424B2 1 oxysure_424b2-081111.htm PROSPECTUS SUPPLEMENTAL oxysure_424b2-081111.htm
Filed Pursuant to Rule 424(b)(2)
Registration No.  333-159402
 
 
 
 
 
PROSPECTUS
8,915,565
Shares of Common Stock
 
OxySure® Systems, Inc.

This is our initial public offering.  There is no public market for our common stock.  It is our intention to seek quotation of our common stock by a market maker on an over-the-counter electronic quotation system such as the OTC Bulletin Board subsequent to the date of this Prospectus.  The lack of a public market for our common stock may place purchasers of our shares at risk of having an illiquid security.  There can be no assurance that any market maker will file the necessary documents with an OTC electronic quotation system, nor can there be any assurance that such an application for quotation will be approved.

Our existing shareholders are offering for sale, 1,534,816 shares of common stock.  In addition, we are offering a total of 5,000,000 shares of our common stock in a direct public offering, without any involvement of underwriters or broker-dealers (the “Offering”).  The offering price is $1.00 per share (the “Offering Price”) for both newly issued shares and those being sold by current shareholders.  In addition, 2,380,749 shares of common stock are being registered for resale that have been or may be acquired upon the conversion of 1,951,434 shares of preferred stock (net of prior conversions), at a 1.22:1 ratio.  The unaffiliated Selling Security Holders will sell at the specified fixed Offering Price of $1.00 per share until the shares are quoted on an OTC quotation system, after which the shares will sell at prevailing market prices or privately negotiated prices.  We will not receive any proceeds from the sales by the Selling Security Holders.  The Selling Security Holders named herein are deemed underwriters of the shares of common stock which they are offering.

This Offering is on a best efforts basis.  The direct public Offering will terminate February 10, 2012, although we may close the Offering on any prior date if the Offering is fully subscribed or at the discretion of our Board of Directors.  At our sole discretion, we may extend the Offering for an additional 90 days.  The funds will be maintained in a separate bank account.  There is no minimum amount of shares that we must sell in our direct public Offering, and therefore no minimum amount of proceeds will be raised.

The purchase of the securities involves a high degree of risk.  See section entitled “Risk Factors” beginning on page 8.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of anyone’s investment in these securities or determined if this Prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
The Date of this Prospectus is August 12, 2011
 
 
 

 


TABLE OF CONTENTS

PROSPECTUS SUMMARY
1
RISK FACTORS
8
USE OF PROCEEDS
24
DILUTION
27
DIVIDEND POLICY
28
DETERMINATION OF OFFERING PRICE AND ADDITIONAL INFORMATION
28
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
29
SELLING SECURITY HOLDERS
29
SHARES ELIGIBLE FOR FUTURE SALE
38
PLAN OF DISTRIBUTION
39
MANAGEMENT’S DISCUSSION AND ANALYSIS
42
DESCRIPTION OF BUSINESS
54
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
77
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
83
DESCRIPTION OF SECURITIES
86
INTERESTS OF NAMED EXPERTS AND COUNSEL
90
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION
90
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
91
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
94
AVAILABLE INFORMATION
95
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
95
 
 
i

 
 
Please read this Prospectus carefully.  It describes our business, financial condition and results of operations.  We have prepared this Prospectus so that you will have the information necessary to make an informed investment decision.

You should rely only on information contained in this Prospectus.  We have not authorized any other person to provide you with different information.  This Prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.  The information in this Prospectus is complete and accurate as of the date on the front cover, but the information may have changed since that date.

The terms “we,” “us,” and “our,” as used in this Prospectus refer to OxySure Systems, Inc.
 
 
 
ii

 
 
PROSPECTUS SUMMARY
 
 
Because this is only a summary, it does not contain all of the information that may be important to you.  You should carefully read the more detailed information contained in this Prospectus, including our financial statements and related notes.  Our business involves significant risks.  You should carefully consider the information under the heading “Risk Factors” beginning on page 8.
 
 
 
1

 
 
OxySure Systems, Inc. was formed on January 15, 2004 as a Delaware “C” Corporation for the purpose of developing products with the capability of generating medical grade oxygen “on demand,” without the necessity of storing oxygen in compressed tanks.  We developed a unique technology that generates medically pure (USP) oxygen from two dry, inert powders.  Other available chemical oxygen generating technologies contain hazards that we believe make them commercially unviable for broad-based emergency use by lay rescuers or the general public.  Our launch product is the OxySure Model 615 portable emergency oxygen system.  We believe that the OxySure Model 615 is currently the only product on the market that can be safely pre-positioned in public and private venues for emergency administration of medical oxygen by lay persons, without the need for training. 
 
We were founded by our current Chairman, Chief Executive Officer, President, and Chief Financial Officer, Julian T. Ross, who conducted or managed all of the related research and development, a function Mr. Ross continues to oversee.  In early 2004, Mr. Ross moved his research and development efforts into the North Texas Enterprise Center for Medical Technology (“NTEC”).  NTEC is a Frisco, Texas based medical technology accelerator, and we were selected as an NTEC program company in early 2004, and we were the first program company to graduate from the accelerator program in November 2005.  In December 2005, we received Food and Drug Administration (“FDA”) clearance for our Model 615 (510(K), Class II).  The approval number for our FDA clearance is K052396, and Model 615 is cleared for over the counter sale, without the need for a prescription.
 
Upon graduation from NTEC, we proceeded with the development of our purpose-built production facility in Frisco, Texas, which also serves as our headquarters.  The facility comprises 16,200 square feet of light industrial space, of which approximately 10,000 square feet is dedicated to production and warehousing.  We received an economic incentive from the Frisco Economic Development Corporation (“FEDC”) in the amount of $243,000 in support of the development and build-out of the facility.  This incentive was structured as a promissory note in the amount of $243,000 issued by us to FEDC.  The promissory note is forgiven over a period of five years subject to us achieving targets such as headcount and square footage occupied in the city of Frisco.  On August 5, 2008, the amount of $30,000 was forgiven for meeting the first year targets in the Performance Agreement with the FEDC.  The performance targets for the second and third years have not been achieved.  On March 22, 2011, we entered into an Amended and Restated Performance Agreement with the FEDC.  The FEDC provided us with economic assistance in the form of a renewal and extension of the forgivable loan of $213,000 together with revised performance credits over five years, commencing on March 22, 2011 and ending on the earlier to occur of: (i) the full payment of the economic incentives; or (ii) March 31, 2016.  In addition to the FEDC economic incentive, we received a further amount of $324,000 in the form of a Tenant Improvement Allowance from our landlord.  Upon completion of the build-out, we moved into the facility in October 2007.  We commenced commercial shipment of Model 615 during 2008.
 
We are still an early stage business with a history of losses, and only recently began generating revenues.  To date, our sales have been minimal.  As of March 31, 2011 and December 31, 2010, we have incurred net losses from operations and have stockholders’ deficits of $12,266,175 and $11,898,260, respectively.  We have a working capital deficit of approximately $1,594,791 as of March 31, 2011 and $1,577,151 as of December 31, 2010.  These factors raise substantial doubt about our ability to continue as a going concern.  If 100% of the shares are sold in the direct public Offering, approximately $1,000,000 of the offering proceeds will be used for the repayment of debt we owe to our affiliates.
 
Common Stock
 
We are authorized to issue 100,000,000 shares of common stock, $0.0004 par value per share, of which 15,739,816 shares are issued and outstanding as of the date of this Prospectus.  Each outstanding share of common stock is entitled to one vote, either in person or by proxy, on all matters that may be voted upon by their holders at meetings of the stockholders.
 
 
2

 
 
Preferred Stock
 
We are authorized to issue up to 25,000,000 shares of our preferred stock, par value $0.0005 per share, from time to time in one or more series.  On March 31, 2006, we completed the issuance of 3,112,500 shares of our Series A Convertible Preferred Stock, par value $0.0005.  We subsequently issued an additional 30,737 preferred shares pursuant to a lease agreement, increasing the total number of Series A preferred shares issued to 3,143,237 shares.  As of the date of this Prospectus, there were 3,126,434 Series A preferred shares outstanding, net of conversions to common stock.  The number of shares of common stock into which each share of Series A Convertible Preferred will convert is determined by dividing the original issue price by $0.82, resulting in each share of the Series A Convertible Preferred becoming 1.22 shares of common stock.
 
Our Board of Directors, without further approval of our stockholders, is authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights, liquidation preferences and other rights and restrictions relating to any series of preferred stock.  Issuances of shares of preferred stock, while providing flexibility in connection with possible financings, acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock and prior series of preferred stock then outstanding.
 
Warrants
 
As of the date of this Prospectus, our warrant holders held an aggregate of 2,932,909 warrants to purchase shares of our common stock.  All of the warrants are exercisable immediately.  The following table sets out the warrants by groups, amounts and aggregate exercise prices:
 
Group
 
Total Number of Warrants Outstanding
   
Aggregate Exercise Price
   
Number of Warrants Exercisable Immediately
   
Number of Warrants held by Affiliates and Promoters
   
Aggregate Exercise Price of Warrants held by Affiliates and Promoters
 
                               
Licensing Agreements
    551,200       $1.22       551,200       -       -  
Financing
    1,090,163       $0.24       1,090,163       990,163       $0.01  
Consultants
    837,166       $0.43       837,166       -       -  
Rent
    429,380       $0.14       429,380       -       -  
Community Grants
    25,000       $1.00       25,000       -       -  
    Totals
    2,932,909       $0.47       2,932,909       990,163       $0.01  

Options
 
As of the date of this Prospectus, we have granted options to acquire an aggregate of  2,180,604 shares (net of forfeitures and exercises ) of our common stock with an aggregate exercise price of $0.59 .  The holders of common and preferred stock hold an aggregate of  406,787 options to purchase common stock (net of forfeitures and exercises ) with an aggregate exercise price of $0.88 per share.  All other options are held by present and former employees, present and former Directors, Advisory Board members, and present and former consultants and other eligible persons who are not Selling Security Holders.  Present and former employees, including some who are also stockholders, have been issued 1,976,924 options (net of forfeitures and exercises ) with an average weighted exercise price of $0.52 per share.  Present and former Directors have been issued 32,000 options with an average weighted exercise price of $1.20 per share.  This does not include any options issued to Mr. Ross, our CEO who also serves on the Board of Directors.  Advisory Board members, including some who are also stockholders, have been issued 106,000 options (net of forfeitures) with an average weighted exercise price of $1.46 per share.  Consultants and other eligible persons have been issued  72,930 options (net of forfeitures) with an average weighted exercise price of $1.07 per share.
 
 
3

 
 
Our shares of common stock are not traded on any exchange or other trading platform.
 
Our fiscal year end is December 31.
 
Our principal executive office is located at 10880 John W.  Elliott Drive, Suite 600, Frisco, Texas 75034 and our telephone number is (972) 294-6450.
 
The Offering
 
Common stock offered by existing holders of common stock
 
1,534,816
     
Direct Public Offering
 
5,000,000
     
Common stock being registered for resale that have been or may be acquired upon the conversion of Series A Convertible Preferred Stock
 
 
2,380,749
     
Total common stock offered by Selling Security Holders and Direct Public Offering
 
8,915,565
     
Use of proceeds
 
We will not receive any proceeds from the sale of the common stock by the Selling Security Holders.  We will receive $5,000,000 in gross proceeds if we sell all of the shares being registered herein  for our direct public Offering.  Proceeds will be used for sales and marketing; payment of debt and accounts payable; administrative costs; costs associated with production; research and development; and offering expenses.  See “Use of Proceeds.”
     
Risk factors
 
Investing in these securities involves a high degree of risk.  As an investor you should be able to bear a complete loss of your investment.  You should carefully consider the information set forth in the “Risk Factors” section beginning on page 8.
 
 
4

 
 
SUMMARY FINANCIAL DATA
 
The following summary financial data should be read in conjunction with “Management’s Discussion and Analysis,” “Plan of Operation,” and the Financial Statements and Notes thereto, included elsewhere in this Prospectus.  The statement of operations and balance sheet data are derived from our December 31, 2010 and 2009 audited financial statements.  The data derived from our  March 31, 2011 and 2010 financial statements are unaudited.
 
