may issue from the application.  The agreement includes a number ofmilestone conditions including:


(a)
Milestone #1: Funding of Licensee:  $250,000 by December 31, 2010. This milestone was met during the quarter ended June 30, 2010.
 (b)
Milestone #2:  Manufacturing of Licensed Product begins (including by a third party on behalf of Licensee) by May 31, 2010. This milestone was met during the quarter ended June 30, 2010.
 (c)
Milestone #3:  First Sales of Licensed Product or Licensed Services: by August 31, 2010, which was met during the quarter ended June 30, 2010; and
 (d)
Milestone #4:  1,000 units of Licensed Product Sold: by August 31, 2011.
 
 The agreement also includes several other customary provisions, including representations and warranties of the parties, provisions addressing indemnification of the University by OCTuS, use of names and other intellectual property, litigation and disputes, and insurance requirements, and other customary provisions.
 
 In February, 2010, we entered into a seven-year, non-exclusive license agreement with EcoNexus, LLC, whereby we were granted certain rights to EcoNexus’s Environmental Impact Manager technology. If and when OCTuS develops a commercial product based on the EcoNexus technology, OCTuS will grant 100,000 shares of common stock to EcoNexus. In addition, OCTuS will pay EcoNexus a royalty of 1.75% of net sales of the licensed and develop product over the term of the agreement. As of June 30, 2010, OCTuS has not completed development of the commercial product based on the EcoNexus technology, and thus no consideration has been granted, to date, to EcoNexus.





Note 10 – Subsequent Events




On July 1, 2010, OCTuS granted 240,000 options, valued at $15,031, to purchase common shares for services.




On July 31, 2010, OCTuS issued 60,000 shares for services satisfying and thus reducing the amount recorded in stock payable of $19,000.


14


Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations





This following information specifies certain forward-looking statements of management of the company. Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact.  Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms.  The forward-looking statements
specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.





The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. We cannot
guarantee that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and except as required by law we assume no obligation to update any such forward-looking statements.




The Company received an SEC Comment letter dated November 5, 2010, where the SEC questioned the Company as to the treatment of Quantum Energy Solutions, Inc., as its predecessor entity as Quantum’s historical operations were significantly larger than the historical operations of OCTuS.  For purposes of financial statements, designation of an acquired business as a predecessor is required if a registrant succeeds to the business of another entity and the registrant’s own operations prior to the succession appear insignificant relative to the operations assumed or acquired.  As such, OCTuS has included the historical financial statements of Quantum as its
predecessor entity and included any material discussion and analysis of financial condition and results of operations of the predecessor entity herein.




Critical Accounting Policy and Estimates





Our Management's Discussion and Analysis of Financial Condition and Results of Operations section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and
contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in our Annual Report for the year ended December 31, 2009 filed
on Form 10-K.





Overview





OCTuS is a smart energy management company developing, marketing and selling energy-efficient lighting, cooling and energy management solutions that enable public sector and private organizations to reduce their energy expenses. OCTuS has developed OCTuSSEP (Smart Energy Platform), a turnkey energy savings platform for the energy management of commercial, industrial and institutional buildings.




On August 20, 2009, we announced our affiliation with the California Lighting Technology Center (CLTC) and the Western Cooling Efficiency Center (WCEC) to further development and deployment the OCTuS Smart Energy Platform. CLTC and WCEC are part of the University of California, Davis Energy Efficiency Center, and are supported by leading companies, utilities and federal and state energy organizations.  The Company’s affiliations with the CLTC and WCEC focus on identifying and developing suitable products and services for OctusSEP and our energy-efficiency offerings.  The Company does not
have a formal relationship with the CLTC, and the Company is pays an annual $10,000 fee as an affiliate member of the WCEC.  As a WCEC affiliate, Octus is collaborating with the Center to commercially test and develop WickoolTM, a technology the Company licensed from the University of California.




O n September 1, 2009, we announced an exclusive worldwide license with the University of California for Wickool, a passive evaporative cooling technology for commercial rooftop HVAC units. Wickool has been commercially tested by the WCEC at Target Corp. and Wal-Mart stores as a retrofit to rooftop HVAC units.




On October 27, 2009, we announced the addition to two energy industry executives to our Advisory Group: Mark Henwood, CEO of Henwood Associates, and Dr. Mark Modera, director of the UC Davis Western Cooling Efficiency Center.




15
 
 
 O n January 29, 2010, we entered into consulting agreements with: Dave Glende and John Walter to provide services in the fields of smart energy services and smart energy products.


On April 21, 2010 we entered into an agreement to t est and demonstrate energy-efficient LED parking garage fixtures for one of the largest hotel-casinos in Northern California.





On June 16, 2010 we announced a consummation of an asset purchase agreement and related agreements with Quantum Energy Solutions, Inc., a California corporation (“Quantum”).  Effective June 30, 2010, the acquisition of Quantum has been accounted for using purchase accounting since OCTuS acquired substantially all of the assets, debts, employees, intangible contracts and business of Quantum.





