U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K








x Annual Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
for


the
fiscal year ended December 31, 2009





o Transition Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934





For
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)
            
            (IRS
      Employer Identification No.)





803
      Second StreetSuite
      303Davis,
      California
            
            95616(Address
      of principal executive offices)
            
            (Zip
      Code)





(530)
564-0200


(Registrant's
Telephone Number, Including Area Code)





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





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





Common
Stock, $.0001 par value per share


(Title of
Class)





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





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  o  No  x





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





Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendments to this Form 10-K. o





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





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 Act) Yes o  No x





As of
April 15, 2010, there were 44,867,072 shares of common stock
outstanding.








OCTUS,
INC.





FORM
10-K





FISCAL
YEAR ENDED DECEMBER 31, 2009





Item
            
            PagePART
      I11
            Business
            21A.
            Risk
      Factors
            31B.
            Unresolved
      Staff Comments
            62.
            Properties
            63.
            Legal
      Proceedings
            64.
            Submission
      of Matters to a Vote of Security Holders
            6PART
      II5.
            Market
      for Registrant's Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            66.
            Selected
      Financial Data
            97.
            Management's
      Discussion and Analysis of Financial Condition and Results of 
      Operations
            97A.
            Quantitative
      and Qualitative Disclosure About Market Risk
            118.
            Financial
      Statements and Supplementary Data
            129.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            239A(T).
            Controls
      and Procedures
            23PART
      III10.
            Directors,
      Executive Officers and Corporate Governance
            2311.
            Executive
      Compensation
            2512.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            2713.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            2814.
            Principal
      Accounting Fees and Services
            28PART
      IV15.
            Exhibits,
      Financial Statement Schedules
            29





Unless the context otherwise requires, the
terms “we,” our,” “the Company” and “Octus” refer to Octus Inc. and its
subsidiaries.





FORWARD
LOOKING STATEMENTS





Statements
made in this Form 10-K that are not historical or current facts are
"forward-looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act").  These statements often can be identified by the use
of terms such as "may," "will," "expect," "believe," "anticipate," "estimate,"
"approximate," or "continue," or the negative thereof.  The Company
intends that such forward-looking statements be subject to the safe harbors for
such statements.  The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made.  Any forward-looking statements represent management's
best judgment as to what may occur in the future.  However,
forward-looking statements are subject to risks, uncertainties and important
factors beyond the control of the Company that could cause actual results and
events to differ materially from historical results of operations and events and
those presently anticipated or projected.  These factors include
adverse economic conditions, entry of new and stronger competitors, inadequate
capital and unexpected costs.  The Company disclaims any obligation
subsequently to revise any forward-looking statements to reflect events or
circumstances after the date of such statement or to reflect the occurrence of
anticipated or unanticipated events.





1


PART
I





ITEM
1.  BUSINESS





Introduction





Octus was
incorporated in October 1983 under the laws of the State of
California.  On December 29, 2001, a majority of the shareholders
voted to change our state of incorporation from California to
Nevada.  In December 2003, this change was completed and we became a
Nevada corporation.  Currently our Common Stock is eligible for
quotation on the OTC Bulletin Board under the symbol OCTI.





The
Company seeks to become a leading renewable energy efficiency company that
brings innovative energy efficiency and renewable energy solutions to the
commercial and public sector markets.  The Company intends to pursue
and facilitate renewable energy efficiency projects involving energy efficiency
systems and products that the Company may develop, acquire, license or
distribute.  The Company believes the market demand for smart energy
management – reducing the energy use and costs in commercial, industrial and
municipal buildings -- is an attractive business opportunity.





Intellectual
Property





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 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 a percentage 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 of
customary milestone conditions related to OCTuS’ progress in funding support of
the product, commencement of manufacturing, and commencement and progress of
commercial sales. 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.





Government
Regulation





As our
current operations and activities are minimal, applicable government regulations
do not have a material impact on our activities.  However, if we
successfully execute on our business plan, we anticipate that federal, state and
local environmental, energy, tax incentive, health, labor relations, sanitation,
building, zoning, fire and safety regulations could have an effect on our
business and on the businesses of the customers to which we intend to sell
products, services and solutions.





Our
Research and Development





We are
not currently conducting any research and development activities although we may
conduct such activities in the foreseeable future.





Employees





As of
December 31, 2009, we had four employees.  We added four employees to
our workforce during the year ended December 31, 2009.  None of our
employees is currently represented by labor unions or covered by a collective
bargaining agreement.  We believe that relations with our employees
are good.





2


ITEM
1A.  RISK FACTORS





Risks
Related to Our Business





Much of
the information included in this annual report includes or is based upon
estimates, projections or other “forward-looking statements.” Such
forward-looking statements any include projections or estimates made by us and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions, or other future
performance suggested herein. We undertake no obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of such statements.





Such
estimates, projections or other “forward-looking statements” involve various
risks and uncertainties as outlined below. We caution readers of this annual
report that important factors in some cases have affected and, in the future,
could materially affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or
other “forward-looking statements.” In evaluating us, our business and any
investment in our business, readers should carefully consider the following
factors.





We
have limited operating history that you can use to evaluate us and therefore we
may not survive if we meet some of the problems, expenses, difficulties,
complications and delays frequently encountered by a start-up company.





We
essentially ceased active business in 1997 and have been reviewing business
opportunities since February 2009 when we hired new officers and directors of
the Company To date, we have focused our attention on seeking product and
technology licensing, acquisitions and business opportunities. Accordingly, you
can evaluate our business, and therefore our future prospects, based only on a
limited operating history. You must consider our prospects in light of the risks
and uncertainties encountered by start-up companies.  As a start-up
company, we can provide no assurances that we will be able to make the necessary
steps to achieve profitability in the future, such as expanding our customer
base.





We are
subject to all the substantial risks inherent in the commencement of a new
business enterprise with new management. We can provide no assurance that we
will be able to successfully generate revenues or operate
profitably.  We have limited business history for you to analyze or to
aid you in making an informed judgment as to the merits of an investment in our
securities. Any investment in our common stock should be considered a high risk
investment because you will be placing funds at risk in an unseasoned start-up
company with unforeseen costs, expenses, competition and other problems to which
start-up ventures are often subject.





As we
have such a limited history of operation, you will be unable to assess our
future operating performance or our future financial results or condition by
comparing these criteria against our past or present equivalents.





We
will require additional funds to achieve our current business strategy. Our
inability to obtain additional financing will inhibit our ability to expand or
even maintain our business operations.





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 your interests 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 extent that we are forced to restructure, file for bankruptcy, sell assets
or cease operations, any of which could put your investment dollars at
significant risk.




3


We
expect to experience significant and rapid growth in the scope and complexity of
our business if our business strategy gains acceptance in the market. If we are
unable to hire additional staff to handle engineering,  sales and
marketing of our products and services and manage our operations, our growth
could harm our future business results and may strain our managerial and
operational resources.





If our
business gains acceptance in the market, we expect to experience significant and
rapid growth in the scope and complexity of our business. We will need to hire
staff to market our products and services and perform finance and accounting
functions. We will be required to hire a broad range of personnel in order to
successfully advance our operations. This growth is likely to place a strain on
our management and operational resources. If we fail to develop and implement
effective systems, or hire and retain sufficient personnel for the performance
of all of the functions necessary to effectively service and manage our future
relationships, or fail to manage growth effectively, our business will fail and
you will lose your entire investment in our company.





If
we are unable to hire and retain key personnel, then we may not be able to
implement our business plan.





We depend
on the services of our officers and directors, Christian Soderquist and George
Ecker. Our success depends on the continued efforts of these individuals to
manage our business operations. The loss of the services of either of these
individuals could have a negative effect on our business, financial condition
and results of operations. In addition, our success in expanding our business
operations is largely dependent on our ability to hire highly qualified
personnel. In addition, we may lose employees or consultants that we hire due to
higher salaries and fees being offered by competitors or other businesses in the
industry.





Our
managers’ control of our company may prevent you from causing a change in the
course of our operations and may affect the market price of our common
stock.





Mr.
Soderquist and Mr. Ecker each beneficially own approximately 35% of our common
stock and together control the majority of the Company’s voting shares.
Accordingly, for as long as they continue to own more than 50% of our common
stock, they will be able to elect a majority or all of our board of directors,
control all matters that require a stockholder vote (such as mergers,
acquisitions and other business combinations) and exercise a significant amount
of influence over our management and operations. Therefore, your ability to
cause a change in the course of our operations may be impeded. This
concentration of ownership could result in a reduction in value to the common
stock you own and could have the effect of preventing us from undergoing a
change of control in the future.





We
may pursue strategic acquisitions and investments that could have an adverse
effect on our business if they are unsuccessful.





As part
of our business strategy, we intend to acquire companies, and acquire or license
technologies and product lines. There is the risk that our valuation assumptions
and models for any acquired product, business or technology that we may acquire
will be overly optimistic or inaccurate or that customers do not demand the
products or services to the extent we expect, the technology does not function
as we expect, that or the technology we acquire is the subject of infringement
or trade secret claims by third parties.





The
identification of acquisition candidates is difficult and we may not correctly
assess the risks related to such acquisitions and investments. In particular,
our determinations and assessments of technology candidates involve assessments
of the financial performance of the candidates and past financial performance
that we observe may not be indicative of future financial performance. In
addition, acquisitions could be effected on terms less satisfactory to us than
expected. If these risks materialize, the benefit that we derive from
businesses, technologies, products or services that we acquire or license may be
less than we expect, with the result that our operating losses could
increase.





We
have a history of losses and have a deficit, which raises substantial doubt
about our ability to continue as a going concern.





We cannot
provide assurances that we will be able to successfully develop our business.
These circumstances raise substantial doubt about our ability to continue as a
going concern as described in an explanatory paragraph to our independent
auditors’ report on our audited financial statements, dated that are included in
this Report. If we are unable to continue as a going concern, investors will
likely lose all of their investments in our company.




4


Because
we may never become profitable from our operations, our business may
fail.





We expect
to incur losses into the foreseeable future. We recognize that if we are unable
to generate significant revenues, we will not be able to earn profits or
continue operations. There is no history upon which to base any assumption as to
the likelihood that we will prove successful, and we can provide no assurance
that we will generate any revenues or ever achieve profitability. If we are
unsuccessful in addressing these risks, our business will fail and investors may
lose all of their investment in our company.




Risks
Associated With Our Common Stock





Trading on the OTC Bulletin Board may
be volatile and sporadic, which could depress the market price of our common
stock and make it difficult for our stockholders to resell their
shares.





Our
common stock is quoted on the OTC Bulletin Board service of the National
Association of Securities Dealers. Trading in stock quoted on the OTC Bulletin
Board is often thin and characterized by wide fluctuations in trading prices,
due to many factors that may have little to do with the company’s operations or
business prospects. This volatility could depress the market price of our common
stock for reasons unrelated to operating performance. Moreover, the OTC Bulletin
Board is not a stock exchange, and trading of securities on the OTC Bulletin
Board is often more sporadic than the trading of securities listed on a
quotation system like Nasdaq or a stock exchange. Accordingly, shareholders may
have difficulty reselling any of the shares.