Statements of Operations
 
   
Three Months
Ended
March 31, 2011
(Restated)
   
Three Months
Ended
March 31, 2010
(Restated)
   
Fiscal Year
Ended
December 31, 2010
(Restated)
   
Fiscal Year
Ended
December 31, 2009
(Restated)
 
                         
REVENUE, net
    $51,825       $267,177       $356,013       $387,361  
                                 
COST OF SALES
    $37,194       $20,702       $54,781       $194,518  
GROSS PROFIT
    $14,631       $246,475       $301,232       $192,843  
                                 
OPERATING EXPENSES
                               
Selling, General & Administrative expenses
    $285,209       $546,183       $1,462,475       $2,193,853  
LOSS FROM OPERATING EXPENSES
    $(270,578 )     $(299,708 )     $(1,161,243 )     $(2,001,010 )
                                 
OTHER INCOME / (EXPENSES)
    $33,751       $3,007       $6,046       $(5,152 )
INTEREST EXPENSE
    $(131,088 )     $(73,844 )     $(423,760 )     $(321,696 )
                                 
Net loss
    $(367,915 )     $(370,545 )     $(1,578,957 )     $(2,327,858 )
                                 
Accumulated deficit - beginning of the period
    $(11,898,260 )     $(10,319,303 )     $(10,319,303 )     $(7,991,446 )
                                 
Accumulated deficit - end of the period
    $(12,266,175 )     $(10,689,847 )     $(11,898,260 )     $(10,319,303 )
 
 
5

 
 
Balance Sheet Summaries
 
   
March 31, 2011
(Restated)
   
December 31, 2010
(Restated)
   
December 31, 2009
(Restated)
 
ASSETS
                 
Current assets
                 
Cash and cash equivalents
    $335       $39,887       $73,077  
Accounts receivable
    $10,862       $349       $36,365  
Inventory
    $264,828       $227,692       $138,737  
Prepaid Expenses
    $91,053       $40,666       $40,142  
Total current assets
    $367,078       $308,594       $288,321  
                         
Property & Equipment, net
    $260,374       $304,737       $518,976  
Intangible assets, net
    $467,493       $473,703       $502,624  
Other Assets
    $13,131       $13,132       $13,132  
                         
TOTAL ASSETS
    $1,108,076       $1,100,166       $1,323,053  
                         
LIABILITIES AND STOCKHOLDERS’ EQUITY
                       
Current liabilities
                       
Accounts payable and Accrued Liabilities
    $401,340       $388,937       $380,467  
Capital leases - current
    $323,944       $332,640       $326,057  
Notes payable - current
    $996,765       $908,514       $287,051  
Deferred Revenue
    $239,820       $255,655       -  
Total current liabilities
    $1,961,869       $1,885,745       $993,575  
                         
Long-term liabilities
                       
Capital leases
    $25,741       $25,741       $47,036  
Notes payable
    $1,581,403       $1,514,646       $1,522,507  
Total long-term liabilities
    $1,703,633       $1,613,941       $1,569,543  
                         
TOTAL LIABILITIES
    $3,569,012       $3,426,132       $2,563,118  
 
 
6

 
 
Balance Sheet Summaries (Continued)

   
Three Months
Ended
March 31, 2011
(Restated)
   
Year Ended
December 31, 2010
(Restated)
   
Year Ended
December 31, 2009
(Restated)
 
 
STOCKHOLDERS’ EQUITY
                 
     Preferred stock, par value $0.0005 per share, 25,000,000 shares authorized; 3,126,434 Series A convertible preferred shares issued and outstanding as of March 31, 2011, December 31, 2010 and December 31, 2009
    $1,563       $1,563       $1,563  
     Common stock, par value $0.0004 per share, 100,000,000 shares authorized; 15,739,816  shares of voting common stock issued and outstanding as of March 31, 2011 and 15,724,816 shares issued and outstanding as of December 31, 2010 and 2009.
    $6,296       $6,290       $6,290  
Additional Paid-in Capital
    $9,797,380       $9,564,440       $9,071,385  
Accumulated deficit
    $(12,266,175 )     $(11,898,260 )     $(10,319,303 )
                         
TOTAL STOCKHOLDERS’ EQUITY AND COMPREHENSIVE INCOME
    $(2,460,936 )     $(2,325,967 )     $(1,240,065 )
                         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
    $1,108,076       $1,100,166       $1,323,053  
 
 
7

 

RISK FACTORS
 
An investment in our common stock is highly speculative, involves a high degree of risk, and should be made only by investors who can afford a complete loss.  You should carefully consider the following risk factors, together with the other information in this Prospectus, including our financial statements and the related notes, before you decide to buy our common stock.  Our most significant risks and uncertainties are described below; however, they are not the only risks we face.  If any of the following risks actually occur, our business, financial condition, or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may lose all or part of your investment therein.
 
Risks Relating to the Early Stage of our Company
 
Because our auditors have issued a going concern opinion, there is substantial doubt that we can continue as an ongoing business for the next 12 months.
 
Our auditors have issued a going concern opinion.  This means that there is substantial doubt that we can continue as an ongoing business for the next 12 months.  The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue in business.  As such, we may have to cease operations and you could lose your investment.
 
We lack a long operating history and have losses that we expect to continue into the foreseeable future.  There is no assurance our future operations will result in profitable revenues.  If we cannot generate sufficient revenues to operate profitably, we may cease operations and you will lose your investment.
 
We were incorporated on January 15, 2004 and we do not have a long operating history or realized any substantial revenues.  We do not have any sufficient operating history upon which an evaluation of our future success or failure can be made.  Our net loss from inception through March 31, 2011 is $12,266,175.
 
Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to:
 
·
complete raising funds in our direct public Offering;
·
raise awareness and achieve market acceptance of our technology and our products;
·
identify and pursue channels and mediums through which we will be able to market and sell our products, including distributors and retailers;
·
attract and retain performing sales people;
·
lower our production costs significantly;
·
obtain any regulatory approvals where needed to market our products, including approvals in international markets;
·
procure and maintain on commercially reasonable terms relationships with third parties for the supply of services, parts and other manufacturing inputs; and
·
manage growth by managing administrative overhead.
 
 
8

 
 
Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and not generating sufficient revenues.  We cannot guarantee that we will be successful in generating sufficient revenues in the future.  Failure to generate sufficient revenues will cause you to lose your investment.
 
We are at a very early operational stage and our success is subject to the substantial risks inherent in the establishment of a new business venture.
 
The implementation of our business strategy is in a very early stage.  We only produce one product, a portable emergency oxygen device, and the commercialization of this product is in its infancy.  Our intended markets may not adopt this product, and it may not be commercially successful.  We intend to develop additional product candidates but none have proven to be commercially viable or successful.  Our business and operations should be considered to be in a very early stage and subject to all of the risks inherent in the establishment of a new business venture.  Accordingly, our intended business and operations may not prove to be successful in the near future, if at all.  Any future success that we might enjoy will depend upon many factors, several of which may be beyond our control, or which cannot be predicted at this time, and which could have a material adverse effect upon our financial condition, business prospects and operations and the value of an investment in our company.
 
We have a very limited operating history and our business plan is unproven and may not be successful.
 
Our company was formed in January 2004, but we only began commercial product shipment of our first product in earnest in early 2008 after we moved into our new, purpose built production facility.  Since January 2004, our primary activities have been research and development, the obtainment of our FDA approval, the identification of collaborative partners, intellectual property protection such as patent applications and capital raising activities.  We have not licensed or sold any substantial amount of products commercially and do not have any definitive agreements to do so.  We have not proven that our business model will allow us to identify and develop commercially feasible products.
 
We have suffered operating losses since inception and we may not be able to achieve profitability.
 
We had an accumulated deficit of $12,266,175 and have an overall deficit of $2,460,936 in stockholders’ equity as of March 31, 2011.  We expect to continue to incur research and development expenses as well as significant expenses related to investment in sales and marketing and organizational growth in the foreseeable future related to the ongoing product development, completion of new development and commercialization of our products.  As a result, we are sustaining substantial operating and net losses, and it is possible that we will never be able to sustain or develop the revenue levels necessary to attain profitability.
 
 
9

 
 
We have limited organizational and management resources.
 
Our management and organizational resources are limited, and this may adversely impact our ability to execute our business plan, successfully commercialize our portable emergency oxygen device, maintain regulatory compliance, or capitalize on market opportunities, if any.  We have significant intellectual capital invested in our current employees and management, and any loss in organizational resources may have an adverse impact on our business.   In particular, we have been, and we expect to continue to be reliant on, the experience and talents of our CEO and President, Mr. Ross.
 
We may have difficulty raising additional capital in addition to the direct public Offering, which could deprive us of necessary resources.
 
We expect to continue to devote significant capital resources to provide working capital, and to fund sales and marketing as well as research and development.  In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of assets, public or private debt or equity financing, collaborative relationships or other arrangements.  Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive technology by others.  Because our common stock is not and may never be listed on a stock exchange or any other trading system, many investors may not be willing to purchase it or may demand steep discounts.  Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.
 
We expect to raise additional capital during 2011 and 2012, but we do not have any firm commitments for additional funding.  If we are unsuccessful in raising additional capital, or the terms of raising such capital are unacceptable, we may suffer liquidity issues that may have a material adverse impact on our ability to continue operations or we may have to modify our business plan and/or significantly curtail our planned activities and other operations.
 
Failure to effectively manage our growth could place strains on our managerial, operational, and financial resources and could adversely affect our business and operating results.
 
Our growth has placed, and is expected to continue to place, a strain on our managerial, operational and financial resources.  Further, we will be required to manage those multiple relationships.  Any further growth by us or an increase in the number of our distributors, strategic relationships or alliances will increase this strain on our managerial, operational and financial resources.  This strain may inhibit our ability to achieve the rapid execution necessary to implement our business plan, and could have a material adverse effect upon our financial condition, business prospects and operations and the value of an investment in our company.
 
 
10

 
 
Our success is dependent on key personnel.
 
Our ability to succeed is substantially dependent on the performance of our officers and directors.  Our success also depends on our ability to attract, hire, retain and motivate future officers and key employees.  The loss of the services of any of these executive officers or other key employees could have a material adverse effect on our business, prospects, financial condition and results of operations.  We have entered into employment agreements with our executive officers and key employees.  We currently have no “Key Person” life insurance policies.  Our future success may also depend on our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, sales, marketing and customer service personnel.   We have been, and we expect to continue to be reliant on, the experience and talents of our CEO and President, Mr. Ross.
 
Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel.  The failure to attract and retain the necessary technical, managerial, sales, marketing and customer service personnel could have a material adverse effect on our business, prospects, and financial condition.
 
Risks Relating to our Research and Development Business
 
There are substantial inherent risks in attempting to commercialize new technological applications, and, as a result, we may not be able to successfully develop products or technology for commercial use.
 
We conduct ongoing development on our portable emergency oxygen device, and we conduct research and development of products in various vertical markets and industries.  Our product development team has worked on developing technology and products in various stages.  However, commercial feasibility and acceptance of such product candidates are unknown.  Scientific research and development requires significant amounts of capital and takes an extremely long time to reach commercial viability, if at all.  Other than our portable emergency oxygen device, to date, our research and development projects have not produced commercially viable applications, and may never do so.  Even our portable emergency oxygen device may not prove to be commercially viable in the long term.  During the research and development process, we may experience technological barriers that we may be unable to overcome.  Because of these uncertainties, it is possible that none of our product candidates will be successfully developed.  If our portable emergency oxygen device fails to achieve commercial success, or we are unable to successfully develop new products or technology for commercial use, we will be unable to generate revenue or build a sustainable or profitable business.
 
We will need to achieve commercial acceptance of our applications to generate revenues and achieve profitability.
 
While we began shipping our portable emergency oxygen device in earnest during 2008, there can be no assurance that there will be market acceptance for our portable emergency oxygen device, its need, or its use, and there can be no assurance of its commercial acceptance or profitability.  While we intend to develop additional products, even if our research and development yields technologically feasible applications, we may not successfully develop commercial products, and even if we do, we may not do so on a timely basis.  If our research efforts are successful on the technology side, it could take at least several years before this technology will be commercially viable.  During this period, superior competitive technologies may be introduced or customer needs may change, which will diminish or extinguish the commercial uses for our applications.  We cannot predict when significant commercial market acceptance for our portable emergency oxygen device or any of our potential new products will develop, if at all, and we cannot reliably estimate the projected size of any such potential market.  If markets fail to accept our portable emergency oxygen device or any new products we may develop, we may not be able to generate revenues from the commercial application of our products and technologies.  Our revenue growth and achievement of profitability will depend substantially on our ability to have our portable emergency oxygen device and any new products we may introduce be accepted by customers.  If we are unable to cost-effectively achieve acceptance of our products and technology by customers, or if the associated products do not achieve wide market acceptance, our business will be materially and adversely affected.
 
 
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We will need to establish relationships with collaborative and development partners to fully develop and market our existing and new products.
 
We do not possess all of the resources necessary to develop and commercialize existing and new products on a mass scale resulting from or that may result from our technologies.  Unless we expand our product development capacity and enhance our internal marketing capability, we will need to make appropriate arrangements with collaborative partners to develop and commercialize current and future products.
 
If we do not find appropriate partners, our ability to develop and commercialize products could be adversely affected.  Even if we are able to find collaborative partners, the overall success of the development and commercialization of product candidates in those programs will depend largely on the efforts of other parties and is beyond our control.  In addition, in the event we pursue our commercialization strategy through collaboration, there are a variety of attendant technical, business and legal risks, including:
 
 
a development partner would likely gain access to our proprietary information; potentially enabling the partner to develop products without us or design around our intellectual property;
 
 
we may not be able to control the amount and timing of resources that our collaborators may be willing or able to devote to the development or commercialization of our product candidates or to their marketing and distribution; and
 
 
disputes may arise between us and our collaborators that result in the delay or termination of the research, development or commercialization of our products and product candidates or that result in costly litigation or arbitration that diverts our resources.
 
The occurrence of any of the above risks could impair our ability to generate revenues and harm our business and financial condition.
 
 
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We rely on third parties to manufacture our product parts and subassemblies and new product candidates and our business will suffer if they do not perform.
 
Our production activity is primarily focused on the final assembly of our portable emergency oxygen device, and we outsource the manufacturing of most of the parts, components or subassemblies.  We expect to continue to utilize this manufacturing model for this product as well as for new product candidates.  As a result, we do not expect to manufacture many of our products and product inputs and will engage third party contractors, molders and packagers to provide manufacturing or production services.  If our contractors do not operate in accordance with regulatory requirements and quality standards, our business will suffer.  We expect to use or rely on components and services that are provided by sole source suppliers.  The qualification of additional or replacement vendors is time consuming and costly.  If a sole source supplier has significant problems supplying our products, our sales and revenues will be hurt until we find a new source of supply.
 
Our production process is very labor intensive.
 