The purchase price included 150,000 shares of OCTuS common stock, valued at $7,500 on the date of the transaction closing which was June 10, 2010, at $0. 05, plus assumption of approximately $62,891 in accounts payable and accrued expenses; assumption of a line of credit facility with a balance of $45,253 and assumption of a 3-year promissory note to the seller for $130,000.





On June 29, 2010, OCTuS announced one of the world’s leading retailers has purchased nine Wickool® units for installation atop one of its Northern California retail stores.




On July 14, 2010, OCTuS announced it completed an energy-efficient lighting project for the Contra Costa Community College District, one of the largest multi-college community college districts in California. OCTuS secured the project through a competitive bid process. The retrofit is projected to generate a simple payback of 1.94 years with a 51% return on investment, which is the product of an estimated 70% reduction in electricity use of the District's exterior lighting system.




On July 15, 2010, OCTuS announced it was selected, throughout a competitive bid process, as an approved energy efficiency contractor for Roseville Electric’s Small Business Lighting Program. OCTuS’ selection is part of Roseville Electric’s $1,073,700 in American Recovery and Reinvestment Act of 2009 (ARRA) funds for energy efficiency programs granted to the City of Roseville.




On July 22, 2010, OCTuS announced it was awarded a contract to develop an energy-efficient lighting retrofit project for the City of Davis, California, focused on the City’s downtown parking facilities and its Central Park Pavilion. OCTuS will manage the project development process, including energy and technology analysis, contractor selection, and project management.




On July 27, 2010, OCTuS announced Quantum Energy Solutions has been awarded a contract for an energy-efficient lighting retrofit project for the Hampton Inn & Suites property in Lodi, California.




On August 12, 2010, OCTuS announced it has partnered with Five Star Bank to provide energy efficiency project financing for commercial and industrial building owners. The OCTuS/Five Star Bank Smart Energy Financing Program enables property owners to significantly reduce their energy expenses with little to no upfront costs.





We anticipate the need for additional debt or equity financing, and if the Company raises additional funds through equity financing transactions, the issuance of additional shares would dilute the ownership of existing shareholders.




Results of Operations for the Three Months Ended June 30, 2010 Compared to the Three Months Ended June 30, 2009 (Successor)





We realized revenue of $2,930 of product sales during the three months ended June 30, 2010 from execution of energy projects and did not realize revenue during the three months ended June 30, 2009.





During the three months ended June 30, 2010, our expenses were $247,622, as compared to $169,981 for the three months ended June 30, 2009. The increase of $77,641 was primarily due to an increase in professional, consulting and office expenses of $50,283 from $6,825 during the three months ended June 30, 2009 and an increase in cost of goods sold of $16,458 during the three months ended June 30, 2010 from $0 in the same period during 2009.


16




Interest expense for the three months ended June 30, 2010 was $86,725 compared to $3,055 incurred for the three months ended June 30, 2009. The increase of $83,670 was due to a higher debt balance during the 2010 period which created discounts which were amortized into interest expense and accelerated amortization of discounts associated with cancelled warrants of $38,544.





During the three months ended June 30, 2010, we reported a net loss of $347,875, or loss per share of $0.01, compared to a net loss of $173,036, or loss per share of $0.01, for the three months ended June 30, 2009. We expect to incur losses at least until such time as we begin generating significant revenue from operations.





Results of Operations for the Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009 (Successor)




We realized revenue of $8,837 during the six months ended June 30, 2010,  $8,631 was related to product sales and $206 was related to service revenue. We did not realize any revenues during the six months ended June 30, 2009.





During the six months ended June 30, 2010, our expenses were $584,241, as compared to $448,466 for the six months ended June 30, 2009. The increase of $135,775 was primarily due to an increase in salary expense of $169,586 from $0 during the six months ended June 30, 2009 offset by a reduction in other administrative expenses of $4,068 during the six months ending June 30, 2010 and an increase in cost of goods sold of $16,458 during the six months ended June 30, 2010 from $0 in the same period during 2009.  The other general and administrative expenses consisted primarily of rent and office supplies.  Share-based compensation was $261,079 for the six months ended June 30, 2010
as compared to $282,500 for the six months ended June 30, 2009.





Interest expense for the six months ended June 30, 2010 was $128,136 compared to $11,781 incurred for the six months ended June 30, 2009. The increase of $116,355 was due to a higher debt balance during the 2010 period which created discounts which were amortized into interest expense and accelerated amortization of discounts associated with cancelled warrants of $38,544.





During the six months ended June 30, 2010, we reported a net loss of $719,998, or loss per share of $0.02, compared to a net loss of $460,247, or loss per share of $0.01, for the six months ended June 30, 2009. We expect to incur losses at least until such time as we begin generating significant revenue from operations.


Results of Operations for the 180-Day Period from January 1, 2010 through June 29, 2010 and 90 Day period ended June 30, 2010 and Three months ended June 30, 2009 (Predecessor)
 
 Our predecessor realized revenue of $95,300 during the 180-day period prior to the purchase by Octus on June 30, 2010 and $8,356 during the same period ended June 29, 2009 from the execution of energy projects.  Our predecessor realized revenue of $18,568 and $6,585 during the 90 day period ended June 29, 2010 and three month period ended June 30, 2009, respectively, also from the execution of energy related products.
 