Trading
of our stock may be restricted by the SEC's penny stock regulations, which may
limit a stockholder's ability to buy and sell our stock.





The
Securities and Exchange Commission has adopted regulations which generally
define “penny stock” to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny
stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
“accredited investors.” The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC which
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock.




5


We do not intend to pay dividends on
any investment in the shares of stock of ourcompany.





We have
never paid any cash dividends and currently do not intend to pay any dividends
for the foreseeable future. Because we do not intend to declare dividends, any
gain on an investment in our company will need to come through an increase in
the stock’s price. This may never happen and investors may lose all of their
investment in our company.





We
recently became aware of 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.





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 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
liabilities 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 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.





6


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.





ITEM
1B  UNRESOLVED STAFF COMMENTS





None.





ITEM
2  PROPERTIES





Our
corporate offices are located at 803 Second Street, Suite 303, Davis,
CA  95616.  These facilities are leased under a short term
lease agreement.





We also
maintain approximately 400 square feet of office space at 619 State Street, Unit
A, Carlsbad, CA 92011, on a month to month basis.  We do not maintain
any other leases for office space and nor own any real property.  We
believe these facilities are adequate for our requirements and that adequate
space is available for the expansion of our business in the foreseeable future
should that be necessary.





ITEM
3.  LEGAL PROCEEDINGS





We are
not currently involved in any legal proceedings and have no legal proceedings
pending.





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





There
were no matters submitted to a vote of the shareholders during the year ended
December 31, 2009.





PART
II





ITEM
5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES





Market
for Common Stock





Our
common stock is eligible for quotation on the Over-the-Counter Bulletin Board
under the symbol "OCTI.OB".





7


Set forth
below are the ranges of high and low bid prices for each quarter for the Common
Stock as reported by the OCTI.OB for the years ended December 31, 2009 and
2008.





COMMON
      STOCKQUARTER
      ENDED
            
            HIGH
            
            
            LOWMarch
      31, 2008
            
            
            0.08
            
            
            
            0.08June
      30, 2008
            
            
            0.04
            
            
            
            0.04September
      30, 2008
            
            
            0.07
            
            
            
            0.07December
      31, 2008
            
            
            0.01
            
            
            
            0.01March
      31, 2009
            
            
            0.01
            
            
            
            0.10June
      30, 2009
            
            
            0.05
            
            
            
            0.25September
      30, 2009
            
            
            0.10
            
            
            
            0.39December
      31, 2009
            
            
            0.18
            
            
            
            0.35





The
source of these high and low prices was the OTC Bulletin Board. These quotations
reflect inter-dealer prices, without retail mark-up, markdown or commissions and
may not represent actual transactions. The high and low prices listed have been
rounded up to the next highest two decimal places.





It is
anticipated that the market price of our common stock will be subject to
significant fluctuations in response to variations in our quarterly operating
results, general trends in the market for the products we distribute, and other
factors, over many of which we have little or no control. In addition, broad
market fluctuations, as well as general economic, business and political
conditions, may adversely affect the market for our common stock, regardless of
our actual or projected performance. On April 9, 2010, the closing price of our
common stock as reported by the OTC Bulletin Board was $0.21 per
share.  Trading on our Common Stock is extremely limited and
sporadic.  Therefore, prices are not an accurate indication of the
market value of our Common Stock.





Reports
to Security Holders





We are a
reporting company with the Securities and Exchange Commission, or SEC. The
public may read and copy any materials filed with the Securities and Exchange
Commission at the Securities and Exchange Commission’s Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The public may also obtain
information on the operation of the Public Reference Room by calling the
Securities and Exchange Commission at 1-800-SEC-0330. The Securities and
Exchange Commission maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Securities and Exchange Commission. The address of that
site is http://www.sec.gov .





Dividends





We have
never declared or paid cash dividends on our Common Stock and have no
current intention to declare or pay any dividends on our Common Stock in the
foreseeable future.  We intend to retain earnings, if any, for the
development of our business.





Description
of Capital Stock





Our
authorized capital stock consists of the following:


·
            Common
      stock, $0.001 par value, 100,000,000 shares authorized; approximately
      43,867,072 shares issued and
outstanding;


·
            Series
      A preferred stock, $0.001 par value, 300,000 shares authorized, no shares
      issued or outstanding;


·
            Series
      B preferred stock, $0.001 par value, 910,000 shares authorized, no shares
      issued or outstanding;


·
            Series
      C 6.0% cumulative preferred stock, $0.001 par value, 250,000 shares
      authorized, no shares issued and outstanding;
  and


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





8


Holders
of shares of our common stock are entitled to receive dividends when and as
declared by our Board of Directors from funds legally available. All the shares
of our common stock have equal voting rights and are non-assessable. Each
shareholder of our common stock is entitled to share ratably in any assets
available for distribution to holders our equity securities upon our
liquidation. Holders of our common stock do not have preemption
rights.





As of
April 12, 2010, there were approximately 311 holders of our Common
Stock.





Recent
Sales of Unregistered Securities





On
February 24, 2009, we entered into share purchase agreements with our two
officers and directors whereby they each received 15,000,000 common
shares.





On May 5,
2009, OCTuS entered into an employment agreement with John Argo pursuant to
which Mr. Argo will serve as Director, Energy Projects & Finance of OCTuS.
The employment agreement has a term of three years, through April 30, 2012, with
a base annual salary of $120,000. Concurrently, OCTuS issued 250,000 shares of
common stock, valued at $12,500 to Mr. Argo, recorded as share-based
compensation.





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 70,000 shares under this agreement during the
year ended December 31, 2009, valued at $20,900 and recorded as share-based
compensation.





In July
2009, OCTuS entered into a three-month consulting agreement which calls for
OCTuS to issue 20,000 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 $2,000 stipend each month the contract is in force.  OCTuS
issued 80,000 shares under this agreement during the year ended December 31,
2009, valued at $22,200 and recorded as share-based compensation.





In July
2009, OCTuS entered into a three-month consulting agreement which calls for
OCTuS to issue 10,000 shares of common stock each month the contract is in
force.  OCTuS issued 30,000 shares under this agreement during the
year ended December 31, 2009, valued at $9,300 and recorded as share-based
compensation.





In August
2009, OCTuS entered into a twelve-month consulting agreement which calls for
OCTuS to pay $3,000 and issue 10,000 shares of common stock each month the
contract is in force.  OCTuS issued 30,000 shares under this agreement
during the year ended December 31, 2009, valued at $9,300 and recorded as
share-based compensation. This contract was terminated October 31, 2009 by
mutual agreement.





On August
12, 2009, OCTuS entered into two consulting agreements and granted each of the
consultants an option to purchase 30,000 shares of OCTuS’ common stock at $0.39
per share.  The options vest ratably over six months and expire on
August 17, 2012. The options each had a value of $11,091 on the date of grant.
One of the Consulting Agreements was terminated effective November 23,
2009.




In
September 2009, OCTuS entered into a software development contract that required
OCTuS to issue 91,000 shares of common stock as part of the developer’s
compensation upon execution of the agreement.  The shares were valued
at $30,000 and recorded as share-based compensation. OCTuS sent a notice of
termination of  this Agreement to the contractor on January 13, 2010
and considers the contract null and void.





In
October 2009, OCTuS entered into a one year investor relations agreement which
calls for the issuance of 350,000 shares of common stock such agreement was
terminated by OCTuS on January 8, 2010 with no shares issued.





In 2009,
OCTuS issued convertible secured promissory notes (the “Note”) with a principal
amount of $135,000 to investors.  The Note bears 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 Note is 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 note a security
interest of all assets of OCTuS, ranking before all preferred and common
shareholders and subordinated to the existing senior convertible
debt.  The Note 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 Note, OCTuS issued warrants to the note holder to purchase
540,000 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 is $59,000.  The intrinsic value of the conversion
feature totaled $63,817 resulting in a discount of $122,817 to the notes
payable.





9


In
January 2010, OCTuS entered into three three-month consulting agreements which
call for OCTuS to issue 70,000 shares of common stock each month the contracts
are in force.





In
January 2010, OCTuS entered into an investment advisory services contract which
calls for OCTuS to issue 30,000 shares of common stock each month the contract
is in force.  The term of the contract is three months and may be
extended on a month to month basis.





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.





In
February 2010, OCTuS entered into a six month public relations contract which
calls for OCTuS to issue 1,000,000 shares of common stock at a purchase price of
$0.0001 per share.





During
the first quarter of 2010, OCTuS issued convertible secured promissory notes
(the “2010 Note”) with a principal amount of $35,000 to investors for proceeds
of $30,000, as $5,000 of the convertible notes issued was to convert a standard
promissory note outstanding as of December 31, 2009 to a convertible
note.  The 2010 Note bears interest at a rate of 10% per annum and is
due two years from the date of issuance.  Accrued interest is paid
semi-annually, with the first payment due six months after the date the Note is
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 note a security interest of
all assets of OCTuS, ranking before all preferred and common shareholders and
subordinated to the existing senior convertible debt.  The Note 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 $0.35 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 note holder to purchase 140,000 shares of OCTuS common stock at
an exercise price of $0.01 per share.  The term of the warrants is
eighteen months.





Other
than these transactions we did not sell any equity securities during the period
covered by this report that were not registered under the Securities
Act.





Equity
Compensation Plans





We have a
stock option plan for option grants to our directors, officers, employees and
consultants.  Such options are granted at fair value, vest over three
to five years, and expire not more than ten years from date of grant. As of
December 31, 2009, we have reserved a total of 450,000 shares of common stock
for exercise under the stock option plan.  As of December 31, 2009,
one option for 15,000 shares and one option for 30,000 shares at a grant price
of $0.39 per share were issued in August 2009 with a term of three
years.  Accordingly, 405,000 shares are available for grant under the
stock option plan.  The remaining life of the option is 2.75
years.





Penny
Stock Regulation





Shares of
our common stock are subject to rules adopted by the Securities and Exchange
Commission that regulate broker-dealer practices in connection with transactions
in "penny stocks". Penny stocks are generally equity securities with a price of
less than $5.00 (other than securities registered on certain national securities
exchanges or quoted on the Nasdaq system, provided that current price and volume
information with respect to transactions in those securities is provided by the
exchange or system). The penny stock rules require that a broker-dealer, prior
to a transaction in a penny stock not otherwise exempt from those rules, deliver
a standardized risk disclosure document prepared by the Securities and Exchange
Commission, which contains the following:


·
            a
      description of the nature and level of risk in the market for penny stocks
      in both public offerings and secondary
trading;


·
            a
      description of the broker's or dealer's duties to the customer and of the
      rights and remedies available to the customer with respect to violation to
      such duties or other requirements of securities'
  laws;


·
            a
      brief, clear, narrative description of a dealer market, including "bid"
      and "ask" prices for penny stocks and the significance of the spread
      between the "bid" and "ask" price


·
            a
      toll-free telephone number for inquiries on disciplinary
      actions;


·
            definitions
      of significant terms in the disclosure document or in the conduct of
      trading in penny stocks; and


·
            such
      other information and is in such form (including language, type, size and
      format), as the Securities and Exchange Commission shall require by rule
      or regulation.