Due to resource constraints and current limitations in our production process, our production process is very labor intensive.  We hope in the future to increase the level of automation in our process, and if we do, there is no assurance that we will be able to realize any production efficiencies through such automation.  If we are not able to automate our processes or do not realize any production efficiencies though automation, we may need a larger production force, and if we do, our production costs may rise.  Furthermore, if our production process stays labor intensive then our production process time may be slower which will not allow us to quickly and effectively respond to large orders if any.  We may elect to outsource some or all of our production process in an effort reduce costs and increase production capacity.  If we do, we may experience quality issues and long production lead times, which will adversely impact customer satisfaction and sales.  In addition, quality issues may lead to enforcement action by the FDA.
 
Moving to higher production volumes could be accompanied by quality problems.
 
To date, we have produced and shipped limited quantities of our first product, the portable emergency oxygen device.  In the event that demand for this product increases, we will have to accommodate such increases in demand by increasing our production throughput.  There can be no assurance that we would be successful in increasing our production throughput in response to any increases in demand, or that we would not suffer losses in product quality.  Any upward pressure on production capacity requirements may have an adverse impact on quality, production cost and delivery times.  Furthermore, we may seek to outsource some, part or all of our production process to meet demand.  Any such outsourcing of production may have an adverse impact on quality, production cost and delivery times.
 
 
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We rely on third parties for the worldwide marketing and distribution of our product candidates, who may not be successful in selling our products.
 
We currently do not have adequate resources to market and distribute any products outside of the U.S. and engage third party marketing and distribution companies to perform these tasks.  We also do not have adequate resources to market and distribute products in the U.S.  While we believe that distribution partners will be available, we cannot assure you that the distribution partners, if any, will succeed in marketing our products on a global basis.  We may not be able to maintain satisfactory arrangements with our marketing and distribution partners, who may not devote adequate resources to selling our products.  If this happens, we may not be able to successfully market our products, which would decrease or eliminate our ability to generate revenues.
 
We may not be successful at marketing and selling our technology or products.
 
We began commercializing our first product, our portable emergency oxygen device, in earnest in early 2008.  We also intend to develop additional products and technologies for various vertical market applications.  We may not be able to market and sell our technology or products and any financial or research efforts we exert to develop, commercialize or promote such products may not result in revenue or earnings.
 
We may not be able to compete with better-established competitors.
 
While our portable emergency oxygen device is a medical device, it is targeted at commercial, education and government markets, as well as consumer markets.  In addition, our intended future products are targeted at various commercial, education, government and consumer markets.  The industries in which we operate, which include, but are not limited to, the medical device and biotechnology industries, are intensely competitive.  Most of our competitors have significantly greater financial, technical, manufacturing, marketing and distribution resources as well as greater industry experience than we have.  The particular medical conditions, illnesses or diseases our portable emergency oxygen device and future product lines are intended to address can also be addressed by other medical devices, products, procedures or drugs.  Many of these alternatives are widely accepted by physicians and our target customers and have a long history of use.  Physicians and target customers may use our competitors’ products and/or our products may not be competitive with other technologies.  If these things happen, our sales and revenues will be adversely impacted.  In addition, our current and potential competitors may establish cooperative relationships with large medical equipment companies or companies with competitive technologies to gain access to greater research and development or marketing resources.  Competition may result in price reductions, reduced gross margins and loss of market share.
 
Our products may be displaced by newer technology.
 
The medical device and biotechnology industries are undergoing rapid and significant technological change.  Third parties may succeed in developing or marketing technologies and products that are more effective than those developed or marketed by us, or that would make our technology and products obsolete or non-competitive.  Additionally, researchers and engineers could develop new technologies and products that replace or reduce the importance of our technologies and products.  Accordingly, our success will depend, in part, on our ability to respond quickly to medical and technological changes through the development and introduction of new products.  We may not have the resources to do this.  If our product candidates become obsolete and our efforts to develop new products do not result in any commercially successful products, our sales and revenues will suffer.
 
 
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We may not have sufficient legal protection against infringement or loss of our intellectual property and we may lose rights to our licensed intellectual property if diligence requirements are not met.
 
Our success depends, in part, on our ability to secure and maintain patent protection, to preserve our trade secrets, and to operate without infringing on the patents of third parties.  While we intend to protect our proprietary positions by filing United States and foreign patent applications for our important inventions and improvements, domestic and foreign patent offices may not issue these patents.
 
To date we have filed various patents with respect to our technology and product candidates.  Some of these applications include applications for provisional patents which are not reviewed by the United States Patent and Trademark Office (“PTO”) and will not result in the issuance of a patent, unless a regular patent application is filed within one year after the filing of the provisional patent application.  Generally, our provisional patent applications do not contain all of the detailed design and other information required by a regular patent application.  As a result, it may be uncertain whether the description of the invention in a provisional patent meets the “best mode and enablement” requirements for issuance of a patent.  Failure to adequately describe the invention may result in the loss of certain claims.  Although we intend to file regular patent applications with respect to any of our provisional patent applications, such filings require substantial expenditures of management time and legal fees.  If we do not have the funds or resources to prepare, file and maintain patent applications, we could lose proprietary rights to our technology.
 
Even if we file patent applications and patents are issued, third parties may challenge, invalidate, or circumvent our patents or patent applications in the future.  Competitors, many of which have significantly more resources than we have and have made substantial investments in competing technologies, may apply for and obtain patents that will prevent, limit, or interfere with our ability to make, use, or sell our products either in the United States or abroad.
 
In the United States, patent applications are secret until patents are issued, and in foreign countries, patent applications are secret for a time after filing.  Publications of discoveries tend to significantly lag the actual discoveries and the filing of related patent applications.  Third parties may have already filed applications for patents for products or processes that will make our products obsolete or will limit our patents or invalidate our patent applications.
 
We require our employees, consultants, advisers and suppliers to execute confidentiality and assignment of invention agreements in connection with their employment, consulting, advisory, or supply relationships with us.  They may breach these agreements and we may not obtain an adequate remedy for breach.  Further, third parties may gain access to our trade secrets or independently develop or acquire the same or equivalent information.
 
 
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We could be damaged by product liability claims.
 
Our portable emergency oxygen device is intended for use by laypersons, without any training requirements. If one of our products malfunctions or a person misuses it and injury results to a user or operator, the injured party could assert a product liability claim against our company. While we currently carry a limited amount of product liability insurance, it may not sufficiently shield us from any potential product liability claims, and we might not have sufficient funds available to pay any claims over the limits of our insurance. Furthermore, any potential product liability claim may lead to our product liability insurance being cancelled, or we may not be able to obtain such insurance at a rate that is acceptable to us or at all. Because personal injury claims based on product liability may be very large, an underinsured or an uninsured claim could financially damage our company.
 
We may encounter unforeseen costs in supplying products.
 
Our estimates of the costs and time to be consumed in receiving components or input products supplied by outside vendors or third party companies may not be accurate.  There can be no assurance that we will not experience supply chain issues such as supply interruptions, fluctuations in supply or demand, or fluctuations in shipping costs caused by fluctuations in fuel costs.  If we were to experience such supply issues, they may have a material adverse effect on our business and operations.  We may not be able to transfer any adverse cost variations to our customers.
 
Risks Relating to the Regulatory Environment
 
We may have compliance issues with the FDA which could prevent or delay our ability to generate revenues.
 
Our primary product, the portable emergency oxygen device is considered a Class II medical device by the FDA.
 
The FDA regulations govern the following activities that we perform, or that are performed on our behalf, to ensure that medical devices distributed domestically or exported internationally are safe and effective for their intended uses:
 
·
product design, development and manufacture;
·
product safety, testing, labeling and storage;
·
pre-marketing clearance or approval;
·
record keeping procedures;
·
product marketing, sales and distribution; and
·
post-marketing surveillance, complaint handling, medical device reporting, reporting of deaths or serious injuries and repair or recall of products.
 
 
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Failure to comply with applicable regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:
 
·  
warning letters, untitled letters, fines, injunctions, consent decrees, and civil penalties;
·  
repair, replacement, refunds, recall, or seizure of our products;
·  
operating restrictions, partial suspension or total shutdown of production;
·  
refusing our requests for 510(k) clearance or Pre-market Approval (“PMA”) of new products, new intended uses or modifications to existing products;
·  
withdrawing 510(k) clearance or PMA approvals that have already been granted; and
·  
criminal prosecution.
 
We may face problems related to the Department of Transportation regarding the shipment of our product which could potentially increase our shipping costs and limit our revenue potential.
 
The U.S. Department of Transportation (“DOT”) issued an interpretation letter on October 3, 2008 determining that our primary product, the portable emergency oxygen device, should be classified as “Oxygen Generator, Chemical, UN3356” for the purposes of shipment.  As a result of this interpretation, we are required to maintain at least one certified shipping personnel on staff to conduct shipping from our warehouse.  This DOT interpretation also requires us to put certain hazardous materials labeling on our packages upon shipment.
 
Furthermore, delivery and logistics providers such as United Parcel Service (“UPS”) and Federal Express typically charge a hazardous materials fee (“hazmat fee”) for products shipped with a UN3356 designation.  These issues have caused us to experience problems related to shipping, including the following:
 
To date, we have typically passed any shipping hazmat fees on to our customers, but we have experienced customer resistance to these fees.
During the period that we are shipping under the UN3356 shipping designation, the OxySure Model 615 can be transported by all modalities, including rail, road, ocean, and air.  However, when transported by air it has to be: (i) transported on cargo aircraft; (ii) appropriately labeled; and (iii) no more than 25 kilograms gross in weight.  However, several air cargo transporters have declined to transport “chemical oxygen generators,” especially internationally.  This has caused problems for us in shipping limited quantities of products by air to international destinations.
 
During the period that we are shipping under the UN3356 shipping designation, we may not be able to continue to pass the hazmat fees on to our customers.  If we elect to absorb these hazmat fees, it may significantly increase our shipping costs.  If we continue to pass these hazmat fees on to our customers, it may limit our revenue potential.  Further, during the period that we are shipping under the UN3356 shipping designation we could suffer a temporary or permanent suspension of our ability to ship our products if we were to fail to comply with the applicable shipping requirements, which could result in a total loss or large decrease in the sales of our product.  A permanent suspension of our ability to ship could result from, without limitation, repeated, gross violations of applicable regulations that have remained uncured, while we are shipping under the UN3356 shipping designation.
 
 
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While the FDA has deemed the Model 615 sufficiently safe for over the counter purchase by lay persons, and while we have obtained independent, third party validation of the non-hazardous nature of Model 615, we are required, for shipment purposes, to comply with requirements of this interpretation letter until we can obtain a Special Permit or other similar relief, removing these shipping requirements.  There can be no assurance that we will be able to obtain such a Special Permit or that we will be able to obtain some other, similar relief from DOT.  If we are able to obtain such a Special Permit or other similar relief, there can be no assurance that it won’t take a very long time to achieve.  Any delay or inability to obtain such a Special Permit or other, similar relief could have a material adverse impact on the marketability of our product, which in turn could limit our revenue potential.
 
We are subject to regulations and limitations set forth by the Federal Aviation Administration which could limit our ability to generate revenues.
 
The Federal Aviation Administration (“FAA”) maintains control over any oxygen devices that are carried by commercial aircraft, either as commercial cargo, passenger luggage or as passenger on-board items.  The DOT interpretation letter dated October 3, 2008 determined that our primary product, the portable emergency oxygen device should be classified as “Oxygen Generator, Chemical, UN3356” for the purposes of shipment.  This means, in part, that the product can only be shipped on cargo aircraft and cannot be carried on board commercial aircraft unless the FAA grants us specific approval for our product to be allowed on commercial aircraft.  Currently, we have not sought approval from the FAA for passengers to carry our portable emergency oxygen device on board commercial aircraft.  We plan to seek approval by the FAA for passengers to be allowed to carry our portable emergency oxygen device on board commercial aircraft.  There can be no assurance that we will be able to obtain such approval.  If we are able to obtain such approval, there can be no assurance that it won’t take a long time to obtain.  Any delay or inability to obtain such FAA approval could have a material adverse impact on the marketability of our product and could limit our revenue potential.
 
We may face problems obtaining regulatory approval in international markets which could prevent or delay our ability to generate revenues.
 
As a medical device, our product is highly regulated.  We anticipate that most of the international markets we expect to operate in will require some sort of regulatory approval.  There can be no assurance that we will be able to obtain the regulatory approvals we will need to operate in our intended markets.
 
 
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Risks Relating to our Stock
 
Our common stock is not listed or quoted on any exchange or electronic quotation system and shareholders may not be able to resell their shares.
 
Currently our common stock is not listed or quoted on any exchange or automated quotation system.  There can be no assurance that our common stock will ever be listed or quoted on any exchange or quotation system.  If our common stock is ever publicly traded, an active public market for our shares may never develop.  There can be no assurance that purchaser of our shares will be able to resell their shares at their original purchase price, if at all.
 
Our common stock is expected to be traded over the counter, which may deprive stockholders of the full value of their shares.
 
We anticipate that our common stock will be quoted via an over-the-counter electronic quotation system, such as the OTC Bulletin Board (“OTCBB”).  If quoted on the OTCBB, our common stock is expected to have fewer market makers, lower trading volumes and larger spreads between bid and asked prices than securities listed on an exchange such as the New York Stock Exchange or the NASDAQ Stock Market.  These factors may result in higher price volatility and less market liquidity for the common stock.
 
If our stock price drops significantly, we may become subject to securities litigation that could result in a harmful diversion of our resources.
 