 Our predecessor had expenses totaling $144,656 during the 180-day period prior to the purchase by Octus on June 30, 2010 primarily related to cost of sales of $46,542 and payroll, meals and entertainment and other administrative related expenses of $98,114.  Our predecessor had expenses totaling $58,430 and $134,926 during the 90 day period ended June 29, 2010 and three month period ended June 30, 2009, respectively, due primarily to cost of goods sold on various contracts of $25,081 and $56,339.  Additionally, for the three month period ended June 30, 2009, we incurred approximately $58,000 in payroll and other administrative
costs.


Liquidity and Capital Resources (Successor)





For the six months ended June 30, 2010, we incurred a net loss of $719,998 that included $261,079 of noncash share-based compensation expense as well as $108,171 of noncash discount and deferred financing cost amortization. At June 30, 2010, we had a working capital deficit of $856,521.   At June 30, 2010, our total assets were $620,009 including goodwill of $212,782 related to the acquisition of Quantum Energy Solutions, Inc.  Our current liabilities at June 30, 2010, included $296,530 in accounts payable and accrued liabilities, $124,684 in accounts payable and accrued liabilities due to related parties $544,257 in current portion of convertible notes, $87,727 of short
term debt, $33,250 of short-term debt to related parties and $177,300 of common stock payable. We also had $617,654 in the long-term portion of convertible debt and notes payable.





17


During the six months ended June 30, 2010, we used $181,027 in operating activities.  At June 30, 2010, we had $347,237 cash on hand.  During the six months ended June 30, 2010, we issued in aggregate convertible secured promissory notes with a principal amount of $630,000 and paid back $100,000 and paid $30,000 for financing costs to a third party.  Other cash flow provided from financing activities were $5,620 from exercises of warrants.




In addition to revenues that we may receive from customers and sales of products and services, we will need to raise additional funds through debt or equity financing to achieve our current business strategy.  The financing we need may not be available when needed.  Even if this financing is available, it may be on terms that we deem unacceptable or are materially adverse to the interests of existing investors with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms.  Our inability to obtain financing will inhibit our ability to implement our development strategy, and as a result, could require us to diminish or suspend
our development strategy and possibly cease our operations.  If we are unable to obtain financing on reasonable terms, we could be forced to delay, scale back or eliminate certain product and service development programs.  In addition, such inability to obtain financing on reasonable terms could have a negative effect on our business, operating results or financial condition to such an extent that we are forced to restructure, file for bankruptcy, sale assets or cease operations.  We cannot provide assurances that we will be able to enter into any new investment, or that the terms of any agreements relating to any new investment will be on terms favorable to the Company.





We cannot give assurance that we will enter into any new investment, or that the terms of any such agreements will be on terms favorable to us. There is no assurance that our officers and directors or others will continue to fund us. Should we be unable to obtain revenues or raise additional capital, we could be forced to cease business activities altogether, and the holders of security interests would likely be entitled to receive all or substantially all of our assets.  As such, the accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of
OCTuS as a going concern.


Liquidity and Capital Resources (Predecessor)


For the 180-day period from January1, 2010 through June 29, 2010 prior to purchase by Octus on June 30, 2010, our predecessor incurred a net loss of $50,887 and used $117,149 in cash flow from operations primarily from an increase in receivables and decrease in accounts payable and other accrued liabilities. Cash flow used in financing activities was $6,521 comprised mainly of borrowings on a line of credit of $14,000 and borrowings from related parties of $20,049.  This was offset by payments made on the line of credit of $4,217 and distributions to owners of $36,353.




For the six months ended June 30, 2009, our predecessor used $45,852 cash in operations, while providing cash from financing activities in the amount of $88,794 consisting primarily of proceeds from advances made from a related party of $86,000 and proceeds from notes payable of $20,200 offset by payments of net distributions to owners of $13,592.





Our Plan of Operations for the Next Twelve Months





Over the past year, we have actively pursued technologies and business opportunities in the smart energy sector, and we continue to pursue such technologies and opportunities. We have recruited management, advisors and affiliates who we believe have sufficient experience to review and qualify such technologies and business opportunities. Although we continue to seek such opportunities, we may not consummate any such transactions beyond what have been consummated to date, and it is possible such transactions would not generate sufficient revenue to sustain our operations.





During the six months ended June 30, 2010, OCTuS raised $630,000 in new capital.  Management believes that we will be able to sustain our operations through the foreseeable future based on the Company’s current cash position and the anticipated generation of cash flow from the development of smart energy projects and the sale of products. Although we have actively been pursuing new investment, we cannot give assurance that we will enter into any new investment, or that the terms of any such agreements will be on terms favorable to us. There is no assurance that anyone will continue to fund us. Should we be unable to obtain additional funds or finance growth through ongoing
operations, we could be forced to cease business activities altogether, and the holders of security interests would likely be entitled to receive all or substantially all of our assets.