Prior to
effecting any transaction in penny stock, the broker-dealer also must provide
the customer the following:


·
            the
      bid and offer quotations for the penny
stock;


·
            the
      compensation of the broker-dealer and its salesperson in the
      transaction;





10


·
            the
      number of shares to which such bid and ask prices apply, or other
      comparable information relating to the depth and liquidity of the market
      for such stock; and


·
            monthly
      account statements showing the market value of each penny stock held in
      the customer's account.





In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitability
statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for a stock that becomes subject to the
penny stock rules. Holders of shares of our common stock may have difficulty
selling those shares because our common stock will probably be subject to the
penny stock rules.





Purchases
of Equity Securities





None
during the period covered by this report.





ITEM 6.SELECTED FINANCIAL
DATA





As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.




ITEM
7  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 THAT 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. NO ASSURANCE CAN BE GIVEN
THAT ANY OF THE ASSUMPTIONS RELATING TO THE FORWARD-LOOKING STATEMENTS SPECIFIED
IN THE FOLLOWING INFORMATION ARE ACCURATE, AND WE ASSUME NO OBLIGATION TO UPDATE
ANY SUCH FORWARD-LOOKING STATEMENTS.





11


Critical
Accounting Policy and Estimates





Our
Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our 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 ongoing 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. As we did not engage in active business
operations during 2008, the most significant accounting estimates inherent in
the preparation of our financial statements include estimates as to the
appropriate amounts to accrue for accounting and legal expenses. These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the financial statements included in this Annual
Report.





Management's
Discussion and Analysis of Financial Condition





This
information should be read in conjunction with the audited consolidated
financial statements and notes contained herein.





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 and
demand response management program for the energy management market in the
United States.





We are
actively seeking technologies and business opportunities in the smart energy
sector, which may include the licensing, acquisition or development of smart
energy and energy efficiency products or technologies as part of the OctusSEP
(Smart Energy Platform).  We intend to recruit management, advisors
and affiliates with sufficient experience needed to review and qualify such
technologies and business opportunities for our involvement.  Although
we are seeking 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. 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.





On July
9, 2009 we announced the addition of two energy industry executives to our
management team: Tobin J.M. Richardson as Senior Advisor, Energy Markets, and
Siva Gunda as Senior Engineer, Smart Energy Solutions. Richardson is Director of
the ZigBee Smart Energy Initiative, where he drives adoption of energy
efficiency technology in key smart energy markets, and Gunda is the Southern
California Edison International Energy Efficiency Fellow with the UC Davis
Energy Efficiency Center.





On August
20, 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.





On
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 4, 2009, we announced a joint venture with Quantum Energy Solutions to
catalyze commercialization of the Octus Smart Energy Platform and to
collaboratively pursue smart energy projects. Quantum has managed more than $100
million in energy projects for several hundred clients, including Safeway, Bank
of America, Sears, Hewlett-Packard and Chevron.





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. On November
2, 2009, we announced the launch of SmartLightSupply.com, an electronic commerce
marketplace featuring smart, energy-efficient lighting products for the
commercial market.





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





We did
not realize any revenues during either the year ended December 31, 2009 or the
year ended December 31, 2008.





During
the year ended December 31, 2009, we reported a net loss of $932,011 or $0.02
per share, compared to a net loss of $66,865 or $0.00 per share for the year
ended December 31, 2008. We expect to incur losses until such time, if ever, we
begin generating revenue from operations.




During
the year ended December 31, 2009, our general and administrative expenses were
$784,430, as compared to $31,866 for 2008. General and administrative expenses
consisted primarily of payroll expenses and share based
compensation.
 
 Interest
expense for the year ended December 31, 2009 was $147,581 compared to $34,999
incurred during 2008.





12
 
 As of
December 31, 2009, we had significant tax credits and research carry-forwards
for federal tax reporting purposes that expire through 2009. Additionally, we
have federal and state net operating loss carry-forwards, expiring through 2027.
Because of a substantial change in our ownership resulting from an initial
public offering, an annual limitation of approximately $600,000 has been placed
on utilization of the loss carry forwards generated prior to our initial public
offering.




Liquidity
and Capital Resources





Cash on
hand as of December 31, 2009 was $23,003. Our total assets were $24,689 as of
December 31, 2009. Our current liabilities were $495,915 as of December 31,
2009, including $102,236 in accounts payable, $171,700 in stock
payable,  $26,750 in accrued liabilities, $63,986 in accrued
liabilities, $5,000 notes payable, $32,750 related parties, $88,500 convertible
notes payable.


Although
we have actively been pursuing new investments or other business operations, we
cannot give assurance that we will enter into any new investment or agreement to
acquire such operations, or that the terms of any agreements relating to
financing or commercial activities will be on terms favorable to us. 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. Should we be unable to
obtain revenues or raise additional capital, we could be forced to cease
business activities altogether.





Our
Plan of Operations for the Next Twelve Months.





We are
actively seeking technologies and business opportunities in the smart energy
sector, which may include the licensing, acquisition or development of smart
energy and energy efficiency products or technologies as part of the OctusSEP
(Smart Energy Platform).  We intend to recruit management, advisors
and affiliates with sufficient experience needed to review and qualify such
technologies and business opportunities for our involvement.  Although
we are seeking 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. 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.





Management
believes that without an influx of significant new funds, we will not be able to
sustain our operations beyond approximately the end of  April 2010.
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, 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.




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.





13


Through
OctusSEP we intend to 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:





Our Smart 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.





Our Smart 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. These are delivered through Octus SmartPortal, a
hosted solution delivering capabilities through a Software as a Service (SaaS)
model and subscriptions are on a per-service, per-user or per-facility basis.
Revenue comes from subscriptions to one or more services or software
modules.





Our Smart 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.





Market
Overview





According
to the U.S. Department of Energy ("DOE"), the United States consumes more energy
than any other country in the world. The United States is primarily dependent on
traditional fossil fuels to supply energy for end users, which includes
transportation, heating and electricity. Recently, nearly all energy costs have
risen due to a variety of factors, including the concern over a limited supply
of fuel to meet increasing global demand.





U.S.
electricity prices have risen in recent years due to increasing energy prices,
supply constraints, and the growing demand for electricity. According to the
DOE, electricity prices increased just 5.1% from 1996 to 2003 for commercial
clients. However, the average retail price of electricity to commercial clients
rose 20.2% from 8.03 cents per kilowatt-hour in 2003 to a record of 9.65 cents
per kilowatt-hour in 2007. In addition, the Energy Information Administration
("EIA") reported demand for electricity grew from 3,492 billion kilowatt
hours in 1997 to 4,157 billion kilowatt hours in 2007, a 19% increase in
10 years. These trends have created market opportunities for energy
efficiency and smart energy management solutions due to immediate energy cost
savings and positive environmental impact energy users realize after adopting
and implementing solutions.





Regulatory
policy increasingly requires utilities to promote energy efficiency and obtain
renewable energy resources as part of their resource planning. Simultaneously,
increasing costs and time required to construct traditional power plants are
causing utilities to view investment in energy efficiency as an attractive
alternative to investment in traditional generating capacity.





We
believe that smart energy efficiency, which we define as intelligently and
systematically reducing the amount of energy used to operate facilities and
produce goods and services, is the most immediate and economic means to reduce
end user energy costs and promote environmental stewardship. At a minimum, smart
energy efficiency accomplishes four objectives:





14


§
            delivers
      immediate and recurring energy cost
savings;


§
            reduces
      greenhouse gas emissions to help alleviate climate
  change;


§
            stimulates
      the economy through the creation of new jobs in the "green" segment;
      and


§
            enhances
      the value and net operating income of
buildings.





The value
of smart energy efficiency as a resource is affirmed by increasing emphasis
placed on it in regulation, legislation and appropriations. The American Council
for an Energy Efficient Economy ("ACEEE") estimates that $300 billion was
invested in energy efficiency technologies and infrastructure in the U.S. in
2004, and that annual investment may grow to $700 billion by 2030 in
conjunction with the goal of reducing energy use by 20%. According to ACEEE,
total additional investment from 2008 to 2030 could reach nearly $7 trillion. We
believe investments in smart energy efficiency solutions will have a significant
impact on electricity costs and demand, while improving the overall
sustainability of the global energy market.





A 2009
study by McKinsey & Company offers a detailed analysis of the magnitude of
the efficiency potential in non-transportation uses of energy. The study shows
that the U.S. economy has the potential to reduce annual non-transportation
energy consumption by roughly 23 percent by 2020, eliminating more than $1.2
trillion in waste – well beyond the $520 billion upfront investment (not
including program costs) that would be required. This reduction in energy use
would also result in the abatement of 1.1 gigatons of greenhouse gas emissions
annually – the equivalent of taking the entire U.S. fleet of passenger vehicles
and light trucks off the roads.





According
to Amory Lovins, Chairman & Chief Scientist of the Rocky Mountain Institute,
there are abundant opportunities to save 70% to 90% of the energy and cost for
lighting, fan, and pump systems; 50% for electric motors; and 60% in areas such
as heating, cooling, office equipment, and appliances.





Government
Initiatives and Mandates to Stimulate Energy Efficiency for
Facilities


Improvements
in energy technology and increases in government initiatives have created
immediate economic reasons for building owners to upgrade to more efficient,
cost saving technology. In response to increasing environmental concerns over
the years, coupled with record electricity demand and costs, regulatory
authorities have created incentives for utilities and end-users to reduce
electricity usage. The federal government and many state governments have passed
legislation that provides incentives to electricity users to reduce consumption
by adopting energy efficiency solutions and forces utilities to decouple revenue
from their electricity sales. These incentives lower the net costs of
implementing smart energy efficiency solutions. This helps building owners and
managers rationalize and accelerate decisions to replace obsolete systems. More
recently, the ARRA and other related stimulus initiatives contain provisions
that further support energy efficiency as a national priority. Stephen Chu, U.S.
Energy Secretary, recently opined, “If I were emperor of the world, I would put
the pedal to the floor on energy efficiency and conservation for the next
decade.”