In the past, following periods of volatility in the market price of a particular company’s stock, securities class action litigation has been brought against such companies.  Any litigation arising from the volatility in the price of our common stock could have an adverse effect upon our business, financial condition, and results of operations.
 
The determination of the existing shareholder selling price does not bear any relationship to our book value.
 
The Offering Price of our common stock does not bear any direct relationship to the value of our physical assets, our book value, or any other general accepted criteria of valuation.  The Offering Price is not necessarily an indication of the actual value of such securities at the time of this Offering.  Additionally, the market price for our securities following this Offering may be highly volatile as has been the case with the securities of other companies in emerging businesses.  Factors such as our financial results, the introduction of new products or services, the strength of our competitors, and various factors affecting our industry generally, may have a significant impact on the market price of our securities.  In recent years, the stock market has experienced a high level of price and volume volatility.  Market prices for the securities of many companies, particularly of small and emerging growth companies like ours whose common stock is traded in the over-the-counter market, have experienced wide price fluctuations which have not necessarily been related to the operating performance of these companies.
 
 
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A low market price would severely limit the potential market for our common stock.
 
Our common stock is expected to trade at a price substantially below $5.00 per share, subjecting trading in the stock to certain Securities and Exchange Commission (“SEC”) rules requiring additional disclosures by broker-dealers.  These rules generally apply to any non-NASDAQ equity security that has a market price per share of less than $5.00 per share, subject to certain exceptions (a “penny stock”).  Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors.  For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale.  The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market.  Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer.  Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.  The additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock.
 
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
 
In addition to the penny stock rules promulgated by the SEC, which are discussed in the immediately preceding risk factor, Financial Industry Regulatory Authority (“FINRA”) rules require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer.  Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.  Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers.  FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit the ability to buy and sell our stock and have an adverse effect on the market value for our shares.
 
An investor’s ability to trade our common stock may be limited by trading volume.
 
A consistently active trading market for our common stock may not occur on an OTC electronic quotation system.  A limited trading volume may prevent our shareholders from selling shares at such times or in such amounts as they may otherwise desire.
 
 
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We have a concentration of stock ownership and control, which may have the effect of delaying, preventing, or deterring a change of control.
 
Our common stock ownership is highly concentrated.   Through their ownership of shares of our common stock and preferred stock, two individuals, our President, Julian T. Ross and Donald Reed, a member of our Board of Directors, beneficially own 92.04% of our total outstanding shares of common stock and preferred stock before this Offering. This amount includes warrants, options, and convertible notes held by JTR Investments, Limited and Agave Resources, LLC.  As a result of the concentrated ownership of the stock, these two stockholders, acting together, will be able to control all matters requiring stockholder approval, including the election of directors and approval of mergers and other significant corporate transactions.  This concentration of ownership may have the effect of delaying, preventing or deterring a change in control of our company.  It could also deprive our stockholders of an opportunity to receive a premium for their shares as part of a sale of our company and it may affect the market price of our common stock.

We have not voluntarily implemented various corporate governance measures, in the absence of which, shareholders may have more limited protections against interested director transactions, conflicts of interest and similar matters.
 
Recent federal legislation, including the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity of the corporate management and the securities markets.  Some of these measures have been adopted in response to legal requirements.  Others have been adopted by companies in response to the requirements of national securities exchanges, such as the NYSE or The NASDAQ Stock Market, on which their securities are listed.  Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address board of directors’ independence, audit committee oversight and the adoption of a code of ethics.  While our Board of Directors has adopted a Code of Ethics and Business Conduct, we have not yet adopted any of these corporate governance measures and, since our securities are not listed on a national securities exchange, we are not required to do so.  It is possible that if we were to adopt some or all of these corporate governance measures, shareholders would benefit from somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented to define responsible conduct.  For example, in the absence of audit, nominating and compensation committees comprised of at least a majority of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided.  Prospective investors should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
 
 
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Failure to design, implement and maintain effective internal controls could have a material adverse effect on our business and stock price.
 
As a public company, we will have significant requirements for enhanced financial reporting and internal controls.  The process of designing and implementing effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.  If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet our reporting obligations on a timely basis, result in material misstatements in our financial statements and harm our operating results.  In addition, we will be required, pursuant to Section 404 of the Sarbanes-Oxley Act, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting for the first fiscal year beginning after the effective date of this offering.  This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting, as well as a statement that our auditors have issued an attestation report on effectiveness of our internal controls.  Testing and maintaining internal controls may divert our management’s attention from other matters that are important to our business.  We may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404 or our independent registered public accounting firm may not issue a favorable assessment.  If either we are unable to conclude that we have effective internal control over financial reporting or our independent registered public accounting firm are unable to provide us with an unqualified report, investors could lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
 
Our lack of sufficient personnel creates a material weakness in our internal controls.  If we fail to implement a remediation plan to cure our lack of internal controls over our financial reporting, we may lose credibility with investors and the market price of our common stock may be adversely impacted.
 
While there were internal controls and procedures in place that relate to financial reporting and the prevention and detection of material misstatements, it was our management’s opinion that the a material weakness in the financial reporting process resulted from insufficient personnel.  We are currently working to improve our internal financial reporting controls.  We plan to continue to assess our internal controls and procedures and intend to take further action as necessary or appropriate to address our material weaknesses, including to effect compliance with Section 404 of the Sarbanes-Oxley Act of 2002 when we are required to make an assessment of our internal controls under Section 404 which is anticipated to be for fiscal year 2011.  The existence of a material weakness is an indication that there is a more than remote likelihood that a material misstatement of our financial statements will not be prevented or detected in a future period while that material weakness continues to exist.  The process of designing and implementing effective internal controls and procedures is a continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations as a public company.  We cannot assure you that additional material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.  In the event that we cannot implement a remediation plan in a timely manner, investors and others may lose confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our stock. 
 
Our board of directors has the authority to issue shares of “blank check” preferred stock, which may make an acquisition of our company by another company more difficult.
 
We may in the future adopt certain measures that may have the effect of delaying, deferring or preventing a takeover or other change in control of our company that a holder of our common stock might consider in its best interest.  Specifically, our board of directors, without further action by our stockholders, currently has the authority to issue shares of preferred stock and to fix the rights (including voting rights), preferences and privileges of these shares (“blank check” preferred).  Such preferred stock may have rights, including economic rights, senior to our common stock.  As a result, the issuance of the preferred stock could have a material adverse effect on the price of our common stock and could make it more difficult for a third party to acquire a majority of our outstanding common stock.
 
Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
 
We have never paid dividends on our common stock and we do not intend to do so in the foreseeable future.  We intend to retain any future earnings to finance our growth.  Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock.
 
 
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Selling Security Holders will be able to sell their shares at less than the fixed price that applies to our sales.
 
Selling Security Holders will be able to sell their shares at less than the fixed price that applies to our sales, which may limit our ability to raise capital through this Prospectus.
 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This document contains “forward-looking statements.”  These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management.  The use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely,” or similar expressions, indicates a forward-looking statement.  Forward-looking statements are not guarantees of performance.  They involve risks, uncertainties and assumptions.  Future results may differ materially from those expressed in the forward-looking statements.  Many of the factors that will determine these results are beyond our ability to control or predict.  Stockholders are cautioned not to put undue reliance on any forward-looking statements, which speak only to the date made.  For a discussion of some of the factors that may cause actual results to differ materially from those suggested by the forward-looking statements, please read carefully the information under “Risk Factors.”
 
The identification in this document of factors that may affect future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive.  All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.  You may rely only on the information contained in this Prospectus.  We have not authorized anyone to provide information different from that contained in this Prospectus.  Neither the delivery of this Prospectus nor the sale of common stock means that information contained in this Prospectus is correct after the date of this Prospectus.  This Prospectus is not an offer to sell or solicitation of an offer to buy these securities in any circumstances under which the offer or solicitation is unlawful.
 
 
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USE OF PROCEEDS
 
We will not receive any proceeds from the sales by the Selling Security Holders.  All proceeds from the sale of the 3,915,565 shares from the existing shareholders will be paid directly to those shareholders.
 
We will receive $5,000,000 in gross proceeds if we sell all of the shares being registered herein for our direct public Offering.  The following table prioritizes the intended uses of the proceeds from the Offering of $5,000,000.  Given that there is no minimum number of shares that must be sold and the possibility that we receive substantially less than $5,000,000, we have included our use of proceeds based on the number of shares sold because Selling Security Holders will be able to sell their shares at less than the fixed price that applies to our sales.  This may limit our ability to raise capital through our direct public Offering.
 
   
If 10%
of Shares
Sold
   
Percent of Offering Proceeds
   
If 25% of
Shares
Sold
   
Percent of Offering Proceeds
   
If 50% of
Shares
 Sold
   
Percent of Offering Proceeds
   
If 75% of
Shares
Sold
   
Percent of Offering Proceeds
   
If 100% of
Shares
Sold
   
Percent of Offering Proceeds
 
GROSS PROCEEDS FROM THIS OFFERING
  $ 500,000           $ 1,250,000           $ 2,500,000           $ 3,750,000           $ 5,000,000        
                                                                       
Less: OFFERING EXPENSES
                                                                     
Legal, Accounting and Professional
  $ 100,000       20.0 %   $ 100,000       8.0 %   $ 100,000       4.0 %   $ 100,000       2.7 %   $ 100,000       2.0 %
Blue Sky Fees
  $ 4,500       *     $ 4,500       *     $ 4,500       *     $ 4,500       *     $ 4,500       *  
Edgar Agent Fees
  $ 20,000       4.0 %   $ 20,000       1.6 %   $ 20,000       *     $ 20,000       *     $ 20,000       *  
Transfer Agent Fees
  $ 4,500       *     $ 4,500       *     $ 4,500       *     $ 4,500       *     $ 4,500       *  
                                                                                 
SUB-TOTAL
  $ 129,000       25.8 %   $ 129,000       10.3 %   $ 129,000       5.2 %   $ 129,000       3.4 %   $ 129,000       2.6 %
                                                                                 
NET PROCEEDS FROM OFFERING
  $ 371,000       74.2 %   $ 1,121,000       89.7 %   $ 2,371,000       94.8 %   $ 3,621,000       96.6 %   $ 4,871,000       97.4 %
                                                                                 
Less: Payment on Debt and Accounts Payable
                                                                               
Payment of Senior Notes
  $ 0       *     $ 0       *     $ 300,000 1     12.0 %   $ 325,000 1     8.7 %   $ 500,000 1     10.0 %
Payment on First and Second Landlord Notes2
  $ 0       *     $ 50,281       4.0 %   $ 150,844       6.0 %   $ 201,126       5.4 %   $ 251,407       5.0 %
Payment on other Subordinated Notes
  $ 0       *     $ 0       *     $ 0       0 %   $ 300,000 3     8.0 %   $ 500,000 3     10.0 %
Payment to Accounts Payable
  $ 50,000       10 %   $ 75,000       6.0 %   $ 75,000       3.0 %   $ 75,000       2.0 %   $ 100,000       2.0 %
_________________________
 
1 These proceeds will be used towards the reduction of principal on the JTR Investments Limited Senior Note  (“JTR Senior Note”).  Payments will be applied to current amounts due under the JTR Senior Note first, and thereafter any remaining amounts will be applied to the long term portion of the JTR Senior Note outstanding. Unpaid amounts under the long term portion of the JTR Senior Note, if any, will remain outstanding and will be payable on April 15, 2012 .  If 100% of the shares are sold in the direct public Offering, $517,706 of the JTR  Senior Note will remain outstanding, calculated as of the date of this prospectus .  JTR Investments Limited is controlled by our CEO, Julian T. Ross.  See “Certain Relationships and Related Transactions.”
 
2 Payment of the First and Second Landlord Notes are based on the amount raised in the direct public Offering.  If we raise $1,000,000, we must pay $50,281 of the principal balance of the notes.  If we raise $1,500,000, we must pay $100,563 of the principal balance of the notes.  If we raise $2,000,000, we must pay $150,844 of the principal balance of the notes.  If we raise $3,000,000, we must pay $201,126 of the principal balance of the notes.  If we raise $4,000,000, we must pay the entire principal balance of the notes.
 
3 These proceeds will be used towards the reduction of principal on the Agave Resources LLC First Note (“First Note”) and the JTR Investments Limited Second Note (“Second Note”), in equal amounts. Unpaid amounts under the First Note and the Second Note, if any, will remain outstanding and will mature on April 15, 2012.  If 100% of the shares are sold in the direct public Offering, $500,000 of the First Note will remain outstanding and the Second Note will be paid in full.  Agave Resources LLC is controlled by Don Reed, one of our Directors, and JTR Investments Limited is controlled by our CEO, Julian T. Ross. See “Certain Relationships and Related Transactions.”
 