We are implementing a business plan focused to provide innovative solutions that significantly improve energy management and reduce energy costs. Our purpose is to enable building owners and managers to reduce energy consumption by 50% or more. We seek to accomplish this through the development and deployment of the OCTuS Smart Energy Platform (OCTuSSEP), a portfolio of smart devices, sensors, and software-enabled energy management services, and the implementation of smart energy projects, including equipment upgrades, energy auditing and consulting, building automation, and lighting and HVAC retrofits.





Our corporate strategy is to:





(1)
Develop, license and acquire a portfolio of smart energy efficiency technologies (the “OCTuS Smart Energy Platform,” or, “OCTuSSEP”);(2)
Generate revenue through the sale of OCTuSSEP solutions via direct, channel and technology sub-licensing activities;


(3)
Develop energy projects and deliver energy-efficiency services, including the retrofit of municipal and commercial buildings with energy-efficient lighting, HVAC and energy management systems;(4)
Develop and deliver software-enabled energy management services; and,


(5)
Create and monetize energy information and intelligence to help building owners and managers better manage their energy use and costs.





18


We focus on two specific markets: the commercial and industrial market, including utilities, and the M.U.S.H. (municipality, university, school and hospital) market. We deploy solutions through OCTuSSEP to reduce the energy-related expenditures of our clients' facilities and the impact of their energy use on the environment, including smart energy management systems, energy efficient lighting upgrades, energy efficiency mechanical and electrical retrofit and upgrade services, and renewable energy project development and implementation.





We believe the following factors drive demand for smart energy efficiency services by facility owners in the U.S. commercial, industrial and M.U.S.H. markets:





·
The potential for immediate return on investment and demonstrable long-term cost savings resulting from the installation of smart energy efficiency solutions;·
Concerns regarding the substantial and volatile cost of energy, the adverse implication of global climate change and the desire for energy independence;


·
Increasing pressure on corporations and public sector organizations to establish and attain sustainability goals;·
Increasing regulatory pressure on utilities to include energy efficiency and renewable energy in their resource plans;


·
The availability of rebates and tax incentives at the federal, state, and regional levels for organizations that reduce their energy consumption;·
Existing and prospective government mandates to improve the efficiency of M.U.S.H. facilities;


·
The allocation of funds under the American Recovery and Reinvestment Act of 2009 ("ARRA") to promote energy efficiency and alternative energy projects in federal, state and local municipal facilities; and·
The migration toward a low-carbon economy which will potentially place a price or tax on the carbon emissions of our clients.





Through OCTuSSEP we offer building owners and managers a full range of solutions to address the energy efficiency and energy management needs of their facilities. These solutions are based on our ability to identify and deliver significant return on our clients' investments, improve the quality of their facilities, maximize their operational savings and reduce their maintenance costs. We intend to sell smart energy products, develop energy projects, deliver software-enabled energy management services, and monetize energy intelligence through three business units:





OurSmart Energy Products business intends to offer a proprietary line of integrated, intelligent controls, sensors, network appliances, and energy management software to provide continuous management of lighting and HVAC equipment using wireless and power line communication technology.


All products communicate using open standards. Product offerings are communication protocol agnostic. Revenue comes from product sales and technology sub-licensing. As of December 31, 2009, proprietary OCTuS smart energy products were:





·
Wickool, a passive evaporative cooling solution that generates efficiencies through reuse of condensate created by commercial rooftop HVAC units. OCTuS executed an exclusive worldwide license of the technology with the University of California on September 1, 2009. Wickool was developed by the Western Cooling Efficiency Center at the University of California, Davis, and was commercially demonstrated by two major retailers.





·
OCTuS SmartCenter, an IP-based energy services appliance that wirelessly networks and optimizes the energy-efficiency of commercial lighting and HVAC systems.





·
OCTuS SmartPortal, Web-based energy management software that enables building owners and managers to monitor, control, and manage energy use within their facilities.





OurSmart Energy Services unit intends to develop, deliver and manage software-enabled services. Services include reporting systems, building automation, resource management, and value-added services. Value-added services include maintenance monitoring and service alert/dispatch services, cost accounting information, modeling and benchmarking, to name a few. Revenue comes from the sale of energy management hardware and subscriptions to one or more services or software modules.





OurSmart Energy Projects business provides energy engineering, consulting and financing services. These services target development and implementation of energy-efficient lighting, HVAC, energy management and renewable energy projects for commercial, industrial and municipal building owners. Our customers reduce energy use and costs, improve reliability, and maximize the operating efficiency of their buildings.  In June 2010, we acquired certain assets of Quantum Energy Solutions, Inc., a pioneer in the development of smart energy projects.





19





Off Balance Sheet Arrangements





There are no off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.





Item 3. Quantitative and Qualitative Disclosures about Market Risk





Not applicable.