Legislation
and mandates adopted to date which have stimulated building energy efficiency
projects in both the commercial and industrial and public sector
include:





Federal
Legislation:





§
            The
      Energy Policy Act of 2005 ("EPAct05") includes a significant tax-incentive
      to improve energy efficiency of commercial facilities. The Commercial
      Building Tax Deduction is an incentive established to provide a
      tax-deduction of up to $1.80 per square foot for expenses incurred for the
      installation of energy efficient lighting, heating, ventilating, and air
      conditioning ("HVAC"), hot water systems and building envelope
      systems.





§
            The
      EPAct05 and Executive Order 13423 (January 2007) set new federal energy
      goals. The first goal is to cut energy use in federal facilities by 3% per
      year from 2003 levels during the period from 2007 through 2015. Second,
      the federal government is to increase the use of renewable energy to not
      less than 3% of total electricity use in 2007-2009, not less than 5% in
      2010-2012, and not less than 7.5% in 2013 and thereafter, with at least
      half of renewable purchases coming from new renewable
    sources.





§
            The
      Energy Independence and Security Act of 2007 ("EISA") included the
      permanent reauthorization of energy savings performance contracts
      ("ESPCs"). ESPCs are contracting vehicles that allow federal agencies to
      complete energy projects for their facilities without up-front investment
      and without special Congressional appropriations to pay for the
      improvements. In December 2008, the DOE awarded sixteen contracts to
      Energy Services Companies (ESCOs) for up to $80 billion in energy
      efficiency, renewable energy and water conservation projects at federal
      facilities.





More
recently, the $787 billion American Recovery and Reinvestment Act of 2009
("ARRA") reflects increased government focus on energy efficiency initiatives,
in addition to other continuing legislation and mandates. The ARRA provides
approximately $36.7 billion through a number of funding sources and for
financial incentives to stimulate energy projects, including:





§
            $16.8 billionthrough
      the Office
      of Energy Efficiency and Renewable
Energy


§
            $6.0 billionthrough the
      Office of
      Environmental Management


§
            $4.5 billionthrough the
      Office of
      Electricity Delivery & Energy
  Reliability


§
            $4.0 billionthrough the
      Loan Guarantee
      Program Office


§
            $3.4 billionthrough the
      Office of Fossil
      Energy


§
            $1.6 billionthrough
      the Office
      of Science


§
            $400 million through the
      Advanced
      Research Projects Agency -
Energy





15


Additionally,
many federal entities have made provisions for funding opportunities outside of
the ARRA, including:





§
            The
      U.S. Department of Energy currently manages the Loan Guarantee Program,
      authorized by the EPAct05, which guarantees loans on projects that either
      reduce emissions or advance energy efficiency technologies, encouraging
      early commercial use of such
projects.


§
            The
      General Services Administration, in conjunction with a $4.5 billion
      ARRA appropriation, has taken an initiative to convert its facilities to
      High-Performance Green Buildings.


§
            Property
      Assessed Clean Energy Bonds ("PACE") are bonds with terms of up to
      20 years and issued by municipalities, with the proceeds lent to
      commercial and residential property owners in the community to finance
      energy efficiency and renewable energy projects. These loans are secured
      by borrowers properties and are repaid over the term of the issuance via
      an annual assessment on properties’ tax bills. The first PACE bonds were
      issued in 2009. It is estimated that potential for PACE bonds could exceed
      $500 billion. The Waxman-Markey Energy Bill includes a provision that
      would provide for DOE support of these
bonds.





State
Legislation and Other Initiatives Supporting Energy Efficiency for
Facilities





Over the
past few years, there have been increasing numbers of state initiatives
encouraging or requiring utilities to establish Demand-Side Management ("DSM")
and energy efficiency programs. DSM and energy efficiency programs typically
provide incentives to utility customers to offset a portion of the upfront cost
of energy efficiency projects. Regulatory mandates, such as the Energy
Efficiency Resource Standards ("EERS"), often result in significant economic
incentives to utility customers and have served to increase the number of DSM
and energy efficiency projects, especially in several Northeast and West Coast
states. Under these programs utilities actively seek participants, arrange for
project management and implementation services for energy efficiency projects
initiated under their programs, and pay a portion of the costs.





Current
EERS typically require utilities to achieve savings equivalent to between one
and 1.5 percent of their annual sales through energy efficiency. In
response to EERS, many states have begun planning or have already implemented
DSM and Energy Efficiency projects, including New York, where utilities have
filed more than $6 billion in new DSM and Energy Efficiency programs and
Pennsylvania with utilities allocating more than $275 million per year to
new DSM and Energy Efficiency projects. Currently 26 states, representing 71% of
the U.S population, have adopted, or are in the process of adopting, EERS
programs. The Save American Energy Act currently being considered by Congress
would establish a national EERS program requiring utilities to achieve 15%
energy savings through utility efficiency programs, building energy codes,
appliance standards and related efficiency measures. In addition to these
programs, five states--Maryland, Nevada, New York, Montana and Oregon--currently
offer incentives for commercial facilities that meet green building
standards.





Initiatives
of Non-Governmental Organizations





Public
awareness of cost savings and environmental benefits accruing from facility
energy efficiency initiatives are also being stimulated by organizations other
than the federal government. These include a number of non-government
organizations ("NGOs") that are helping to increase public awareness of the
environmental and operational value of prioritizing building energy efficiency
initiatives. These initiatives include efforts to focus on specific major
projects. They have helped focus commercial and public sector entities on the
need to take action and for results to be seen by their stakeholders. Notable
examples include:





§
            Clinton
      Climate Initiative ("CCI")—Working with governments and businesses around
      the world, the CCI focuses on three strategic program areas consisting of
      increasing energy efficiency in cities, catalyzing the large-scale supply
      of clean energy and working to stop
  deforestation.





§
            Energy
      Efficiency Partnership of Greater Washington—This is a collective
      partnership of energy efficiency companies, banks, local governments and
      facility owners to reach a goal of reducing energy use by twenty to fifty
      percent in existing facilities in the Greater Washington, D.C.
      region.





As much
of ARRA funding has yet to be allocated to specific projects and programs, it is
premature to identify resulting benefits. However, we believe that we are well
positioned to capitalize on the range of mandates and initiatives intended to
stimulate building energy efficiency. We are focusing sales and marketing
efforts to industries and markets likely to be primary beneficiaries of
significant government funding.





16


Growing
Interest in Adoption of Environmentally Conscientious Energy Efficiency
Strategies





Electricity
supply shortages and rising energy prices have led consumers, companies and
public entities to implement "sustainable" policies to reduce energy use and
greenhouse gas emissions. As standards of corporate accountability evolve,
stockholders and other stakeholders are pushing organizations to recognize and
act to reduce their carbon footprint. Achieving greater energy efficiency is a
cost-effective way to reduce energy consumption and promote environmental
stewardship. According to Institute of Business and Economic Research ("IBER"),
energy represents 30% of operating expenses in a typical office building, which
makes it the single largest building operating expense. DOE estimates that
residential and commercial buildings are responsible for 39% of total U.S energy
consumption and that buildings account for 38% of total U.S. CO2 emissions,
America’s largest single source.





There is
an increasing demand for environmentally friendly and sustainable building
construction and methods for addressing energy efficient upgrades of facilities.
The term "green building" has been adopted to refer to buildings that use lower
amounts of electricity and reduce their emissions through use of energy
efficient equipment and materials. According to McGraw-Hill Construction, an
estimated 10%-12% of current new commercial construction starts are green,
representing a $24-$29 billion market, and total commercial construction
market is on track to grow to $56-$70 billion annually by 2013. In the
U.S., the Energy Star project, which is jointly sponsored by the Environmental
Protection Agency ("EPA") and DOE, and the U.S. Green Building Council's
Leadership in Energy and Environmental Design ("LEED") program are the two major
rating systems to encourage development of energy-efficient and sustainable
facilities. According to IBER only 1,360 of the approximately 332,000 U.S.
commercial facilities listed in the Co-Star Group, Inc. database of
commercial properties for sale or lease are certified by either LEED or Energy
Star as "green" office buildings. We believe that economic and environmental
factors will drive growth in new construction and retrofit projects that result
in green building certifications.





Commercial
and Industrial Market





We
believe there is currently a significant market opportunity for the sale of
smart energy efficiency solutions based on the amount of U.S. electricity
expenditures, potential energy savings with currently available solutions, and
amount of commercial and industrial floor space able to be retrofitted. The EIA
estimated that in 2003 the U.S. commercial sector spent approximately
$46 billion on electricity for lighting, heating, ventilating and air
conditioning. This represented approximately 67% of the $69 billion total
electricity spending by that sector for facilities. Also according to the EIA,
more than 63 billion square feet of commercial building floor space in the
U.S. was built before 2004. We believe there are about 4 million "small
commercial / small site" buildings of less than 100,000 square feet in the U.S.
today. Few of these small site buildings have any form of centralized energy
management or control systems in place. With constant changes in lighting
products and energy management technologies, this represents a significant
amount of floor space able to be retrofitted to improve energy efficiency and
meet sustainability goals.





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 7A.QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK





As a
“smaller reporting company” as defined by Item 10 of Regulation S-K, the Company
is not required to provide information required by this Item.





17


ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





OCTUS
      , Inc.Table
      of ContentsPageReport
      of Independent Registered Public Accounting Firm
            13Consolidated
      Balance Sheets
            14Consolidated
      Statements of Operations
            15Consolidated
      Statements of Changes in Stockholders’ Deficit
            16Consolidated
      Statements of Cash Flows
            17Notes
      to Consolidated Financial Statements
            18





18


REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Shareholders and Board of Directors


Octus,
Inc.


Davis,
California





We have
audited the accompanying consolidated balance sheets of Octus, Inc. as of
December 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders' deficit, and cash flows for the years ended
December 31, 2009 and 2008.  These consolidated financial statements
are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.





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





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





The
accompanying consolidated financial statements have been prepared assuming that
Octus will continue as a going concern.  As discussed in Note 2 to the
consolidated financial statements, Octus has suffered recurring losses from
operations and has working capital and stockholders’ deficits.  These
factors raise substantial doubt about the Company’s ability to continue as a
going concern.  Management’s plans in regard to these matters are also
discussed in Note 2.  The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.




/s/ GBH
CPAs, PC




GBH CPAs,
PC


www.gbhcpas.com


Houston,
Texas


April 15,
2010





19


OCTUS
, INC.