 
24

 
 
   
If 10%
of Shares
Sold
    Percent of Offering Proceeds    
If 25% of
Shares
Sold
   
Percent of Offering Proceeds
   
If 50% of
Shares
 Sold
   
Percent of Offering Proceeds
   
If 75% of
Shares
Sold
   
Percent of Offering Proceeds
   
If 100% of
Shares
Sold
   
Percent of Offering Proceeds
 
SUB TOTAL
  $ 50,000       10 %   $ 125,281       10.0 %   $ 525,844       21.0 %   $ 901,126       24.0 %   $ 1,351,407       27.0 %
                                                                                 
Less: COSTS ASSOCIATED WITH SALES AND MARKETING
                                                                               
                                                                                 
Increase in Sales Staff
  $ 50,000       10 %   $ 150,000       12.0 %   $ 300,000       12.0 %   $ 700,000       18.7 %   $ 1,000,000       20.0 %
Increase in Marketing Budget
  $ 116,880       23.4 %   $ 334,380       26.8 %   $ 626,880       25.1 %   $ 866,880       23.1 %   $ 1,068,080       21.4 %
                                                                                 
SUB-TOTAL
  $ 166,880       33.4 %   $ 484,380       38.8 %   $ 926,880       37.1 %   $ 1,566,880       41.8 %   $ 2,068,080       41.4 %
                                                                                 
Less: COSTS ASSOCIATED WITH PRODUCTION
                                                                               
Investments in Production
  $ 25,000       5 %   $ 100,000       8.0 %   $ 150,000       6.0 %   $ 175,000       4.7 %   $ 175,000       3.5 %
Increase in Production Staff
  $ 0       *     $ 59,000       4.7 %   $ 88,500       3.5 %   $ 118,000       3.1 %   $ 177,000       3.5 %
                                                                                 
SUB-TOTAL
  $ 25,000       5 %   $ 159,000       12.7 %   $ 238,500       9.5 %   $ 293,000       7.8 %   $ 352,000       7.0 %
                                                                                 
Less: COSTS ASSOCIATED WITH RESEARCH AND DEVELOPMENT (“R&D”) ACTIVITIES
                                                                               
Increase in R&D
  $ 0       0 %   $ 25,000       2.0 %   $ 50,000       2.0 %   $ 60,000       1.6 %   $ 70,000       1.4 %
Increase in R&D Staff
  $ 0       0 %   $ 0       0 %   $ 0       0 %   $ 90,000       2.4 %   $ 90,000       1.8 %
                                                                                 
SUB-TOTAL
  $ 0       0 %   $ 25,000       2.0 %   $ 50,000       2.0 %   $ 150,000       4.0 %   $ 160,000       3.2 %
                                                                                 
Less: ADMINISTRATION COSTS
                                                                               
Staffing and Payroll
  $ 97,400       19.5 %   $ 278,650       22.3 %   $ 522,400       20.9 %   $ 577,920       15.4 %   $ 768,720       15.4 %
Working Capital
  $ 31,720       6.3 %   $ 48,689       3.9 %   $ 107,376       4.3 %   $ 132,074       3.5 %   $ 170,793       3.4 %
                                                                                 
SUB-TOTAL
  $ 129,120       25.8 %   $ 327,339       26.2 %   $ 629,776       25.2 %   $ 709,994       18.9 %   $ 939,513       18.8 %
                                                                                 
TOTALS
  $ 500,000       100 %   $ 1,250,000       100 %   $ 2,500,000       100 %   $ 3,750,000       100 %   $ 5,000,000       100 %
 
*Less than 1%.
 
 
25

 
 
Investments in research and development include, but are not limited to, (i) product improvements, including investigation and testing of more cost-effective parts and materials, and (ii) process improvements, including ways to streamline our production process.  In addition, it may also include investigation, development and testing of new products and accessories.  The proceeds allocated to research and development will be sufficient to accomplish some but not all of the research and development.
 
Investments in production include, but are not limited to, (i) acquisition of production equipment, including additional acquisitions of equipment currently being used to add production capacity and new equipment to enhance production capacity and production throughput; and (ii) upgrades to and maintenance of existing equipment.  The proceeds allocated to production will be sufficient to accomplish some but not all of the production enhancements.
 
Investments in marketing efforts include, but are not limited to, investments in: (i) the development and implementation of marketing campaigns, including online and offline campaigns to increase product awareness, market education, and sales of our products; (ii) in exhibitions and shows; (iii) the development of brand awareness; (iv) marketing collateral; and (v) other related, promotional, advertising, marketing and sales activities.  The proceeds allocated to marketing efforts will be sufficient to accomplish some but not all of the marketing participation goals.
 
Our management will prioritize and allocate the proceeds to production, research and development, and marketing efforts based on our needs at the time.
 
 
26

 
 
DILUTION
 
“Dilution” represents the difference between the Offering Price and the net tangible book value per Share of Common Stock immediately after completion of the Offering.  “Net tangible book value” is calculated by taking our total assets, minus any intangible assets, less all liabilities and divided by the total outstanding shares of common stock.  In this Offering, the level of dilution is relatively substantial as a result of the low book value of our issued and outstanding stock.  Our net tangible book value on March 31, 2011 was ($0.186) per share.  Assuming all shares offered herein are sold, our net tangible book value will be $0.100 per share.  Therefore, the purchasers of the Common Stock in this Offering will suffer an immediate dilution of approximately $0.900 per share while our present stockholders will receive an immediate increase of $0.286 per share in the net tangible book value of the shares they hold.  This will result in a 90.0% dilution for purchasers of stock in this Offering.  All numbers are exclusive of the dilutive effect of convertible notes, warrants, and options outstanding, if any.

The following table illustrates the dilution to the purchasers of the Shares in this Offering:

Full Offering

Offering Price per Share
    $1.00  
Net Tangible Book Value per Share (Before Offering)
    $(0.186 )
Net Tangible Book Value per Share (After Offering)
    $0.100  
Per Share Dilution to New Investors
    $0.900  
Percentage Dilution per Share to New Investors
    90.0 %
 
Stock Comparison
 
The stock comparison below assumes that we sell 5,000,000 shares of common stock for $5,000,000 in the Offering.
 
Affiliate Equity Holders
 
Number of
Shares
   
%
Ownership
   
Total
Consideration
   
% of Total
Consideration
   
Number of Shares
held after Conversion
of all Convertible
Securities 1
   
Total Consideration
after Conversion
of all Convertible Securities1
   
% Ownership
After Conversion
of all Convertible Securities 1
 
  14,065,000       67.82 %   $ 145,200       2.00 %     20,040,930     $ 3,559,803       62.68 %
                                                     
Non-Affiliate Equity Holders
 
Number of
Shares
   
%
Ownership
   
Total
Consideration
   
% of Total
Consideration
   
Number of Shares
held after Conversion
of all Convertible
Securities
   
Total Consideration
after Conversion
of all Convertible Securities
   
% Ownership
After Conversion
of all Convertible Securities
 
  1,674,816       8.08 %   $ 2,123,736       29.22 %     6,933,534     $
4,426,231
      21.68 %
                                                     
Direct Public Offering Holders
 
Number of
Shares
   
%
Ownership
   
Total
Consideration
   
% of Total
Consideration
   
Number of Shares
held after Conversion
of all Convertible
Securities
   
Total Consideration
after Conversion
of all Convertible Securities
   
% Ownership
After Conversion
of all Convertible Securities
 
  5,000,000       24.11 %   $ 5,000,000       68.79 %     5,000,000     $ 5,000,000       15.64 %
                                                     

1 Convertible Securities include all outstanding warrants, options, notes and preferred stock converted or exercised.
 
 
27

 
 
DIVIDEND POLICY
 
We do not expect to declare or pay any cash dividends on our common stock in the foreseeable future, and we currently intend to retain future earnings, if any, to finance the expansion of our business.  The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, operating results, capital requirements and other factors that the board of directors considers significant.  We have never paid dividends on our common stock.
 
DETERMINATION OF OFFERING PRICE AND ADDITIONAL INFORMATION
 
At present there is no public market for the common stock being registered.  We arbitrarily selected an Offering Price of $1.00 per share.  The Offering Price is not necessarily based on our financial condition or on any market value.  The shares sold in the direct public Offering and the shares sold by affiliates and promoters will be at the Offering Price for the duration of the Offering.   However, if common stock is publicly traded by Selling Security Holders (defined below), who are not affiliates or promoters, the selling price will be determined by market and other factors not necessarily related to asset value net worth, or criteria of value, which could be considerably less.
 
 
28

 
 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
There has never been a public trading market for our common stock.  Immediately upon the SEC deeming this Registration Statement, of which this Prospectus is a part, effective, we intend to seek out the assistance of a FINRA market maker to sponsor us and file an application for initial quotation of our common stock on an OTC electronic quotation system.  As of the date of this Prospectus, we had 53 stockholders of record.  In addition, the number of holders of convertible preferred stock totaled 50 stockholders.  Some of the holders of common stock are also holders of the convertible preferred stock.
 
SELLING SECURITY HOLDERS
 
The persons listed in the following table plan to offer the shares shown opposite their respective names by means of this Prospectus.  The owners of the shares to be sold by means of this Prospectus are referred to as the “Selling Security Holders.”  All of the purchasers had business or personal prior relationships with our officers and directors.
 
In completing sales, brokers or dealers engaged by the Selling Security Holders may arrange for other brokers or dealers to participate.  Brokers or dealers may receive commissions or discounts from Selling Security Holders in amounts to be negotiated.  The Selling Security Holders and any broker/dealers who act in connection with the sale of the shares may be deemed to be “underwriters” within the meaning of the Securities Act, and any commissions received by them and any profit on any resale of the shares as a principal might be deemed to be underwriting discounts and commissions under the Securities Act.
 
If any Selling Security Holder enters into an agreement to sell his or her shares to a broker/dealer as principal and the broker/dealer is acting as an underwriter, we will file a post-effective amendment to the registration statement, of which this Prospectus is a part, identifying the broker/dealer, providing required information concerning the plan of distribution, and otherwise revising the disclosures in this Prospectus as needed.  We will also file the agreement between the Selling Security Holder and the broker/dealer as an exhibit to the post-effective amendment to the registration statement.
 
We have advised the Selling Security Holders that they and any securities broker/dealers or others who may be deemed to be statutory underwriters will be subject to the Prospectus delivery requirements under the Securities Act.  We have also advised each Selling Security Holder that in the event of a “distribution” of the shares owned by the Selling Security Holder, such Selling Security Holder, any “affiliated purchasers,” and any broker/dealer or other person who participates in the distribution may be subject to Rule 102 of Regulation M under the Securities Exchange Act of 1934 (the “Exchange Act”) until their participation in that distribution is complete.  Rule 102 makes it unlawful for any person who is participating in a distribution to bid for or purchase stock of the same class, as is the subject of the distribution.  A “distribution” is defined in Rule 102 as an offering of securities “that is distinguished from ordinary trading transaction by the magnitude of the offering and the presence of special selling efforts and selling methods.”  We have also advised the Selling Security Holders that Rule 101 of Regulation M under the Exchange Act prohibits any “stabilizing bid” or “stabilizing purchase” for purpose of pegging, fixing, or stabilizing the price of the common stock in connection with this Offering.
 
 
29

 
 
To our knowledge, no Selling Security Holder is a broker/dealer or affiliated with a broker/dealer.  The following Selling Security Holders have, or have had, relationships with us or our officers or directors:
 
·
Mr. Henry McDonald is a member of Jatch, LLC, one of our distributors.
·
R. Dean White is a member of our Board of Advisors.
·
Jonathan Burke is a member of our Board of Advisors.
·
George Brody is a member of our Board of Advisors.
 
Manner of Sale
 
The shares of common stock owned by the Selling Security Holders may be offered and sold by means of this Prospectus from time to time as market conditions permit.  Since as of the date of this Prospectus no market exists for our common stock, sales by the Selling Security Holders are not possible until our common stock becomes quoted on the OTCBB.  The selling price is $1.00 per share.  If and when our common stock becomes publicly traded, the shares owned by the Selling Security Holders may be sold in the public market or in private transactions for cash at prices to be determined at that time.  We will not receive any proceeds from the sale of the shares by the Selling Security Holders.  The Selling Security Holders will pay all sales commissions and other costs of the sale of the shares offered by them.
 
Because the Selling Security Holders may offer all, some or none of their shares, no definitive estimate as to the number of shares thereof that will be held by the selling security holders after such offering can be provided, and the following table has been prepared on the assumption that all shares of common stock offered under this Prospectus will ultimately be sold.
 
The following table sets forth (i) the number of outstanding common and preferred shares, beneficially owned by the Selling Security Holders prior to the Offering; (ii) the aggregate number of shares offered by each such stockholder pursuant to this Prospectus; and (iii) the amount and the percentage of the class to be owned by such security holder after the Offering is complete:
 
 
30

 
 
 
Owned Before the Offering
 
After the Offering1
Name of Selling Security Holder
Number of Shares Owned2
Percentage Owned3
Number of Shares Offered
Number of Shares Owned
Percentage Owned
AHMAD, Baher A.4
30,500
*
30,500
0
0%
ANTWI, Dr. Ernest5
61,000
*
61,000
0
0%
ANTWI, Kwadwo6
70,000
*
70,000
0
0%
AULDS Family L.P.  #17
80,000
*
80,000
0
0%
BERT, Raymond E. & Rachael Jane Bert8
30,500
*
30,500
0
0%
Bluestar Corporation Co. Ltd.9
61,000
*
61,000
0
0%
BRADY, Jeff L.10
30,500
*
30,500
0
0%

1  Unless otherwise indicated in the footnotes to this table, the persons and entities named in the table have sole voting and sole dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.  Includes shares of common stock; shares of common stock issuable upon conversion of Series A Convertible Preferred Stock at a conversion ratio of 1.22:1; and shares of common stock that the selling stockholder has the right to acquire beneficial ownership of within 60 days of the date of this Prospectus upon exercise of warrants and options.
 
2 As of the date of this Prospectus, there were 15,739,816 issued and outstanding common shares and 3,126,434 preferred shares (net of prior conversions) which are convertible into 3,814,249 common shares at a conversion rate of 1.22:1, totaling 19,554,065 common shares outstanding.  Unless otherwise noted below, all selling security holders acquired Series A preferred shares convertible into common stock at a price of $1.00 per share in a private placement which was completed on March 30, 2006.
 