Item 4. Controls and Procedures





Evaluation of Di sclosure Controls and Pr ocedures





Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this report.  Disclosure controls and procedures are defined as those controls and other procedures of an issuer that are designed to ensure that the information required to be disclosed by the issuer in the reports it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officer, as appropriate, to allow timely decisions regarding required disclosure.  Based on their evaluation, our principal executive officer and principal accounting officer concluded that as of June 30, 2010, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the SEC and is accumulated and communicated to management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required
disclosure.  Our conclusion was based on (1) our lack of systematic accounting and disclosure procedures, notwithstanding that the Company’s financial statements and notes thereto are prepared and reviewed by management and that the Company’s chief financial officer reviewed each transaction during the periods covered by the report that had an effect on the Company’s financial statements included in the Form 10-Q, (2) the absence of personnel, other than the chief financial officer, with requisite expertise in the functional areas of finance and accounting, and (3) the absence of a functioning audit committee or outside directors on the Company’s board of directors.


Management Report on Internal Control Over Financial Reporting
  Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is designed 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.  Our internal control over financial reporting includes those policies and procedures that:
  1.
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;
  2.
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
  3.
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.
  All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and reporting.  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.
  20
 During the Annual 10-K review process for the year ended December 31, 2009, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on this evaluation, our management concluded our internal control over financial reporting was not effective as of December 31, 2009 and the deficiencies reported continue to be deficiencies as of June 30, 2010.
  1.
Overall lack of systematic accounting and disclosure procedures, notwithstanding that the Company’s financial statements and notes thereto are prepared and reviewed by management and that the Company’s chief financial officer reviewed each transaction during the periods covered by the report that had an effect on the Company’s financial statements included in the Form 10-K,
  2.
The absence of personnel, other than the chief financial officer, with requisite expertise in the functional areas of finance and accounting, and
  3.
The absence of a functioning audit committee or outside directors on the Company’s board of directors.
  A material weakness is a control deficiency (within the meaning of Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
  Throughout the period covered by the report, the Company had minimal amounts of cash and limited active business activities.  To address the weaknesses identified above, management reviewed and performed an analysis of every transaction for the period covered by the report that had an impact on the Company’s financial statements included in the Form 10-Q.  Accordingly, notwithstanding the existence of the material weaknesses described in this Item, management believes that the financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods
presents in accordance with U.S. generally accepted accounting principles.  The Company also intends to address the weaknesses identified above by adding more formalized accounting, control and disclosure procedures, by hiring additional personnel resources when the Company’s operations and financial position permit it to do so, by continuing to have the chief financial officer review all significant transactions affecting the Company’s financial statements, and by considering the appointment of outside directors and audit committee members in the future where appropriate.


Remediation of Material Weaknesses
 
 The Company intends to address the weaknesses identified above by adding more formalized accounting, control and disclosure procedures, by hiring additional personnel resources when the Company’s operations and financial position permit it to do so, by continuing to have the chief financial officer review all significant transactions affecting the Company’s financial statements, and by considering the appointment of outside directors and audit committee members in the future where appropriate.
 
 Changes in Internal Controls





There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


21





PART II — OTHER INFORMATION





Item 1. Legal Proceedings





None.




Item 2. Unregistered Sales of Equity Securities and Use of Proceeds




In June 2009, OCTuS entered into a twelve-month consulting agreement with Siva Gunda to assist in the development of the Octus Smart Energy Platform, including identification of key partners, systems and components.  The agreement provides for OCTuS to issue 10,000 shares of common stock each month the contract is in effect.  OCTuS issued 50,000 shares under this agreement during the six months ended June 30, 2010, valued at $9,300 and recorded as share-based compensation. The shares were issued in reliance on Section 4(2) of the Securities Act.  The recipient represented that the recipient had a pre-existing relationship with the Company or one or more of its
officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the business of the Company, and that the recipient understood the speculative nature of the acquisition of the shares.  The recipient of the shares represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS concerning its business, and understood the investment risks involved in
acquiring the shares.
  In October 2009, OCTuS entered into a three-month consulting agreement with Jim Collins of Quantum Energy Solutions, Inc. to provide sales services relating to expanding our service offering.  The agreement provided for OCTuS to issue 20,000 shares of common stock each month the contract is in effect.    During the three months ended March 31, 2010 OCTuS accrued $5,600 of stock payable for the 20,000 shares due in January 2010 per the agreement.  As of March 31, 2010, OCTuS had a total stock payable of $177,300 for unissued common shares.  The agreement was entered into in reliance on Section 4(2) of the Securities Act.  The
recipient represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the
investment risks involved in acquiring the shares.
  In January 2010, OCTuS entered into a three-month consulting agreement with Mananya Chansanchai to provide services relating to energy solutions program management.  The agreement calls for OCTuS to issue 30,000 shares of common stock to an employee upon execution of the agreement as a signing bonus, 10,000 shares of common stock each month, and pay a $4,000 stipend each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the six months ended June 30, 2010, valued at $13,350 and recorded as share-based compensation.   The agreement was entered into in reliance on Section 4(2) of the Securities Act.  The
recipient represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the
investment risks involved in acquiring the shares.
  In January 2010, OCTuS entered into a three-month business and financial advisory services contract with DCA Partners LLC providing for OCTuS to issue 30,000 shares of common stock each month the contract is in effect.  The agreement calls for OCTuS to issue 30,000 shares of common stock each month the contract is in force.  The consultant terminated the contract in March 2010. OCTuS issued 60,000 shares under this agreement during the three months ended June 30, 2010, valued at $18,900 and recorded as share-based compensation.
  In January 2010, OCTuS entered into a three-month consulting agreement with Dave Glende to assist with development of the Company’s product and services roadmap and overall technology–based product offerings which calls for OCTuS to issue 30,000 shares of common stock to a consultant each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the quarter ended June 30, 2010, valued at $26,100 and recorded as share-based compensation. The agreement was entered into in reliance on Section 4(2) of the Securities Act.  The recipient represented that the securities were being acquired for investment purposes, for the
recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the investment risks involved in acquiring the shares.
 