CONSOLIDATED
BALANCE SHEETS





December
      31, 2009
            
            
            December
      31, 2008ASSETSCURRENT
      ASSETSCash
            
            23,003
            
            
            -Other
      receivable
            
            1,686
            
            
            -Total
      current assets
            
            24,689
            
            
            -TOTAL
      ASSETS
            
            $
            24,689
            
            
            $
            -LIABILITIES
      AND STOCKHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
            
            $
            102,236
            
            
            $
            32,151Accrued
      liabilities
            
            
            26,750
            
            
            
            -Stock
      payable
            
            
            171,700
            
            
            
            -Accounts
      payable - related parties
            
            
            4,993
            
            
            
            3,169Accrued
      liabilities - related parties
            
            
            63,986
            
            
            
            43,542Notes
      payable
            
            
            5,000
            
            
            
            -Notes
      payable - related parties
            
            
            32,750
            
            
            
            -Convertible
      notes payable
            
            
            88,500
            
            
            
            -Convertible
      notes payable - related parties
            
            
            -
            
            
            
            441,853Total
      current liabilities
            
            
            495,915
            
            
            
            520,715LONG
      TERM LIABILITIESConvertible
      notes payable, less debt discount of $17,709 and $0,
      respectively
            
            
            509,330
            
            
            
            -Total
      liabilities
            
            
            1,005,245
            
            
            
            520,715Commitments
      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 sharesauthorized,
      43,867,072 and 13,437,072 shares issued and outstanding,
      respectively
            
            
            43,867
            
            
            
            13,437Additional
      paid-in capital
            
            
            23,299,212
            
            
            
            22,857,472Accumulated
      deficit
            
            
            (24,323,635
            )
            
            
            (23,391,624
            )Total
      stockholders' deficit
            
            
            (980,556
            )
            
            
            (520,715
            )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
            
            $
            24,689
            
            
            $
            -





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





20


OCTUS
, INC.


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
            
            
            2008Revenues
            
            $
            -
            
            
            $
            -General
      and administrative expenses
            
            
            784,430
            
            
            
            31,866Loss
      from operations
            
            
            (784,430
            )
            
            
            (31,866
            )Interest
      expense
            
            
            147,581
            
            
            
            34,999Net
      loss
            
            $
            (932,011
            )
            
            $
            (66,865
            )Net
      loss per common share – basic and diluted
            
            $
            (0.02
            )
            
            $
            (0.00
            )Weighted
      average shares outstanding – basic and diluted
            
            
            39,223,812
            
            
            
            13,437,072





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





21


OCTUS
, INC.


CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





Common
      stockNumber
            
            
            
            
            
            Additionalof
            
            
            
            
            
            Paid-in
            
            
            AccumulatedShares
            
            
            Amount
            
            
            Capital
            
            
            Deficit
            
            
            TotalBalance
      as of December 31, 2007
            
            
            13,437,072
            
            
            $
            13,437
            
            
            $
            22,857,472
            
            
            $
            (23,324,759
            )
            
            $
            (453,850
            )Net
      loss
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (66,865
            )
            
            
            (66,865
            )Balance
      as of December 31, 2008
            
            
            13,437,072
            
            
            
            13,437
            
            
            
            22,857,472
            
            
            
            (23,391,624
            )
            
            
            (520,715)Common
      shares issued for services
            
            
            30,430,000
            
            
            
            30,430
            
            
            
            304,270
            
            
            
            -
            
            
            
            334,700Stock
      options issued for services
            
            
            -
            
            
            
            -
            
            
            
            14,653
            
            
            
            -
            
            
            
            14,653Discount  on
      convertible notes
            
            
            -
            
            
            
            -
            
            
            
            122,817
            
            
            
            -
            
            
            
            122,817Net
      loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (932,011
            )
            
            
            (932,011
            )Balance
      as of December 31, 2009
            
            
            43,867,072
            
            
            $
            43,867
            
            
            $
            23,299,212
            
            
            $
            (24,323,635
            )
            
            $
            (980,556
            )





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





22


OCTUS
, INC.


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008





2009
            
            
            2008OPERATING
      ACTIVITIESNet
      loss
            
            $
            (932,011
            )
            
            $
            (66,865
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Amortization
      of debt discount
            
            
            105,108
            
            
            
            -Share-based
      compensation
            
            
            349,353
            
            
            
            -Changes
      in operating assets and liabilitiesAccounts
      payable and accrued liabilities
            
            
            96,835
            
            
            
            14,840Stock
      payable
            
            
            171,700
            
            
            
            -Accounts
      payable and accrued liabilities – related parties
            
            
            60,954
            
            
            
            34,999Net
      cash used in operating activities
            
            
            (148,061
            )
            
            
            (17,026
            )INVESTING
      ACTIVITIESIncrease
      in deposit
            
            
            (1,686
            )
            
            
            -Net
      cash provided by investing activities
            
            
            (1,686
            )
            
            
            -FINANCING
      ACTIVITIESProceeds
      from notes payable – related parties
            
            
            32,750
            
            
            
            17,026Proceeds
      from notes payable
            
            
            5,000
            
            
            
            -Proceeds
      from convertible debt
            
            
            135,000
            
            
            
            -Net
      cash provided by financing activities
            
            
            172,750
            
            
            
            17,026Net
      change in cash
            
            
            23,003
            
            
            
            -CASH
      AT BEGINNING OF YEAR
            
            
            -
            
            
            
            -CASH
      AT END OF YEAR
            
            $
            23,003
            
            
            $
            -SUPPLEMENTAL
      CASH FLOW INFORMATION:Cash
      paid for interest
            
            $
            1,090
            
            
            $
            -Cash
      paid for income taxes
            
            $
            -
            
            
            $
            -NONCASH
      INVESTING AND FINANCING ACTIVITIES:Conversion
      of accrued interest into convertible note
            
            $
            38,686
            
            
            $
            -Debt
      discount from warrants issued with convertible debt
            
            $
            122,817
            
            
            $
            -Conversion
      of liabilities into convertible note payable - related
    party
            
            $
            -
            
            
            $
            442,643





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




23


OCTUS
, INC.


Notes
to Consolidated Financial Statements





Note
1 – Summary of Significant Accounting Policies





Organization





Octus,
Inc. (“OCTuS”) was formed as a California corporation in 1983.  On
December 29, 2001, a majority of the shareholders voted to change our state of
incorporation from California to Nevada.  In December 2003, the change
was completed and OCTuS became a Nevada corporation.  Today OCTuS is
seeking to become a leading renewable energy efficiency company that brings
innovative energy efficiency and renewable energy solutions to the commercial
and public sector markets.  OCTuS intends to pursue and facilitate
renewable energy efficiency projects involving energy efficiency systems, and
products that OCTuS may develop, acquire, license or
distribute.  OCTuS believes that the market demand for energy
conservation and energy creation presents an attractive business
opportunity.





Principles
of Consolidation





All of
our subsidiaries are inactive.  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.





Reclassification





Certain
amounts for prior periods have been reclassified to conform to the current
presentation.





Cash
and Cash Equivalents





For the
purpose of the statements of cash flows, all highly liquid investments with the
maturity of three months or less are considered to be cash
equivalents.





Revenue
Recognition





We
currently have no revenue generating operations.  We plan to record
revenue when persuasive evidence of an arrangement exists, services have been
rendered or product delivery has occurred, the sales price to the customer is
fixed or determinable, and collectability is reasonably assured.





Income
Taxes





OCTuS is
a taxable entity and recognizes deferred tax assets and liabilities for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to be in effect when the temporary
differences reverse.  The effect on the deferred tax assets and
liabilities of a change in tax rates is recognized in income in the year that
includes the enactment date of the rate change.  A valuation allowance
is used to reduce deferred tax assets to the amount that is more likely than not
to be realized.  Interest and penalties associated with income taxes
are included in selling, general and administrative expense.





OCTuS has
adopted ASC 740 “Accounting for Uncertainty in Income Taxes” (formerly FIN 48)
which prescribes a comprehensive model of how a company should recognize,
measure, present, and disclose in its financial statements uncertain tax
positions that OCTuS has taken or expects to take on a tax
return.  ASC 740 states that a tax benefit from an uncertain position
may be recognized if it is "more likely than not" that the position is
sustainable, based upon its technical merits.  The tax benefit of a
qualifying position is the largest amount of tax benefit that is greater than 50
percent likely of being realized upon ultimate settlement with a taxing
authority having full knowledge of all relevant information.  As of
December 31, 2009, OCTuS had not recorded any tax benefits from uncertain tax
positions.





Fair
Value of Financial Instruments





Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of December 31,
2009.  The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values.  These financial
instruments include accounts payable, accrued expenses and notes
payable.  Fair values were assumed to approximate carrying values
because these financial instruments are short term, their carrying amounts
approximate fair values, or they are payable on demand.





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 years ended
December 31, 2009 and 2008, common stock equivalents were not included in the
calculation, as their effect would be anti-dilutive.





24


OCTUS
, INC.


Notes
to Consolidated Financial Statements





Stock-Based
Compensation





OCTuS
follows the Accounting Standards Codification ASC 718 - Compensation - Stock
Compensation (formerly SFAS No. 123 (R). Under ASC 718, OCTuS estimates the fair
value of each stock option award at the grant date by using the Black-Scholes
option pricing model and common shares based on the last quoted market price of
OCTuS’ common stock on the date of the share grant. The fair value determined
represents the cost for the award and is recognized over the vesting period
during which an employee is required to provide service in exchange for the
award. As share-based compensation expense is recognized based on awards
ultimately expected to vest, OCTuS reduces the expense for estimated forfeitures
based on historical forfeiture rates. Previously recognized compensation costs
may be adjusted to reflect the actual forfeiture rate for the entire award at
the end of the vesting period. Excess tax benefits, as defined in ASC 718, if
any, are recognized as an addition to paid-in capital.





Subsequent
Events





OCTuS
evaluated events occurring between the end of our fiscal year, December 31,
2009, and April 15, 2010 when the consolidated financial statements were
issued.





Recent
Pronouncements





Effective
January 1, 2009, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51”. SFAS No. 160
(ASC 810 “Consolidation”) which requires companies:




•
            To
      recharacterize minority interests, previously classified within
      liabilities, as noncontrolling interests reported as a component of
      consolidated equity on the balance
sheet,




•
            To
      include total income in net income, with separate disclosure on the face
      of the consolidated income statement of the attribution of income between
      controlling and noncontrolling interests,
and




•
            To
      account for increases and decreases in noncontrolling interests as equity
      transactions with any difference between proceeds of a purchase or
      issuance of noncontrolling interests being accounted for as a change to
      the controlling entity’s equity instead of as current period gains/losses
      in the consolidated income statement. Only when the controlling entity
      loses control and deconsolidates a subsidiary will a gain or loss be
      recognized.





SFAS No.
160 was effective prospectively for fiscal years beginning on or after December
15, 2008 except for its specific transition provisions for retroactive adoption
of the balance sheet and income statement presentation and disclosure
requirements for existing minority interests that are reflected in these
consolidated financial statements for all periods presented. The new
authoritative guidance did not have an impact on OCTuS’ consolidated financial
statements.