3 In determining the percentage of common stock beneficially owned by a selling shareholder as of the date of this Prospectus, (a) the numerator is the number of shares of common stock beneficially owned by such selling shareholder (including shares that the shareholder has the right to acquire within 60 days of the date of this Prospectus), and (b) the denominator is the sum of (i) the 19,554,065 total common shares outstanding on an as-converted basis as at the date of this Prospectus and (ii) the number of shares of common stock which such selling shareholder has the right to acquire within 60 days of the date of this Prospectus.  This table assumes that each selling stockholder will sell all shares offered for sale by the shareholder under this Prospectus.  Stockholders are not required to sell their shares.
 
4 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
5 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
6 Received as a gift in November 2004.
 
7 Acquired for cash in December 2007 in a private placement of Common Stock which ended in March 2008.  Chris Aulds exercises sole voting and dispositive power over the shares of Common Stock held by AULDS Family L.P. #1.
 
8 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
9 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.  Dr. B. Soo Lee has sole voting and dispositive power.
 
10 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
 
31

 
 
BRODY, George11
75,000
*
61,000
14,00012
*
BURKE, Dr. Jonathan13
128,000
*
122,000
6,000 14
*
CARR, Gregory W.15
50,500
*
50,500
0
0%
COCKEREL, Dr. Clay & Brenda16
30,500
*
30,500
0
0%
COTHERN, Robert Q.17
61,000
*
61,000
0
0%
CURLETT, Jesse D.18
1,000
*
1,000
0
0%
CURLETT, Samuel R.19
2,000
*
2,000
0
0%
DeGIRONIMO, Paul Bruno20
122,000
*
122,000
0
0%
DICKERSON, Carl 21
10,000
*
5,000
5,00022
*
DORREL, Ronald Kenton23
40,000
*
40,000
0
0%
DUFFY, Joshua24
2,000
*
2,000
0
0%
EVERSON Jr., Robert H.25
10,000
*
10,000
0
0%
FELDMAN, David B.26
40,500
*
40,500
0
0%
FOSTER, T. Scott27
1,066
*
1,066
0
0%
FREEMAN, John E.28
61,000
*
61,000
0
0%
FROST, Dr. David E.29
20,000
*
20,000
0
0%

 
11 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1, and 14,000 shares of Common Stock issuable upon the exercise of options.
 
12 Consists of 14,000 shares of Common Stock issuable upon the exercise of options.
 
13 Consists of 100,000 shares of Series A Convertible Preferred Stock which convert to 122,000 shares of Common Stock at a conversion ratio of 1.22:1, and 6,000 shares of Common Stock issuable upon the exercise of options.
 
14 Consists of 6,000 shares of Common Stock issuable upon the exercise of options.
 
15 Consists of 20,000 shares of common stock acquired for services in April and July 2007 in a private placement of Common Stock which ended in March 2008; and 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
16 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
17 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
18 Received as a gift in April 2009.
 
19 Received as a gift in April 2009.
 
20 Consists of 100,000 shares of Series A Convertible Preferred Stock which convert to 122,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
21 Consists of 5,000 shares of Common stock acquired for cash in March 2009 in a private placement of Common Stock which ended in April 2009; and 5,000 shares of Common Stock issuable upon the exercise of warrants.
 
22 Consists of 5,000 shares of Common Stock issuable upon the exercise of warrants.
 
23 Acquired for cash in August 2007 in a private placement of Common Stock which ended in March 2008.
 
24 Acquired from a third party in December 2007.
 
25 Acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008.
 
26 Consists of 10,000 shares of common stock acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008; and 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
27 Acquired for services valued at $5,063 in November 2004.
 
28 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
29 Acquired for cash in April 2007 in a private placement of Common Stock which ended in March 2008.
 
 
32

 
 
GEORGE, Holly30
30,500
*
30,500
0
0%
GUNTER, James Kyle31
30,500
*
30,500
0
0%
HAACK, Dr. Gregory J.32
61,000
*
61,000
0
0%
HACKLER, Joe33
30,500
*
30,500
0
0%
HARRIS, Dennis O. 34
15,000
*
12,500
2,50035
0%
HILL, Steven36
61,000
*
61,000
0
0%
HOYT, Matthew & Susan37
5,000
*
5,000
0
0%
HUPP, Dr. James R.38
15,000
*
15,000
0
0%
JEFFREY, Lisa39
10,000
*
10,000
0
0%
JENNINGS, Robert40
25,000
*
25,000
0
0%
JENNINGS, Robert IFO Zack Jennings41
5,000
*
5,000
0
0%
JERNIGAN, Steve42
70,000
*
70,000
0
0%
JJ Johnson Investments, Ltd.43
100,500
*
100,500
0
0%
JOHNSON, Joseph Q.44
30,500
*
30,500
0
0%
JONES, G.  Christopher45
42,500
*
42,500
0
0%

 
30 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
31 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
32 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
33 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
34 Consists of 12,500 shares of Common stock acquired for cash in December 2008 in a private placement of Common Stock which ended in April 2009; and 2,500 shares of Common Stock issuable upon the exercise of warrants.
 
35 Consists of 2,500 shares of Common Stock issuable upon the exercise of warrants.
 
36 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
37 Acquired for cash in February 2008 in a private placement of Common Stock which ended in March 2008.
 
38 Acquired for cash in April 2007 in a private placement of Common Stock which ended in March 2008.
 
39 Acquired for cash in February 2008 in a private placement of Common Stock which ended in March 2008.
 
40 Acquired for cash in December 2008 in a private placement of Common Stock which ended in April 2009.
 
41 Acquired for cash in December 2008 in a private placement of Common Stock which ended in April 2009.  Zack Jennings has sole voting and dispositive power.
 
42 Consists of 20,000 shares of Common Stock acquired for cash in March 2008 in a private placement of Common Stock which ended in March 2008; and 50,000 shares of Common Stock acquired for cash in April 2009 in a private placement of Common Stock which ended in April 2009.
 
43 Consists of 20,000 shares of common stock acquired for cash in May 2007 in a private placement of Common Stock which ended in March 2008; 50,000 shares of Common Stock acquired for cash in November 2008 in a private placement of Common Stock which ended in April 2009; and 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.  Joe Johnson is the controlling shareholder of JJ Johnson Investments, Ltd and has sole voting and dispositive power.
 
44 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
45 Acquired for cash in April 2006 and August 2007 in a private placement of Common Stock which ended in March 2008.
 
 
33

 
 
JONES, Guy Breese46
12,500
*
12,500
0
0%
KARPER, Dr. Robert E.47
20,000
*
20,000
0
0%
KELLY, David and Randi48
61,000
*
61,000
0
0%
KING, Janet49
122,000
*
122,000
0
0%
KRAMER, Dr. Robert I.50
30,500
*
30,500
0
0%
LANZI, Dr. Guy L.51
136,500
*
136,500
0
0%
LARSON, Mr. & Mrs.52
10,000
*
10,000
0
0%
LAVERDURE, Kristianne53
20,000
*
20,000
0
0%
LAVERDURE, Maurice54
10,000
*
10,000
0
0%
LAVERDURE, Maurice Jr.55
10,000
*
10,000
0
0%
LE, Giang56
30,500
*
30,500
0
0%
LE, Phong57
400,083
2.05%
300,000
100,08358
*
LINDSAY, David59
6,000
*
6,000
0
0%
LINDSAY, Jamie B.60
4,000
*
4,000
0
0%
LINDSAY, Jerry61
50,000
*
50,000
0
0%
LUCAS, Jonathan E.62
1,000
*
1,000
0
0%
MANNING, Michael63
30,500
*
30,500
0
0%

 
46 Acquired for cash in April 2006 in a private placement of Common Stock which ended in March 2008.
 
47 Acquired for cash in April 2007 in a private placement of Common Stock which ended in March 2008.
 
48 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
49 Consists of 100,000 shares of Series A Convertible Preferred Stock which convert to 122,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
50 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
51 Consists of 20,000 shares of common stock acquired for cash in April 2007 in a private placement of Common Stock which ended in March 2008; 25,000 shares of Common Stock acquired for cash in November 2008 in a private placement of Common Stock which ended in April 2009; and of 75,000 shares of Series A Convertible Preferred Stock which convert to 91,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
52 Acquired for cash in April 2007 in a private placement of Common Stock which ended in March 2008.
 
53 Acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008.
 
54 Acquired for cash in September 2007 in a private placement of Common Stock which ended in March 2008.
 
55 Acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008.
 
56 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
57  Consists of 300,000 shares of Common Stock acquired for cash in May 2004 in a private placement of Common Stock which ended in June 2004; 83,333 shares of Common Stock issuable upon the exercise of warrants, and 16,750 shares of Common Stock issuable upon the exercise of options.
 
58 Consists of 83,333 shares of Common Stock issuable upon the exercise of warrants, and 16,750 shares of Common Stock issuable upon the exercise of options.
 
59 Acquired for cash in August 2007 in a private placement of Common Stock which ended in March 2008.
 
60 Acquired for cash in August 2007 in a private placement of Common Stock which ended in March 2008.
 
61 Acquired for cash in August 2007 in a private placement of Common Stock which ended in March 2008.
 
62 Received as a gift in April 2009.
 
63 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
 
34

 
 
MCDONALD, Henry64
15,000
*
10,000
5,00065
*
MIRE, Patrick66
91,500
*
91,500
0
0%
MOORE, Craig Henderson67
61,000
*
61,000
0
0%
MORRISON, Kenneth Morrison Trust No. 168
61,000
*
61,000
0
0%
MOSS, Jerry W.69
30,500
*
30,500
0
0%
NELMS, James W., Jr.70
62,600
*
62,600
0
0%
NELMS, Jim & Shelley71
25,000
*
25,000
0
0%
NEW DAWN Acquisitions, LLC72
35,000
*
35,000
0
0%
NTEC, Inc.73
296,450
1.52%
15,250
281,20074
1.42%
Oxygen Technology Investors Group, LLC.75
30,500
*
30,500
0
0%
PACIFIC Cattle Corporation76
406,500
2.08%
206,500
200,000 77
1.02%
PARK, Jin78
20,000
*
20,000
0
0%
PHILLIPS, Gregory79
30,500
*
30,500
0
0%

 
64 Consists of 10,000 shares of Common Stock acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008; and 5,000 shares of Common Stock issuable upon the exercise of options.
 
65 Consists of 5,000 shares of Common Stock issuable upon the exercise of options.
 
66 Consists of 75,000 shares of Series A Convertible Preferred Stock which convert to 91,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
67 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
68 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
69 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
70 Acquired from a third party in August 2007.
 
71 Acquired for cash in January 2009 in a private placement of Common Stock which ended in April 2009.
 
72 Acquired for cash in January 2009 in a private placement of Common Stock which ended in April 2009.  NEW DAWN Acquisitions, LLC is controlled by Julie Nichols, who has sole voting and dispositive power.
 
73 Consists of 12,500 shares of Series A Convertible Preferred Stock which convert to 15,250 shares of Common Stock at a conversion ratio of 1.22:1 and 281,200 shares of Common Stock issuable upon the exercise of warrants with an exercise price of $0.0005 per share.  Larry Calton has sole voting and dispositive power.
 
74 Consists of 281,200 shares of Common Stock issuable upon the exercise of warrants with an exercise price of $0.0005 per share.
 
75 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.  Gregory Scott Keller, Kenra Dee Keller, James Jeffreys, Roger Bussey, Vallerie Bussey, Brian Coolbaugh, Gerardo Fuentes-Lopez, and Kelty E. Fuentes have shared voting and dispositive power.
 
76 Consists of 50,000 Shares of Common Stock acquired for cash in September 2008 in a private placement of Common Stock which ended in April 2009; 65,000 shares of Common Stock acquired from third parties; 75,000 shares of Series A Convertible Preferred Stock which convert to 91,500 shares of Common Stock at a conversion ratio of 1.22:1; and 200,000 shares of Common Stock issuable upon the exercise of warrants.  Stan Bert is the President of Pacific Cattle Corporation.  Stan Bert has sole voting and dispositive power.
 
77 Consists of 200,000 shares of Common Stock issuable upon the exercise of warrants.
 
78 Acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008.
 
79 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
 
35

 
 
PHOENIX Capital Ventures, Inc.80
18,650
*
18,650
0
0%
POUYAT, Scott81
5,000
*
5,000
0
0%
RBC Dain Rauscher FBO:  James W.  Nelms, Jr., SEP82
57,500
*
57,500
0
0%
REEVES, William M., DDS, MS Defined Benefit Pension Plan83
61,000
*
61,000
0
0%
REEVES, William McDonald84
30,500
*
30,500
0
0%
REVELL, Oliver B.85
61,000
*
61,000
0
0%
ROSATO, Vincent86
30,500
*
30,500
0
0%
ROSATO, Vincent, Jr.87
30,500
*
30,500
0
0%
SCHWARTZ, Dr. Daniel C.88
131,000
*
131,000
0
0%
SHEEHAN, Jana Lynn89
10,000
*
10,000
0
0%
SHEFTEL, Scott90
5,000
*
5,000
0
0%
SPRADLEY Holdings91
20,000
*
20,000
0
0%
STAPLES, Jon92
47,600
*
30,500
17,100 93
*
STAPLES, Richard C., Jr.94
61,000
*
61,000
0
0%
STEINHARDT, James95
10,000
*
10,000
0
0%

 
80 Acquired from a third party in April 2009.  Phoenix Capital Ventures, Inc. is controlled by Josh B. Curlett, who has sole voting and dispositive power.
 