 22
 In January 2010, OCTuS entered into a three-month consulting agreement with John Walters to assist with the creation of a marketing plan for Wickool and assist with impelementation of a distribution and dealer program for Wickool.  which calls for OCTuS to issue 30,000 shares of common stock each month the contract is in force.  OCTuS issued 90,000 shares under this agreement during the quarter ended March 31, 2010, valued at $23,400 and recorded as share-based compensation.  At the end of May 2010, OCTuS entered into a new six month consulting agreement with the same consultant which calls for OCTuS to issue 25,000 shares of common stock each m month the
contract is in force.  OCTuS issued 50,000 shares valued at $4,345, recorded as share-based compensation for the three months ended June 30, 2010. The agreement was entered into in reliance on Section 4(2) of the Securities Act.  The recipient represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the
business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the investment risks involved in acquiring the shares.
  In February 2010, OCTuS entered into a three-month consulting agreement with George Condon to provide services relating to development, implementation and management of Octus Energy Savings Program (OctusESP) for commercial brokers and other referral sources.  The agreement calls for OCTuS to issue 15,000 shares of common stock each month the contract is in force.  OCTuS issued 30,000 shares under this agreement during the quarter ended March 31, 2010, valued at $6,900 and recorded as share-based compensation. In June, 2010, OCTuS entered into a new consulting agreement with this same consultant which calls for OCTuS to issue 10,000 shares of common stock each month the
agreement is in force.  OCTuS a total of 25,000 shares under the old and new consulting agreements for the three months ended June 30, 2010 valued at $2,000 and recorded as share-based compensation.   The shares were issued in reliance on Section 4(2) of the Securities Act.  The recipient of the shares represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive
officers of the Company with respect to the acquisition of the shares and the business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the investment risks involved in acquiring the shares.
  In February 2010, OCTuS entered into a six month agreement with TPC Holdings to provide public relations services.  The agreement provided for OCTuS to issue 1,000,000 shares of common stock at a purchase price of $0.0001 per share.  All services were not performed as originally agreed and 500,000 shares were returned by the consultant and cancelled by OCTuS.  For the services that were performed, OCTuS agreed that the consultant could keep the remaining 500,000 shares which were valued at $150,000 and recorded as share-based compensation.  The shares were issued in reliance on Section 4(2) of the Securities Act. The recipient of the shares
represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act, that the recipient had a pre-existing relationship with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the shares and the business of the Company, that the recipient understood the speculative nature of the acquisition of the shares, and that the recipient was familiar with the business of OCTuS, had an opportunity to ask questions of the officers of OCTuS, and understood the
investment risks involved in acquiring the shares.
  During the six months ended June 30, 2010, OCTuS issued 562,000 common shares in connection with the exercise of warrants for $5,620.
 
 In June 2010, OCTuS issued 150,000 shares in connection with the acquisition of Quantum Energy Solutions, Inc.
 
 For the year ended December 31, 2009 and during the six months ended June 30, 2010, OCTuS issued convertible secured promissory notes with a principal amount of $135,000 and $30,000, respectively, to investors.  The notes bear interest at a rate of 10% per annum and is due one year from the date of issuance.  Accrued interest is paid semi-annually, with the first payment due six months after the date the notes are issued.  At OCTuS’ option, OCTuS may make any interest payment either in cash or by delivery of a number of shares of common stock with a value equal to the amount of interest due and payable, calculated based on the average closing price of
the common stock on the OTC Bulletin Board (or whatever exchange, market or quotation system the common stock is then traded), for the ten trading days ending three days before the date that such payment is due.  OCTuS granted to the holder of the notes a security interest of all assets of OCTuS, ranking before all preferred and common shareholders and subordinated to the existing senior convertible debt.  The notes may be converted to common stock at 70% of the price per share paid for securities in a financing of at least $1,000,000 or at any time after 90 days after issuance at the greater of $0.30 per share or 70% of the average closing price of the common stock for the ten trading days ending five days before the conversion date.  In conjunction with the issuance of the notes, OCTuS issued warrants to the note holders to purchase 540,000 and 120,000,
respectively, shares of OCTuS common stock at an exercise price of $0.01 per share.  The term of the warrants is 18 months. The relative fair value of the warrants was $59,000 and $32,954, respectively.  The intrinsic value of the conversion feature totaled $63,817 and $13,112, respectively, resulting in a discount of $122,817 and $32,210, respectively, to the notes payable.
 