In June
2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles (“SFAS 168” or ASC
105-10). SFAS 168 (ASC 105-10) establishes the Codification as the sole source
of authoritative accounting principles recognized by the FASB to be applied by
all nongovernmental entities in the preparation of financial statements in
conformity with GAAP. SFAS 168 (ASC 105-10) was prospectively effective for
financial statements issued for fiscal years ending on or after September 15,
2009, and interim periods within those fiscal years. The adoption of SFAS 168
(ASC 105-10) on July 1, 2009 did not impact OCTuS’ results of operations or
financial condition. The Codification did not change GAAP; however, it did
change the way GAAP is organized and presented. As a result, these changes
impact how companies reference GAAP in their financial statements and in their
significant accounting policies. OCTuS implemented the Codification in this
Report by providing references to the Codification topics alongside references
to the corresponding standards.





There
were various other accounting standards and interpretations issued recently,
none of which are expected to a have a material impact on our consolidated
financial position, operations or cash flow.





Note
2 – Going Concern





The
accompanying 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 $471,226, a stockholders’ deficit of $980,556,
and an accumulated deficit of $24,323,635 as of December 31, 2009.  In
addition, OCTuS has generated recurring losses, aggregating $932,011 and $66,865
in 2009 and 2008, respectively, and currently has no revenue generating
operations.





We are
actively seeking technologies and business endeavors in the alternative energy
sector, which may include the licensing or acquisition of alternative energy and
energy efficiency products or technologies.  Although we are seeking
such opportunities, it is unlikely that we will be able to consummate any such
transaction which would generate sufficient revenues to sustain our operations.
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.  OCTuS is reliant on a related party to provide working
capital.  There is no assurance that such related party will continue
to provide working capital.





25


OCTUS
, INC.


Notes
to Consolidated Financial Statements





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 – 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 for an interim period to defer receipt of payment of some
or all of their base salaries based on the outstanding achievements of one or
more of the milestones described below and OCTuS’ ability to pay salaries. 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 year ended December 31,
2009.





Under the
terms of the restricted stock purchase agreements, a portion of the shares is
subject to repurchase by OCTuS if certain milestones are not achieved before the
first anniversary of the date of the purchase agreements.  For each of
the following events that are not achieved before the first anniversary of the
date of the purchase agreements, 25% of the shares are subject to repurchase by
OCTuS at the original purchase price per share.  If all four
milestones are achieved, then all repurchase rights of OCTuS will
lapse.  The milestone events are:  completion of sale of
equity securities of OCTuS with proceeds to OCTuS of $100,000 or more; execution
by OCTuS of a license agreement or purchase contract with at least two
third-party persons or entities to acquire or license technologies and/or
products related to OCTuS’ intended business; receipt of revenues from the sale
by OCTuS of products licensed or owned by OCTuS; and execution by OCTuS of a
renewable energy and/or energy efficiency project contract.  In the
event of a change in control of OCTuS, defined in the agreement to include
events such as a merger or sale of assets transaction which results in more than
a 50% change of ownership of OCTuS, all restrictions lapse and the shares will
become fully vested. The milestones were met in their entirety prior to February
24, 2010 resulting in the lapse of all repurchase rights OCTuS
held.





There
were 43,437,072 shares of common stock outstanding after the issuance of the
shares in accordance with the purchase agreements.  The 30,000,000
shares issued pursuant to the purchase agreements represented approximately 69%
of the then outstanding shares of OCTuS.





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 (including
accrued but unused vacation leave) 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.





Note
4 – 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.
During February 2010, this loan and accrued interest were converted into the
convertible note and warrant offering.





Note
5 – 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.  In November and December 2009, Mr. Soderquist loaned OCTuS
an additional $17,500 and $5,250, respectively for total proceeds for the year
ended December 31, 2009 of $32,750.  These loans bear interest at 10%
and are due upon demand.





Note
6 – Convertible Notes Payable





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 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 year ending December 31, 2009 was
$28,146.  The current portion of this note is $88,500 at December 31,
2009.




26
 
 In June
through December of 2009, OCTuS issued convertible secured promissory notes (the
“Note”) with an aggregate principal amount of $135,000 to
investors.  The Note bears 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 Note is
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 note a security interest of
all assets of OCTuS, ranking before all preferred and common shareholders and
subordinated to the existing senior convertible debt.  The Note 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 Note, OCTuS issued
warrants to the note holder to purchase 540,000 shares of OCTuS common stock at
an exercise price of $0.01 per share.  The term of the warrants is 180
days. The relative fair value of the warrants is $59,000.  The
intrinsic value of the conversion feature totaled $63,817 resulting in a
discount of $122,817 to the notes payable. The discount will be amortized over
the life of the notes. The details are as follows:
 
 Face
      value of notes payable
                
                $
                135,000Less:
      discount related to warrants
                
                
                (59,000
                )discount
      related to conversion feature
                
                
                (63,817
                )Add:
      amortization of debt discount
                
                
                105,108Carrying
      value of notes at December 31, 2009
                
                $
                117,291


Note
7 – Equity Transactions





On
February 24, 2009, OCTuS issued the CFO and CEO each 15,000,000 shares of common
stock.  These shares were valued at $270,000 and recorded as
share-based compensation during the year ended December 31,
2009.





On May 5,
2009, OCTuS entered into an employment agreement with John Argo pursuant to
which Mr. Argo will serve as Director, Energy Projects & Finance of OCTuS.
The employment agreement has a term of three years, through April 30, 2012, with
a base annual salary of $120,000. Concurrently, OCTuS issued 250,000 shares of
common stock, valued at $12,500 to Mr. Argo, and recorded as share-based
compensation.





Warrant
and option activity during the year ended December 31, 2009 is as
follows:





Warrants
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Term ( in Years)Outstanding
      at December 31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            -Granted
            
            
            540,000
            
            
            
            0.01
            
            
            
            1.3Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2009
            
            
            540,000
            
            
            $
            0.01
            
            
            
            1.1Exercisable
      at December 31, 2009
            
            
            540,000





Options
            
            
            Weighted
      Average Exercise Price
            
            
            Weighted
      Average Remaining Contractual Term ( in Years)Outstanding
      at December 31, 2008
            
            
            -
            
            
            $
            -
            
            
            
            -Granted
            
            
            35,000
            
            
            
            0.36
            
            
            
            3.0Exercised
            
            
            -
            
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -
            
            
            
            -Outstanding
      at December 31, 2009
            
            
            35,000
            
            
            $
            0.36
            
            
            
            2.6Exercisable
      at December 31, 2009
            
            
            35,000





On August
17, 2009, OCTuS entered into consulting agreements and granted two consultants
the option to purchase a total of 35,000 shares of OCTuS’ common stock at $0.39
per share.  These options vest ratably over six months and expire on
August 17, 2012. The options had a value of $19,538 on the date of
grant.





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 weighted-average
assumptions used for grants during the year ended December 31, 2009 as
follows:





December
      31, 2009Dividend
      yield
            
            
            0.00%Expected
      volatility
            
            191%
      to 424%Risk
      free interest rate
            
            1.54%
      to 2.75%Expected
      lives in years
            
            0.5
      to 3





27


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 70,000 shares under this agreement during the
year ended December 31, 2009, valued at $20,900 and recorded as share-based
compensation.





In July
2009, OCTuS entered into a three-month consulting agreement which calls for
OCTuS to issue 20,000 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 $2,000 stipend each month the contract is in force.  OCTuS
issued 80,000 shares under this agreement during the year ended December 31,
2009, valued at $22,200 and recorded as share-based compensation.





In July
2009, OCTuS entered into a three-month consulting agreement which calls for
OCTuS to issue 10,000 shares of common stock each month the contract is in
force.  OCTuS issued 30,000 shares under this agreement during the
year ended December 31, 2009, valued at $9,300 and recorded as share-based
compensation.





In August
2009, OCTuS entered into a twelve-month consulting agreement which calls for
OCTuS to pay $3,000 and issue 10,000 shares of common stock each month the
contract is in force.  OCTuS issued 30,000 shares under this agreement
during the year ended December 31, 2009, valued at $9,300 and recorded as
share-based compensation.





In
September 2009, OCTuS entered into a software development contract that required
OCTuS to issue 91,000 shares of common stock as part of the developer’s
compensation upon execution of the agreement.  The shares were valued
at $30,000 and recorded as share-based compensation.  OCTuS sent a
notice of termination of this Agreement to the contractor on January 13, 2010
and considers the contract null and void.





As of
December 31, 2009, OCTuS had recorded a stock payable of $171,700 for 511,000
shares not issued pursuant to the terms of the consulting agreements noted
above.





Preferred Stock





Octus has
authorized a total of 2,000,000 shares of $0.001 par value preferred
stock.  Of the Series A Preferred Stock, 300,000 shares are authorized
and of the Series B Preferred Stock, 910,000 shares are
authorized.  The Cumulative Series C Preferred Stock had 250,000
shares authorized.  The Series classification of the remaining
authorized preferred shares has not yet been determined and such designation is
at the discretion of the board of directors.  There were no preferred
shares outstanding as of December 31, 2009 and 2008.





Note
8 – Income Taxes





Deferred
income taxes are provided on a liability method whereby deferred tax assets and
liabilities are established for the difference between the financial reporting
and income tax basis of assets and liabilities as well as operating loss and tax
credit carry forwards. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion
or all of the deferred tax assets will not be realized.





Realization
of deferred tax assets is dependent upon sufficient future taxable income during
the period that deductible temporary differences and carry-forwards are expected
to be available to reduce taxable income. At December 31, 2009 the Company has
recorded a 100% valuation allowance as management believes it is likely that any
deferred tax assets will not be realized.





At
December 31, 2009, the Company had net operating loss carryforwards of
$23,869,174 that will expire between 2009 through 2029.





No tax
benefit has been reported in the December 31, 2009 financial statements since
the potential tax benefit is offset by the valuation allowance. Due to the
change in the Tax Reform Act of 1986, net operating loss carryforwards for
federal income tax reporting purposes may be subject to annual limitations in
the event of certain changes in ownership. Should a change in ownership occur,
net operating loss carryforwards may be limited as to use in future
years.




28


OCTUS,
INC.


Notes
to Consolidated Financial Statements





Note
9 – License Agreement





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 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 a percentage 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 of
customary milestone conditions related to OCTuS’ progress in funding support of
the product, commencement of manufacturing, and commencement and progress of
commercial sales. 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.





Note
10 – Equity Line of Credit





On
December 6, 2009, OCTuS entered into a “Reserve Equity Financing Agreement” with
AGS Capital Group, LLC (the “Facility”).  The signed agreement
authorizes 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.   There have been no issuances under the
Facility.





Note
11 – Subsequent Events





In
January 2010, OCTuS entered into three three-month consulting agreements which
call for OCTuS to issue 70,000 shares of common stock each month the contract is
in force.





In
January 2010, OCTuS entered into an investment advisory services contract which
calls for OCTuS to issue 30,000 shares of common stock each month the contract
is in force.  The term of the contract is three months and may be
extended on a month to month basis.





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.





In
February 2010, OCTuS entered into a public relations contract which calls for
OCTuS to issue 1,000,000 shares of common stock at a purchase price of $0.0001
per share.