81 Acquired for cash in December 2008 in a private placement of Common Stock which ended in April 2009.
 
82 Consists of 20,000 Shares of Common Stock acquired for cash in October and December 2008 in a private placement of Common Stock which ended in April 2009; and 37,500 shares of Common Stock acquired from third parties.  James W.  Nelms has sole voting and dispositive power.
 
83 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
84 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
85 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
86 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
87 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
88 Consists of 40,000 shares of common stock acquired for cash in May and November 2007 in a private placement of Common Stock which ended in March 2008; 30,000 shares of Common Stock acquired for cash in October 2008 in a private placement of Common Stock which ended in April 2009; and of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
89  Consists of 8,197 shares of Series A Convertible Preferred Stock which convert to 10,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
90 Acquired for cash in February 2008 in a private placement of Common Stock which ended in March 2008.
 
91 Acquired for cash in June 2007 in a private placement of Common Stock which ended in March 2008.  Spradley Holdings is controlled by Dr. Larry Spradley, who has sole voting and dispositive power.
 
92 Consists of 25,000 shares of Series A Convertible Preferred Stock, which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1, and  17,100 shares of Common stock issuable upon the exercise of options.
 
93 Consists of 17,100 shares of Common stock issuable upon the exercise of options.
 
94 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.
 
95 Acquired for cash in October 2007 in a private placement of Common Stock which ended in March 2008.
 
 
36

 
 
TABER, Steven M.96
20,000
*
20,000
0
0%
The Sullivan Trust u/t/a Dated Oct 21, 1998 (Att: Dr. S.  Sullivan)97
61,000
*
61,000
0
0%
The Willhite Group & SGW Profit Sharing Plan UAD 2/1/198998
30,500
*
30,500
0
0%
TIMBREZA, Charles K.99
1,500
*
1,500
0
0%
VenCore Solutions, LLC100
37,499
*
37,499
0
0%
WHITE, Dean R.101
116,250
*
81,000
35,250102
*
WILLIAMSON, J.  Keith103
30,500
*
30,500
0
0%
WJVEST Holding General Partnership104
25,000
*
25,000
0
0%
WOOD, David105
10,000
*
10,000
0
0%
Notes:
* Less than 1%.
         

 
96 Acquired for cash in June 2007 in a private placement of Common Stock which ended in March 2008.
 
97 Consists of 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1.  Dr. Steven Sullivan has sole voting and dispositive power.
 
98 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.  Stephen G Willhite has sole voting and dispositive power.
 
99 Received as a gift in April 2009.
 
100 Consists of 30,737 shares of Series A Convertible Preferred Stock which convert to 37,499 shares of Common Stock at a conversion ratio of 1.22:1, acquired pursuant to a lease agreement between October 2006 and March 2007.  The shareholders of VenCore Solutions, LLC include Laminar Direct, Len Ludwig, and the employees of VenCore Solutions, LLC.  James Paul Johnson has sole voting and dispositive power.
 
101 Consists of 20,000 shares of Common stock acquired for cash in August 2007 in a private placement of Common Stock which ended in March 2008; 50,000 shares of Series A Convertible Preferred Stock which convert to 61,000 shares of Common Stock at a conversion ratio of 1.22:1, and 35,250 shares of Common stock issuable upon the exercise of options.
 
102 Consists of 35,250 shares of Common stock issuable upon the exercise of options.
 
103 Consists of 25,000 shares of Series A Convertible Preferred Stock which convert to 30,500 shares of Common Stock at a conversion ratio of 1.22:1.
 
104 Acquired from a third party in October 2007.  Casey Jensen is the General Partner in the WJVEST Holding General Partnership.  Voting and dispositive power are shared by Casey Jensen and Chet Wilke.
 
105 Acquired from a third party in May 2008.
 
 
37

 
 
SHARES ELIGIBLE FOR FUTURE SALE
 
Currently, there is no public market for our common stock.  Future sales of substantial amounts of our common stock in the public market could adversely affect market prices.  We have 15,739,816 shares of common stock outstanding as of the date of this Prospectus.  Assuming the maximum amount of the direct public Offering is sold (5,000,000 shares), we will have 20,739,816 shares of our common stock issued and outstanding.  We also have 3,126,434 shares of preferred stock outstanding which are convertible into 3,814,249 shares of common stock.  Therefore, if the maximum amount of the direct public Offering is sold and all preferred shares are converted into common shares, we will have 24,554,065 shares of common stock outstanding.  If and when this Registration Statement is deemed effective by the SEC, all of these shares will be eligible for sale on the public market (if one exists) without restriction or further registration under the Securities Act, except that any shares purchased by our “affiliates,” as that term is defined in Rule 144 of the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below.  Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rule 144 promulgated under the Securities Act, which rules are summarized below.  Subject to the provisions of Rules 144, shares will be available for sale in the public market as follows:
 
Approximate Number of
Shares Eligible for
Future Sale
 
Date
1,534,816
 
These shares will be eligible for sale on the public market (if one exists) after the SEC declares effective the registration statement of which this Prospectus is a part.
 
     
2,380,749
 
These shares will be eligible for sale on the public market (if one exists) after the SEC declares effective the registration statement of which this Prospectus is a part.   These 2,380,749 shares represent shares of common stock which may be converted from our Series A Convertible Preferred Stock.
     
5,000,000
 
Direct Public Offering.  These shares will be eligible for sale on the public market (if one exists) after the SEC declares effective the registration statement of which this Prospectus is a part.
 
Rule 144
 
In general, under Rule 144, a person, or persons whose shares are aggregated, who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale and who has beneficially owned shares of our common stock for at least six months, including the holding period of any prior owner, except if the prior owner was one of our affiliates, would be entitled to sell all of their shares, provided there is current public information available about our company.
 
 
38

 
 
Sales by affiliates under Rule 144 may also be subject to manner of sale provisions and notice requirements.  Any substantial sale of common stock pursuant to any registration statement or Rule 144 may have an adverse effect on the market price of our common stock by creating an excessive supply.
 
Stock Options:  Our employees are required to enter into a Voting Stock Agreement which sets out the terms of participation in our stock option plan.  The Voting Stock Agreement provides that in the event that we complete an initial public Offering of our securities resulting in the public trading of our securities, the shares underlying the stock options shall not be sold for a period of 12 months thereafter.
 
PLAN OF DISTRIBUTION
 
The securities being offered may be sold by the Selling Security Holders or by those to whom such shares are transferred.  We are not aware of any underwriting arrangements that have been entered into by Selling Security Holders.  The distribution of the securities by the Selling Security Holders may be effected in one or more transactions that may take place in the over-the-counter market, including broker’s transactions, privately negotiated transactions or through sales to one or more dealers acting as principals in the resale of these securities.
 
Any of the Selling Security Holders, acting alone or in concert with one another, may be considered statutory underwriters under the Securities Act, as amended, if they are directly or indirectly conducting an illegal distribution of the securities on behalf of our corporation.  For instance, an illegal distribution may occur if any of the Selling Security Holders provide us with cash proceeds from their sales of the securities.  If any of the Selling Security Holders are determined to be underwriters, they may be liable for securities violations in connection with any material misrepresentations or omissions made in this Prospectus.
 
 
39

 
 
Neither our company nor our management will receive proceeds from the sales of the securities of Selling Security Holders, because this would constitute an illegal distribution of our securities and our company or our management may be deemed underwriters in such an instance, and they would have liability for any material misrepresentations or omissions in this document and otherwise in the offer and sales of securities.
 
In addition, the Selling Security Holders and any brokers and dealers through whom sales of the securities are made may be deemed to be underwriters within the meaning of the Securities Act and the commissions or discounts and other compensations paid to such persons may be regarded as underwriters’ compensation.
 
Each of the Selling Security Holders and any other person participating in a distribution will be affected by the applicable provisions of the Exchange Act, including, without limitation, Regulation M, which may limit the timing of purchases and sales of any of the securities by the Selling Security Holders or any such other person.
 
Under the Exchange Act, and the regulations thereunder, any person engaged in a distribution of the shares of our common stock offered by this Prospectus may not simultaneously engage in market making activities with respect to our common stock during the applicable “cooling off” periods prior to the commencement of such distribution.
 
Also the Selling Security Holders are subject to applicable provisions which limit the timing of purchases and sales of our common stock by the Selling Security Holders.
 
Selling Security Holders are required to comply with Regulation M.  In general, Regulation M precludes any Selling Security Holder, any affiliated purchasers and any broker-dealer or any other person who participates in a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete.  Regulation M defines a “distribution” as an offering of securities that is distinguished from ordinary trading efforts and selling methods.  Regulation M also defines a “distribution participant” as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who is participating in a distribution.
 
Regulation M prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of the security, except as specifically permitted by Rule 104 of Regulation M.  These stabilizing transactions may cause the price of our common stock to be more than it would otherwise be in the absence of these transactions.  We have informed the Selling Security Holders that stabilizing transactions permitted by Regulation M allow bids to purchase our common stock if the stabilizing bids do not exceed a specific maximum.  Regulation M specifically prohibits stabilizing that is the result of fraudulent, manipulative, or deceptive practices.  Selling Security Holder and distribution participants are required to consult with their own legal counsel to ensure compliance with Regulation M.
 
 
40

 
 
There can be no assurance that the Selling Security Holders will sell any or all of the securities.  In order to comply with state securities laws, if applicable, the securities will be sold in jurisdiction only through registered or licensed brokers or dealers.  In various states, the securities may not be sold unless these securities have been registered or qualified for sale in such state or an exemption from registration or qualification is available and is complied with.  Under applicable rules and regulations of the Exchange Act, any person engaged in distribution of the securities may not simultaneously engage in market-making activities in these securities for a period of one or five business days prior to the commencement of such distribution.
 
Timing of Sales
 
The Selling Security Holders may offer and sell the shares covered by this Prospectus at various times.  The Selling Security Holders will act independently of each other in making decisions with respect to the timing, manner and size of each sale.
 
Offering Price
 
The Selling Security Holders intend to sell their shares at an Offering Price of $1.00 per share until quoted on the OTCBB, or listed for trading or quoted on any other public market.  Thereafter, the sales price offered by the Selling Security Holders to the public may be:
 
(1) The market price prevailing at the time of sale;
(2) A price related to such prevailing market price; or
(3) Such other price as the Selling Security Holders determine from time to time.
 
Our common stock is not currently listed on any national securities exchange or electronic quotation system.  If our common stock becomes publicly traded, then the sale price to the public will vary according to the selling decisions of each Selling Security Holder and the market for our stock at the time of resale.
 
Manner of Sale
 
The shares may be sold by means of one or more of the following methods:
 
(1)  
a block trade in which the broker-dealer so engaged will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction;
(2)  
purchase by a broker-dealer as principal and resale by that broker-dealer for its account pursuant to this Prospectus;
(3)  
ordinary brokerage transactions in which the broker solicits purchasers;
(4)  
through options, swaps or derivative;
(5)  
privately negotiated transactions; or
(6)  
in a combination of any of the above methods.
 
 
41

 
 
The Selling Security Holders may sell their shares directly to purchasers or may use brokers, dealers, underwriters or agents to sell their shares.  Brokers or dealers engaged by the Selling Security Holders may arrange for other brokers or dealers to participate.  Brokers or dealers may receive commissions, discounts or concessions from the Selling Security Holders, or, if any such broker-dealer acts as agent for the purchaser of shares, from the purchaser in amounts to be negotiated immediately prior to the sale.  The compensation received by the brokers or dealers may, but is not expected to, exceed that which is customary for the types of transaction involved.  Broker-dealers may agree with a Selling Security Holder to sell a specific number of shares at a stipulated price per share, and to the extent the broker-dealer is unable to do so acting as agent for a Selling Security Holder, to purchase as principal any unsold shares at the price required to fulfill the broker-dealer commitment to the Selling Security Holder.  Broker-dealers who acquire shares as principal may thereafter resell the shares from time to time in transactions, which may involve block transactions and sales to and through other broker-dealers, including transactions of the nature described above, in the over-the-counter market or otherwise at prices and on terms then prevailing at the time of sale, at prices then related to the then current market price or in negotiated transactions.  In connection with resale of the shares, broker-dealers may pay to or receive from the purchasers of shares commissions as described above.
 
If our Selling Security Holders enter into arrangements with brokers or dealers, as described above, we are obligated to file a post-effective amendment to this registration statement disclosing such arrangements, including the names of any broker dealers acting as underwriters.
 
The Selling Security Holders and any broker-dealers or agents that participate with the Selling Security Holders in the sale of the shares may be deemed to be “underwriters” within the meaning of the Securities Act.  In that event, any commissions received by broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Critical Accounting Policies, Estimates and Assumptions
 
The SEC defines critical accounting policies as those that are, in management's view, most important to the portrayal of our financial condition and results of operations and those that require significant judgments and estimates.
 
The discussion and analysis of our financial condition and results of operations is based upon our financial statements which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities.  On an on-going basis, we evaluate our estimates including the allowance for doubtful accounts, the salability and recoverability of inventory, income taxes and contingencies.  We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances, the results of which form our basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.
 
 
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We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations.  We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary.
 
Revenue Recognition.  Our revenue recognition policies are in accordance with the SEC Staff Accounting Bulletin (SAB) No. 104.  Sales revenue is recognized at the date of shipment to customers when a formal arrangement exists, the price is fixed or determinable, the delivery is completed, no other significant obligations on our part exist and collectability is reasonably assured.  Revenues are recognized from product sales, net of discounts and rebates.  This revenue recognition policy is applied to both customers and distributors.  Fees from licensees desiring to manufacture and distribute our products or derivative products using our intellectual property include initial license fees and royalties.  Initial license fees are generally recognized upon granting of the license to the licensee.  Royalties are recognized in the period earned.
 