 23
 In May 2010, OCTuS issued a convertible secured promissory note with a principal value of $100,000 to an investor.  The note had a stated interest rate of 10% and is due May 2013.  Accrued interest was to be paid semi-annually with the first payment due six months after the date the note was issued.  The note contained a conversion option where the unpaid principal and interest due could be converted to common stock at 70% of the price per share paid for securities in a financing of at least $1,000,000 or at any time after 90 days after issuance at the greater of $0.30 per share or 70% of the average closing price of the common stock for the ten trading days
ending five days before the conversion date.  In conjunction with the issuance of the note, OCTuS issued warrants to the same investor to purchase 400,000 shares of common stock at an exercise price of $0.01 per share.  The term of the warrants was eighteen months.  The relative fair value of the warrants was $38,544 resulting in an initial discount.  The conversion feature had no intrinsic value at the date of inception.  In June, OCTuS repaid the $100,000 note and cancelled the outstanding warrants resulting in the accelerated amortization of the discount of $38,544 into interest expense.
 
 In June 2010, OCTuS issued a convertible secured promissory note with a principal value of $500,000 to an investor.  The note has a stated interest rate of 12% and is due in June, 2011.  No payments of principal or interest are due to be paid until the date of maturity.  At any time commencing ninety (90) days after the date of issuance of this note and before the maturity date or earlier conversion of this note, the holder, at holder’s option and upon five (5) days prior written notice to the Company, may convert in whole or in part the outstanding principal and accrued but unpaid interest of this note into a number of shares of common stock determined
by the greater of $0.30 per share or at 70% of the average closing price of the common stock on, for the ten trading days ending five days before the conversion date.  OCTuS issued warrants in conjunction with this note to purchase 2,500,000 shares of common stock at an exercise price of $0.01 per share.  The term of the warrants is eighteen months.  The relative fair vale of the warrants was $98,201 resulting in an initial discount.  The conversion feature had no intrinsic value at the date of inception.  OCTuS recorded a deferred financing cost associated with a payment of $30,000 to an unrelated third party as a finder’s fee for this note.  The deferred financing cost is being amortized over the one-year maturity period of the convertible note resulting in $1,250 in interest expense for the six-months ended June 30,
2010.
 
 These notes and securities were issued without any public solicitation, to a limited number of investors.  The shares were issued in reliance on Section 4(2) of the Securities Act.  Each investor represented that the securities were being acquired for investment purposes, for the recipient’s own account, not as nominee or agent and not with a view to the resale or distribution of any part thereof in violation of the Securities Act.  Each investor also represented that they had an opportunity to ask questions of management of OCTuS, understood the investment risks involved in acquiring the securities, that the recipient had a pre-existing relationship
with the Company or one or more of its officers or directors of a nature and duration that enabled the recipient to be aware of the business of the Company, that the recipient had the opportunity to ask questions of, and receive from answers from, executive officers of the Company with respect to the acquisition of the securities and the business of the Company, that the recipient understood the speculative nature of the acquisition of the securities.
 
 Item 3.  Defaults Upon Senior Securities





None.





Item 4.  Submission of Matters to Vote of Security Holders





None.





Item 5.  Other Information





Certain Matters Relating to the Company’s 2003 Reincorporation Transaction





In connection with a review of previous corporate transactions, the Company recently became aware of administrative errors related to the Company's change of domicile from California to Nevada at the end of 2003.  At the time of all of the events described below, the Company was a shell company with no cash (or nominal cash), no business and a small amount of liabilities consisting primarily of accrued obligations and notes to a related party.  Further, the majority shareholder, and the person who was the president of OCTuS California at the time of the events described below, have affirmed in writing to the Company that their vote, support and intention was to enact the
events.





As reflected in previous filings by the Company with the Securities and Exchange Commission (the “Commission”), in December 2001, OCTuS, which was then incorporated in California (sometimes referred to as “OCTuS California”), distributed a proxy statement to its shareholders in connection with its annual meeting of stockholders to be held on December 29, 2001 (the “2001 Meeting”), soliciting approval for a proposal to change the state of incorporation of OCTuS from California to Nevada.  The proxy statement indicated that the change of domicile would be accomplished by merging OCTuS California into a newly formed subsidiary, OCTuS Nevada.  At
the time, one shareholder, Grupo Dynastia, S.A., a foreign corporation, held approximately 56% of the outstanding voting stock as of the record date of the meeting.  Grupo Dynastia has represented to management of the Company in writing that it supported the reincorporation and change of domicile.  In addition, Grupo Dynastia and the person who at the time was the president of OCTuS California have represented to management of the Company in writing that Grupo Dynastia delivered to OCTuS California in advance of the 2001 Meeting a signed form of proxy appointing the president of OCTuS as proxy for the shareholder to vote the shareholder’s shares in favor of the reincorporation and the other proposals at the 2001 Meeting.  However, the Company does not have in its records evidence that an executed proxy was received by OCTuS California from Grupo
Dynastia or taken into account at the meeting.