During
the first quarter of 2010, OCTuS issued convertible secured promissory notes
(the “2010 Note”) with a principal amount of $30,000 to
investors.  The 2010 Note bears interest at a rate of 10% per annum
and is due two years from the date of issuance.  Accrued interest is
paid semi-annually, with the first payment due six months after the date the
Note is 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 note a security interest of
all assets of OCTuS, ranking before all preferred and common shareholders and
subordinated to the existing senior convertible debt.  The Note 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 $0.35 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 note holder to purchase 120,000 shares of OCTuS common stock at
an exercise price of $0.01 per share.  The term of the warrants is 18
months.





29


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





None.





ITEM 9A(T).CONTROLS AND
PROCEDURES





Evaluation
of Disclosure Controls and Procedures; Management’s Annual Report on Internal
Control over Financial Reporting





Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting. The Company's internal control over financial
reporting is designed to provide reasonable assurance as to the reliability of
the Company's financial reporting and the preparation of financial statements in
accordance with generally accepted accounting principles.  Internal
Control over financial reporting includes those policies and procedures that:
(i) pertain to the maintenance of records that in reasonable detail accurately
and fairly reflect the transactions and dispositions of the assets of the
company, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management;
and (iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the
company’s  asset that could have a material effect on the financial
statement.  Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatement.  Also,
projections of any evaluations of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies and procedures may
deteriorate.





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 December 31, 2009, 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.





Throughout
the period covered by the report, the Company had no or minimal amounts of
cash until the receipt of proceeds from issuance of convertible Notes at
the end of June 2009 and December 2009 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-K.  Accordingly, notwithstanding the existence of the
material weaknesses described in this Item, management believes that the
financial statements included in this Annual Report on Form 10-K 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.





Our
independent registered public accounting firm, GBH CPAs, PC, has not issued an
attestation report on the effectiveness of OCTuS’ internal control over
financial reporting.




Changes
in Internal Controls





Except as
described above, there have been no changes in the Company’s internal controls
over financial reporting during the last fiscal year that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
controls over financial reporting.





30


PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
following sets forth certain information about each of our executive officers
and directors and their current positions with the Company. The information set
forth below was provided by these individuals:





NAME
            POSITION
      HELD
            DIRECTOR
      SERVICE
            
            AGEChristian
      Soderquist
            President and Chief Executive Officer; Director
            2009
            
            
            41George
      Ecker
            Chief
      Financial Officer; Director
            2009
            
            
            50





Christian Soderquist, 41, has
more than 17 years of experience founding, managing, capitalizing and selling
companies. From 2004 to 2008 he served as a Director of Sierra Energy
Corporation. From 2004 to 2007 he co-founded and was Managing Director of
Crescendo, a luxury real estate investment firm that was acquired in 2008 by
Abercrombie and Kent.  From 2007 to 2008 he was a business consultant
to companies in a variety of industries. He also created and sold a marketing
strategy firm that he grew to 130 clients, and founded and directed several
software companies.  Previously, Mr. Soderquist managed two business
incubators, Technology Development Center and Venture Lab, and served on the
board of directors of the Sacramento Entrepreneurship Academy (of which he was
president for three years), the Sacramento Area Regional Technology Alliance,
and UC Davis Connect.  He earned a BS from Cal Poly, San Luis Obispo,
and an MBA from the University of California, Davis.





George Ecker, 50, has over 25
years of entrepreneurial and management experience in international and domestic
ventures.  He is presently the President and Director of Nova Mobility
Systems, a company specializing in the design and manufacture of rugged handheld
mobile computers.  From 2002 until 2006 Mr. Ecker was the President of
the Channel Financial Group, a financial services company providing corporate
finance consulting as well as strategic services to international private equity
managers.  He holds a Bachelor of Science degree in Finance, with
honors, from the University of the State of New York.





There are
no orders, judgments, or decrees of any governmental agency or administrator, or
of any court of competent jurisdiction, revoking or suspending for cause any
license, permit or other authority to engage in the securities business or in
the sale of a particular security or temporarily or permanently restraining any
of our officers or directors from engaging in or continuing any conduct,
practice or employment in connection with the purchase or sale of securities, or
convicting such person of any felony or misdemeanor involving a security, or any
aspect of the securities business or of theft or of any felony. Nor are any of
the officers or directors of any corporation or entity affiliated with us so
enjoined.





31


BOARD
INDEPENDENCE





Standard
of Independence





At this
time, the Company is not subject to the requirements of a national securities
exchange or an inter-dealer quotation system with respect to the need to have a
majority of its directors be independent. In the absence of such requirements,
the Company has elected to use the definition established by the NASDAQ
independence rule which defines an “independent director” as “a person other
than an officer or employee of the company or its subsidiaries or any other
individual having a relationship, which in the opinion of the company's board of
directors, would interfere with the exercise of independent judgment in carrying
out the responsibilities of a director.” The definition further provides that
the following relationships are considered bars to independence regardless of
the board's determination:





Employment
by the Company. Employment of the director or a family member by the Company or
any parent or subsidiary of the Company at any time thereof during the past
three years, other than family members in non-executive officer
positions.





$100,000
Compensation. Acceptance by the director or a family member of any compensation
from the Company or any parent or subsidiary in excess of $100,000 during any
twelve month period within three years of the independence
determination.





Auditor
Affiliation. A director or a family member of the director, being a partner of
the Company's outside auditor or having been a partner or employee of the
company's outside auditor who worked on the Company's audit, during the past
three years.





Payments
to or from an Affiliated Entity. A director who is, or has a family member who
is, a partner in, or a controlling shareholder or an executive officer of, any
organization to which the Company made, or from which the Company received,
payments for property or services in the current or any of the past three fiscal
years that exceed 5% of the recipient's consolidated gross revenues for that
year, or $200,000, whichever is more, other than (i) payments arising solely
from investments in the Company’s securities or (ii) payments made under
non-discretionary charitable contribution matching programs.





Service
on Compensation Committee of Another Entity. A director of the Company who is,
or has a family member who is, employed as an executive officer of another
entity where at any time during the past three years any of the executive
officers of the Company serve on the compensation committee of such other
entity.





Based on
the foregoing definition, the board of directors has determined that we do not
have any independent directors.





Standing
Committees of the Board





At this
time, the Company is a small business issuer whose common stock is authorized
for quotation on the OTC Bulletin Board and is not subject to the requirements
of a national securities exchange or an inter-dealer quotation system with
respect to the establishment and maintenance of any standing committees. In any
event, the Company, in February 2008, established a separate standing audit
committee, compensation committee and nominating committee.





The only
members of our audit committee are Directors Christian Soderquist and George
Ecker. The firm is in search of additional qualified candidates. The audit
committee performs the following functions: (1) selection and oversight of our
independent accountant; (2) establishing procedures for the receipt, retention
and treatment of complaints regarding accounting, internal controls and auditing
matters; and (3) engaging outside advisors. The Company is not a "listed
company" under SEC rules and therefore its audit committee is not required to be
comprised of only independent directors. The members of the audit committee are
not independent directors.  The audit committee does not include an
independent director who is an "audit committee financial expert" within the
meaning of the rules and regulations of the SEC. The board has determined,
however, that the members of the audit committee are able to read and understand
fundamental financial statements and have substantial business experience that
results in the member's financial sophistication. Accordingly, the board
believes that the members of the audit committee have the sufficient knowledge
and experience necessary to fulfill their duties and obligations required to
serve on the audit committee.





The only
members of our compensation committee are Directors Christian Soderquist and
George Ecker.  This committee has two primary responsibilities:
(1) to establish, review and approve CEO compensation and to review and
approve other senior executive compensation, and (2) to monitor our
management resources, structure, succession planning, development and selection
process as well as the performance of key executives. It also oversees our
Equity Plan and any other compensation and equity-based plans.





All of
our directors serve on our nominating committee.





32


Compensation
of the Board of Directors





Directors
are not paid any fees or compensation for services as members of our board of
directors or any committee thereof, but are reimbursed for their out-of-pocket
expenses incurred in connection with attendance at meeting of the board of
directors. We may, in the future, compensate non-employee directors who serve on
our board of directors by paying cash compensation and/or the issuance of
options under an equity incentive plan.





Section
16(A) Beneficial Ownership Reporting Compliance





Section
16(a) of the Securities Act of 1934 requires our directors, executive officers,
and any persons who own more than 10% of a registered class of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. SEC regulation requires executive officers,
directors and greater than 10% stockholders to furnish us with copies of all
Section 16(a) forms they file. Based solely on our review of the copies of such
forms received by us, or written representations from certain reporting persons,
we believe that during the year ended December 31, 2008, that none of our
executive officers, directors, or greater than 10% stockholders were subject to
any applicable filing requirements.





Code
of Ethics





A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:


·
            Honest
      and ethical conduct, including the ethical handling of actual or perceived
      conflicts of interest between personal and professional
      relationships;


·
            Full,
      fair, accurate, timely and understandable disclosure in reports and
      documents that are filed with, or submitted to, the SEC and in other
      public communications made by an
issuer;


·
            Compliance
      with applicable governmental laws, rules and
  regulations;


·
            The
      prompt internal reporting of violations of the code to an appropriate
      person or persons identified in the code;
and


·
            Accountability
      for adherence to the code.


In March
2004, we adopted a Code of Business Conduct and Ethics (“Code of Ethics”) that
our employees, officers (including executive officers, which include our
principal executive officer and principal financial and accounting officer and
persons performing similar functions) and directors are asked to uphold. This
Code of Ethics covers all of the above-described standards of
conduct.





A copy of
our Code of Ethics may be requested from the Company, without charge, by
contacting the Company’s chief financial officer at the Company’s principal
executive offices.  We intend to satisfy any disclosure requirement
under Item 5.05 of Form 8-K relating to any future amendments to or waivers from
any provision of our Code of Ethics that relate to one or more of the items set
forth in Item 406(b) of Regulation S-K by describing such amendments and/or
waivers on such website, within four business days following the date of a
waiver or a substantive amendment; and if we do not make such disclosures on our
web site then we intend to make such disclosures on a Form 8-K within the
required time periods. Information on our Internet website is not, and shall not
be deemed to be a part of this annual report on Form 10-K or incorporated into
any other filings we make with the SEC.





ITEM
11.  EXECUTIVE COMPENSATION





Summary
Compensation Table





There was
no compensation required to be report under this Item paid to our executive
officers or directors for the fiscal years ended December 31, 2008.