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In December 2003, the Company decided to effect the reincorporation transaction that it believed had been approved at the 2001 shareholder meeting.  A new corporation was incorporated in Nevada named OCTuS, Inc. (“OCTuS Nevada”).  All assets and liabilities of OCTuS California, which consisted of the nominal cash and minimal liabilities described below, were transferred to OCTuS Nevada on or before December 31, 2003 as part of the change of corporate domicile.  However, for reasons of administrative inadvertence, articles of merger were not filed in either Nevada or California.




In January 2004, dissolution and winding up certificates were filed with the California Secretary of State for OCTuS California, reciting that OCTuS California had elected to wind up and dissolve; that the election was made by the vote of at least 5.8 million shares, representing in excess of approximately 90% of the outstanding shares of the Company; that the affairs of OCTuS California had been completely wound up; that the known debts and liabilities of the company had been paid or provided for; and that all known assets of the company had been distributed to the OCTuS California shareholders.





The person who was the president of OCTuS California at the time at the time of the events described above has affirmed in writing that these filings were intended to be part of the process of implementing the reincorporation merger transaction.  At the time, Grupo Dynastia owned common stock and preferred stock of OCTuS California representing in excess of 97.6% of the voting power of the outstanding shares of OCTuS California.  Grupo Dynastia has represented to management of the Company in writing that it supported and approved of the reincorporation transaction in December 2003, regardless whether it was effected by means of a merger, transfer of assets and lisbilities or
other mechanism.





On March 23, 2004, the Company filed its Annual Report on Form 10-K with the SEC with respect to the year ended December 31, 2003 (the “2003 Form 10-K”), indicating that it was a Nevada corporation and including the following disclosure:  “On December 29, 2001, a majority of the shareholders voted to change the Company's state of incorporation from California to Nevada.  In December 2003, this change was completed and the Company became a Nevada corporation.”  According to the 2003 Form 10-K, at December 31, 2003, OCTuS was not engaged in any business activities, its total assets consisted of $22 of cash, and its liabilities consisted of
accounts payable and accrued expenses of $1,238, accounts payable and accrued expenses to related parties of $16,138, and notes payable to a related party, Grupo Dynastia, of $144,271.  According to the 2003 Form 10-K, the aggregate market value of shares held by non-affiliates of the Company as of March 18, 2004, was $31,676, and the actual value of those shares may have been even less in light of, among other factors, the Company’s liabilities and lack of any business and cash assets.





Implementing what management of the Company believed was the merger transaction; OCTuS Nevada subsequently issued one share of OCTuS Nevada for each share of OCTuS California held by each person who was a former shareholder of OCTuS California.  If not part of the merger transaction, the the Company believes the issuance of shares was part of the distribution by OCTuS California of its remaining assets, consisting of the shares issued by OCTuS Nevada, to its shareholders as part of the process of winding up OCTuS California.  Accordingly, there was no change in ownership of shares of the Company as the result of the redomicile.  In addition, no shareholder has communicated
with the Company or its officers in any way concerning claims or complaints relating to the above matters.





The Company has submitted for filing with the Nevada Secretary of State, articles of merger reflecting the merger transaction that the Company believed occurred at the end of 2003.  However, the Company cannot provide any assurances concerning the legal effect, if any, of belatedly filing such articles of merger at such time in the circumstances described above.





The foregoing matters may give rise to liabilities, claims or regulatory actions under federal or state laws, including without limitation relating to whether sufficient shareholder approval was obtained for the reincorporation transaction, whether the issuance of shares of OCTuS Nevada in the reincorporation transaction complied with federal and state securities laws, whether the foregoing matters affect OCTuS Nevada's status as a successor issuer under federal securities laws, and other related matters.  The Company can give no assurance as to whether any such liabilities, claims or regulatory actions, including actions by the Commission or state regulatory authorities, may arise in
the future or the outcome of any such liabilities, claims or regulatory actions on the Company's business and previously reported or current financial statements.  An adverse outcome in any such claim or proceeding could have a material adverse effect on the Company's business, financial position and results of operations.


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Item 6.  Exhibits





Exhibit No.
Description10.1
Acquisition Purchase Agreement with Quantum Energy Solutions      (1)10.2
Convertible Secured Promissory Note, dated May 1, 2010 between Octus and EAM, Inc.  (2)10.3
Convertible Secured Promissory Note, dated May 1, 2010 between Octus, Inc. and Saverio Pugliese    (3)31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.32.1
Section 1350 Certification of Chief Executive Officer32.2
Section 1350 Certification of Chief Financial Officer(1)
Incorporated by Reference to exhibits filed with Form 8-K filed with the SEC on May 21, 2010 and June 16, 2010(2)
Incorporated by Reference to exhibits filed with Form 8-K filed with the SEC on June 16, 2010(3)
Filed herein and included with this Quarterly Report on Form 10-Q
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  SIGNATURES





In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.





OCTuS, Inc.,

a Nevada corporationSeptember 26, 2011
By:
/s/ Christian SoderquistChristian Soderquist

Chief Executive Officer and a Director






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