Name
      and Principal Position
            
            Year
            
            Salary
      ($)
            Bonus
      ($)
            Option
      Awards
              ($)
            Other
      Compensation ($)
            Total
              ($)Christian
      J. Soderquist
              Chief
      Executive Officer
            
            2009
            
            19,230
            -0-
            -0-
            -0-
            19,230Georg
      M. Ecker
              Chief
      Financial Officer
            
            2009
            
            19,230
            -0-
            -0-
            -0-
            19,230





The
employment contracts for each officer stipulate that the annual compensation to
each is $180,000 to be paid upon receipt of sufficient capital to meet the
contractual obligations.  Both officers have waived their rights to
the portion of their wages that remain unpaid as of December 31,
2009.





Employment
Contracts





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 the Company and Mr. Ecker will serve as Chief
Financial Officer of the Company. Mr. Soderquist and Mr.Ecker were also
appointed directors of the Company. Concurrently the Company executed restricted
stock purchase agreements dated February 24, 2009, with each of Mr. Soderquist
and Mr. Ecker.




33


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 has agreed to
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 for an interim period
to defer some or all of their base salaries based on the outstanding
achievements of one or more of the milestones described below and the Company’s
ability to pay salaries. 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.  The agreements provide
that the Company will issue to each person 15,000,000 shares of common stock for
services rendered and contributed to the Company.





Under the
terms of the restricted stock purchase agreements, a portion of the shares is
subject to repurchase by the Company if certain milestones are not achieved
before the first anniversary of the date of the purchase
agreements.  For each of the following events that are not achieved
before the first anniversary of the date of the purchase agreements, 25% of the
shares are subject to repurchase by the Company at the original purchase price
per share.  If all four milestones are achieved, then all repurchase
rights of the Company will lapse.  The milestone events
are:  completion of sale of equity securities of the Company with
proceeds to the Company of $100,000 or more; execution by the Company of a
license agreement or purchase contract with at least two third-party persons or
entities to acquire or license technologies and/or products related to the
Company’s intended business; receipt of revenues from the sale by the Company of
products licensed or owned by the Company; and execution by the Company of a
renewable energy and/or energy efficiency project contract.  In the
event of a change in control of the Company, defined in the agreement to include
events such as a merger or sale of assets transaction which results in more than
a 50% change of ownership of the Company, all restrictions lapse and the shares
will become fully vested. The milestones were met in their entirety prior to
February 24, 2010 resulting in the lapse of all repurchase rights the Company
held.





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 her
death, the officer (or his estate) is entitled to receive in cash payment an
amount equal to all previously accrued but unpaid compensation (including
accrued but unused vacation leave) 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.





Stock
Options/SAR Grants





We did
not grant any stock options to our named executive officers during either fiscal
2009 or 2008. We do not have any outstanding stock appreciation
rights.





Long
Term Incentive Plans





As of
December 31, 2009, we had no group life, health, hospitalization, or medical
reimbursement or relocation plans in effect. Further, we had no pension plans or
plans or agreements which provide compensation on the event of termination of
employment or corporate change in control.





Outstanding
Equity Awards at Fiscal Year-End





None.





Director
Compensation





There was
no compensation paid to our directors for their services as directors during the
fiscal year ended December 31, 2009.





34


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





The
following table sets forth certain information regarding the beneficial
ownership of our Voting Stock as of April 12, 2010, by (i) each of our named
executive officers and directors; (ii) our named executive officers and
directors as a group; and (iii) shareholders known by us to beneficially own
more than 5% of any class of our voting securities.  The beneficial
ownership of securities is defined in accordance with the rules of the
Securities and Exchange Commission and means generally the power to vote or
exercise investment discretion with respect to securities, regardless of any
economic interests therein. Except as otherwise indicated, we believe that the
beneficial owners of the securities listed below have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Unless otherwise indicated, the business address for each of the
individuals or entities listed below is c/o OCTuS, Inc., 803 Second Street,
Suite 303, Davis, CA  95616.





Title
      of Class
            Name
      of Beneficial Owner
            Amount
      and Nature of Beneficial Ownership
            
            Percent
              of
      ClassCommon
      Stock
            Christian
      Soderquist
            15,000,000
      common shares
              Officer
      and Director*
            
            
            34.20
            %Common
      Stock
            George
      Ecker
            15,000,000
      common shares
              Officer
      and Director*
            
            
            34.20
            %Common
      Stock
            All
      officers and directors
              as
      a group
            30,000,000
      common shares
            
            
            68.40
            %





Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and generally includes voting or investment power with
respect to securities. In accordance with Securities and Exchange Commission
rules, shares of our common stock which may be acquired upon exercise of stock
options or warrants which are currently exercisable or which become exercisable
within 60 days of the date of the table are deemed beneficially owned by the
optionees. Subject to community property laws, where applicable, the persons or
entities named in the table above have sole voting and investment power with
respect to all shares of our common stock indicated as beneficially owned by
them.





Changes
in Control





There are
approximately 43,867,000 shares of common stock outstanding, and therefore the
30,000,000 shares issued pursuant to the purchase agreements entered into by
Octus and Mr. Soderquist and Mr. Ecker collectively represent approximately 68%
of the outstanding shares of the Company. A change in control of the Company
therefore occurred by virtue of the issuance of shares to Mr. Ecker and Mr.
Soderquist and their appointment as directors and officers of the
Company.  Our management is not aware of any arrangements which may
result in "changes in control" as that term is defined by the provisions of Item
403(c) of Regulation S-B outside of these two share issuances.





Equity
Compensation Plan Information





We have a
stock option plan for option grants to our directors, officers, employees and
consultants.  Such options are granted at fair value, vest over three
to five years, and expire not more than ten years from date of grant. As of
December 31, 2009, we have reserved a total of 450,000 shares of common stock
for exercise under the stock option plan.





As of
December 31, 2009, there were two options outstanding and there has been no
option transactions during the two years ended December 31,
2009.  The options outstanding were issued in August 2009 for a total
of 35,000 shares at a strike price of $0.39 per share with a term of three
years.





35


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS





Conflicts
Related to Other Business Activities





The
persons serving as our officers and directors have existing responsibilities
and, in the future, may have additional responsibilities, to provide management
and services to other entities in addition to us. As a result, conflicts of
interest between us and the other activities of those persons may occur from
time to time.





We will
attempt to resolve any such conflicts of interest in our favor. Our officers and
directors are accountable to us and our shareholders as fiduciaries, which
requires that such officers and directors exercise good faith and integrity in
handling our affairs. A shareholder may be able to institute legal action on our
behalf or on behalf of that shareholder and all other similarly situated
shareholders to recover damages or for other relief in cases of the resolution
of conflicts in any manner prejudicial to us.





Related
Party Transactions





A former
officer and director paid certain expenses on behalf of Octus for periods prior
to 2007.  As of December 31, 2009, amounts accrued and unpaid to
this individual totaled $3,169 and are included in accounts payable - related
parties.





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 for an interim period to defer receipt of payment of some
or all of their base salaries based on the outstanding achievements of one or
more of the milestones described below and OCTuS’ ability to pay salaries. 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 year ended December 31,
2009.





Under the
terms of the restricted stock purchase agreements, a portion of the shares is
subject to repurchase by OCTuS if certain milestones are not achieved before the
first anniversary of the date of the purchase agreements.  For each of
the following events that are not achieved before the first anniversary of the
date of the purchase agreements, 25% of the shares are subject to repurchase by
OCTuS at the original purchase price per share.  If all four
milestones are achieved, then all repurchase rights of OCTuS will
lapse.  The milestone events are:  completion of sale of
equity securities of OCTuS with proceeds to OCTuS of $100,000 or more; execution
by OCTuS of a license agreement or purchase contract with at least two
third-party persons or entities to acquire or license technologies and/or
products related to OCTuS’s intended business; receipt of revenues from the sale
by OCTuS of products licensed or owned by OCTuS; and execution by OCTuS of a
renewable energy and/or energy efficiency project contract.  In the
event of a change in control of OCTuS, defined in the agreement to include
events such as a merger or sale of assets transaction which results in more than
a 50% change of ownership of OCTuS, all restrictions lapse and the shares will
become fully vested. The milestones were met in their entirety prior to February
24, 2010 resulting in the lapse of all repurchase rights the Company
held.





There
were 43,437,072 shares of common stock outstanding after the issuance of the
shares in accordance with the purchase agreements.  The 30,000,000
shares issued pursuant to the purchase agreements represented approximately 69%
of the then outstanding shares of OCTuS.





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 (including
accrued but unused vacation leave) 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.





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.  In November and December 2009, Mr. Soderquist loaned OCTuS
an additional $17,500 and $5,250, respectively for total related party proceeds
for the year end December 31, 2009 of $32,750.  These loans bear
interest at 10% and are due upon demand.





36


With
regard to any future related party transactions, we plan to fully disclose any
and all related party transactions, including, but not limited to, the
following:


·
            disclose
      such transactions in prospectuses where
  required;


·
            disclose
      in any and all filings with the Securities and Exchange Commission, where
      required;


·
            obtain
      disinterested directors consent;
and


·
            obtain
      shareholder consent where required.





Director
Independence





Members
of our Board of Directors are not independent as that term is defined by defined
in Rule 4200(a)(15) of the Nasdaq Marketplace Rules.





ITEM 14PRINCIPAL ACCOUNTING FEES AND
SERVICES





Our
principal outside auditor is GBH CPAs, PC. Set forth below are the fees and
expenses for GBH CPAs, PC for each of the last two years for the
following services provided to us:





2009
            
            
            2008Annual
      Audit Fees
            
            $
            24,700
            
            
            $
            11,000Audit-Related
      Fees
            
            
            -
            
            
            
            -Tax
      Fees
            
            
            1,800
            
            
            
            -Other
      Fees
            
            
            -
            
            
            
            -Total
      Fees
            
            $
            24,700
            
            
            $
            11,000





Our board
of directors reviews and approves audit and permissible non-audit services
performed by its independent accountants, as well as the fees charged for such
services.  In its review of non-audit service fees and its appointment
of GBH CPAs, PC as our independent accountants, the board of directors
considered whether the provision of such services is compatible with maintaining
independence.  All of the services provided and fees charged by GBH
CPAs, PC, in 2008 and 2009, were approved by the board of
directors.





PART
IV





ITEM 15EXHIBITS, FINANCIAL STATEMENT
SCHEDULES





EXHIBIT
              NUMBER
            DESCRIPTION31.1
            Section
      302 Certification Annual Report on Form 10-K32.1
            Certification
      Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 Of
      The Sarbanes-Oxley Act Of 2002





37


SIGNATURES





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





OCTUS,
      INC.Dated:
      April 15, 2010
            By:
            /s/ Christian
      J. SoderquistChristian
      J. Soderquist
              President
      and Chief Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
on Form 10-K has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.





Name
            
            Title
            
            Date/s/
      Christian J. Soderquist
            
            President
      Chief Executive Officer, Chairman
            
            April
      15, 2010Christian
      J. Soderquist
            
            (Principal
      Executive Officer)/s/
      George M. Ecker
            
            Principal
      Financial and Accounting Officer,
            
            April
      15, 2010George
      M. Ecker
            
            Director