Allowance for doubtful accounts.  In estimating the collectability of accounts receivable, we analyze historical write-offs, changes in our internal credit policies and customer concentrations when evaluating the adequacy of our allowance for doubtful accounts.  Differences may result in the amount and timing of expenses for any period if we make different judgments or use different estimates.  Our accounts receivable represent a significant portion of our current assets and total assets.
 
Inventories.  Our inventory consists of raw material and components for our portable oxygen systems as well as completed products and accessories.   Inventories are computed using the lower of cost or market, which approximates actual cost on a first-in first-out basis. Inventory components are parts, work-in-process and finished goods. Finished goods are reported as inventories until the point of title transfer to our customers. We write down our inventory value for estimated obsolescence equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions. These factors are impacted by market and economic conditions, technology changes, new product introductions and changes in strategic direction and require estimates that may include uncertain elements. Actual demand may differ from forecasted demand, and such differences may have a material effect on recorded inventory values. Management has established inventory reserves to cover estimated inventory losses for all work-in-process and finished goods related to products we manufactured, as well as raw material and components for those products that had no potential use in products to be manufactured in the future. Management was required to make judgments about the future benefit of our raw materials and components. Actual reserve requirements could differ significantly from management’s estimates, which could have a significant unfavorable impact on our future gross margins.
 
Cash and Cash Equivalents.  We consider all highly liquid investments purchased with maturity of three months or less to be cash equivalents.  Cash and cash equivalents may at times exceed Federally insured limits.  To minimize this risk, we place our cash and cash equivalents with high credit quality institutions.
 
Property and Equipment.  Property and equipment are recorded at cost with depreciation and amortization provided over the shorter of the remaining lease term or the estimated useful life of the improvement.  Renewals and betterments that materially extend the life of an asset are capitalized.  Expenditures for maintenance and repairs are charged to expense when incurred.
 
 
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Impairment of Long-Lived Assets.  We review long-lived assets, including amortizable intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  If the sum of the expected future undiscounted cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between the fair value and carrying value of the asset.  During 2010 and 2009 , we recognized impairment charges of $0 and $100,978 , respectively.  During the  three months ended March 31, 2011 , we did not recognize any impairment charge.
 
Research and Development Costs. Costs associated with the development of our products are charged to expense as incurred. Costs of  $2,777 and $0 were incurred during the years ended December 31, 2010 and 2009, respectively.
 
Income Taxes.  We account for income taxes using an asset and liability approach, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in our Consolidated Financial Statements, but have not been reflected in our taxable income.  A valuation allowance has been established to reduce deferred tax assets to their estimated realizable value.  Therefore, we provide a valuation allowance to the extent that we do not believe it is more likely than not that it will generate sufficient taxable income in future periods to realize the benefit of its deferred tax assets.  We recognize interest and penalties related to unrecognized tax benefits in income tax expense.
 
Equity Warrants - We have issued warrants to purchase shares of our common stock in connection with convertible notes. In accordance with ASC 470-20, Debt with conversions and other options, the proceeds from the notes were allocated based on the relative fair values of the notes without the warrants issued in conjunction with the notes and of the warrants themselves at the time of issuance. We record the fair value of the warrants at the time of issuance as additional paid in capital and as a debt discount to the notes.  We amortize this debt discount as interest expense over the life of the note.  Additionally, as a result of issuing the warrants with the convertible notes, a beneficial conversion option is recorded as a debt discount reflecting the incremental conversion option intrinsic value of the conversion option provided to the holders of the notes. We also amortize this debt discount as interest expense over the life of the notes.  The intrinsic value of each conversion option was calculated as the difference between the effective conversion price and the fair value of the common stock, multiplied by the number of shares into which the note is convertible.
 
Stock-Based Compensation.  We account for share-based payments, including grants of stock options to employees, consultants and non-employees; moreover, we issue warrants to the consultants and related parties.  We are required to estimate the fair value of share-based awards and warrants on the date of grant.  The value of the award is principally recognized as expense ratably over the requisite service periods.  We have estimated the fair value of stock options and warrants as of the date of grant or assumption using the Black-Scholes option pricing model, which was developed for use in estimating the value of traded options that have no vesting restrictions and that are freely transferable.  The Black-Scholes model requires the input of certain assumptions.  Changes in the assumptions used in Black-Scholes model can materially affect the fair value estimates. With exception of forfeiture rates, which we evaluate annually, we evaluate the assumptions used to value stock options on a quarterly basis.  The expected term of stock options represents the weighted average period the stock options are expected to remain outstanding.
 
The expected term is based on the observed and expected time to exercise and post-vesting cancellations of options by employees.  Upon the adoption of the accounting guidance, we continue to use historical volatility in deriving our expected volatility assumption as allowed under GAAP because we believe that future volatility over the expected term of the stock options is not likely to differ materially from the past.  The risk-free interest rate assumption is based on the five-year U.S. Treasury zero-coupon rate appropriate for the expected term of the stock options.  The expected dividend assumption is based on the history and expectation of dividend payouts.  The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of the equity awards, as we do not consider other factors important to those awards to employees, such as continued employment, periodic vesting requirements and limited transferability.  The amount of stock based compensation expenses is net of an estimated forfeiture rate, which we adjust on an annual basis, if at all, and which is based on historical data and information from comparable companies, and our judgment of whether the options are expected to vest.  For the years ended December 31, 2010 and 2009 , stock based compensation expense was approximately $121,631 and $171,609 , respectively, which consisted primarily of stock-based compensation expense related to stock options recognized under GAAP issued to the employees.  For the three months ended March 31, 2011 and 2010 , the employee stock-based compensation expense was approximately $36,410 and $19,303 , respectively.
 
 
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We follow ASC Topic 505-50, formerly EITF 96-18, “Accounting for Equity Instruments that are Issued to Other than Employees for Acquiring, or in Conjunction with Selling Goods and Services,” for stock options and warrants issued to consultants and other non-employees.  In accordance with ASC Topic 505-50, these stock options and warrants issued as compensation for services to be provided to us are accounted for based upon the fair value of the services provided or the estimated fair market value of the option or warrant, whichever can be more clearly determined.  We recognize this expense over the period in which the services are provided.  For the years ended December 31, 2010 and 2009, stock based compensation expense was approximately $0 and $565,501, respectively, which consisted primarily of stock-based compensation expense related to stock options and warrants recognized under GAAP issued to consultants and other non-employees.  For the three months ended March 31, 2011 and 2010, the non-employee stock-based compensation expense was approximately $32,023 and $0, respectively.
 
Accounting Estimates.  The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reported period.  Actual results could differ from those estimated.
 
Advertising Costs.  Advertising costs are charged to operations when incurred.  During the years ended December 31, 2010 and 2009 we incurred $282,128 and $47,164 respectively, in advertising and promotion costs.  We incurred $4,012 in advertising and promotion costs for the three months ended March 31, 2011 , as compared to $273,381 for the three months ended March 31, 2010 .
 
Financial Instruments.  Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2011, and December 31, 2010 and 2009 .  The respective carrying value of certain on balance sheet financial instruments approximate their fair values.  These financial instruments include cash, accounts payable, accrued expenses and notes payable.  Fair values were assumed to approximate carrying values for these financial instruments because they are short term in nature and their carrying amounts approximate fair values.
 
Restatements and Reclassifications.  Certain financial statement items have been restated to conform to the current periods’ presentation.  These restatements caused our net loss during 2009 to increase from $2,243,636 to $2,327,858, and our net loss during 2010 to increase from $1,294,114 to $1,578,957.  Further, these restatements caused our net loss for the three months ended March 31, 2011 to increase from $361,946 to $367,915, and our net loss for the three months ended March 31, 2010 to increase from $84,259 to $370,545.
 
Recently Enacted Accounting Standards.  In April 2009, the FASB issued an update to ASC 820, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” which provides guidance on determining fair value when there is no active market or where the price inputs being used represent distressed sales.  This update to ASC 820 was effective for interim and annual periods ending after June 15, 2009 and was adopted by us in the second quarter of 2009.  The adoption did not have a material impact on our consolidated financial statements.
 
 
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In May 2009, the FASB issued ASC 855, “Subsequent Events.”  ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued.  ASC 855, which includes a new required disclosure of the date through which an entity has evaluated subsequent events, was effective for interim or annual periods ending after June 15, 2009.  We adopted this standard as of June 30, 2009.
 
In June 2009, the FASB issued ASU 2009-17, Consolidation (ASC 810) “Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities,” which eliminates the quantitative approach previously required for determining the primary beneficiary of a variable interest entity and requires ongoing qualitative reassessments of whether an enterprise is the primary beneficiary of a variable interest entity.  This new standard also requires additional disclosures about an enterprise’s involvement in variable interest entities.  We adopted this pronouncement on January 1, 2010 but there was no significant impact on its financial statements.
 
In June 2009, the FASB issued ASC 105, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.”  ASC 105 establishes the FASB Accounting Standards Codification (“Codification”), as the single source of authoritative accounting and reporting standards in the United States for all non-government entities, with the exception of the Securities and Exchange Commission and its staff.  It does not include any new guidance or interpretations of US GAAP, but merely eliminates the existing hierarchy and codifies the previously issued standards and pronouncements into specific topic areas.  The Codification was adopted on July 1, 2009 for our financial statements for the year ended December 31, 2009.
 
In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements.”  This update will require (1) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (2) information about purchases, sales, issuances and settlements to be presented separately (i.e. present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs).  This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and require disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.  The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements for related to the purchases, sales, issuances and settlements in the roll forward activity of Level 3 fair value measurements.  Those disclosure requirements are effective for fiscal years ending after December 31, 2010.  We still assessing the impact on this guidance and does not believe the adoption of this guidance will have a material impact to its financial statements.  Management does not believe that other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants or the SEC have a material impact on our present or future financial statements.
 
In April 2010, new accounting guidance was issued for the milestone method of revenue recognition. Under the new guidance, an entity can recognize revenue from consideration that is contingent upon achievement of a milestone in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. This guidance is effective prospectively for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. We adopted the provisions of this guidance effective July 1, 2010, which did not have a material impact on our consolidated financial statements.
 
 
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Liquidity and Capital Resources
 
We had a cash balance of approximately $335 as of March 31, 2011, as compared to ($1,709) as of March 31, 2010 and $39,887 as of December 31, 2010 as compared to $73,077 as of December 31, 2009.  Our funds are kept in financial institutions located in the United States of America.
 
We had negative working capital of approximately $1,594,791 as of March 31, 2011 as compared to $709,002 as of March 31, 2010, and negative working capital of $1,577,151 and $705,254 as of December 31, 2010 and 2009, respectively.
 
We had total notes payable of $2,578,167 and $2,423,160 as of March 31, 2011 and December 31, 2010, respectively.  The increase in Notes Payable was primarily due to an increase in Long-Term Notes Payable, from $1,514,646  to $1,581,403, including an increase of $100,000 in notes issued in connection with rent between December 31, 2010 and March 31, 2011.  In addition, Current Notes Payable increased from $908,514 at December 31, 2010 to $996,765 at March 31, 2011, representing an increase of $88,251 in our Current Notes Payable.  This increase is primarily comprised of a net increase of $91,537 in borrowings from JTR Investments Limited during the period.
 
We generally provide our customers with terms of up to 30 days on our accounts receivable.  In some cases we require prepayment, depending on history or credit review.  Further, we generally require pre-payment on orders shipped to international destinations.  Our accounts receivable, net of allowances for sales returns and allowance for doubtful accounts, were $10,862 and $349 as at March 31, 2011 and December 31, 2010, respectively.
 
Since inception, we have been engaged primarily in product research and development, investigating markets for our products, developing manufacturing and supply chain partners, and developing distribution, licensing and other channel relationships.  In the course of funding research and development activities, we have sustained operating losses since inception and have an accumulated deficit of $12,266,175 at March 31, 2011.
 
We completed product development and launched sales in early 2008.  We have and will continue to use significant capital to manufacture and commercialize our products.  These factors raise substantial doubt about our ability to continue as a going concern.  In this regard, management is proposing to raise any necessary additional funds not provided by operations or this offering through loans or through additional sales of our common stock.
 
During 2011, we will need additional capital to market and sell our products, and to further develop and enhance our current product offerings, introduce new products and address unanticipated competitive threats, technical problems, economic conditions or other requirements.  We raised approximately $0 during the year ended December 31, 2010 and $243,700 during the year ended 2009 through the sale of common stock, preferred stock, and the exercise of warrants and stock options.  We estimate that we will require approximately $2.87 million over the next 12 months to remain viable.  There is no assurance that we will be successful in raising this additional capital or in achieving profitable operations.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.  However, there can be no assurance that any additional financing will be available to us.  Additional equity financing may involve substantial dilution to our then existing stockholders.  In the event we are unable to raise additional capital, we may be required to substantially reduce or curtail our activities.
 
 
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First Landlord Note; Second Landlord Note:
 
We have First and Second Landlord Notes outstanding with Sinacola Commercial Properties, LLC.  Payments under these notes shall become due and payable on the earlier to occur of: (i) December 31, 2011; or (ii) the closing of the direct public offering.  Upon the closing of the direct public offering, (i) if we raised $1,000,000 in the direct public offering, we must pay $50,281 of the principal balance of the notes; (ii) if we raised $1,500,000 in the direct public offering, we must pay $100,563 of the principal balance of the notes; (iii) if we raised $2,000,000 in the direct public offering, we must pay $150,844 of the principal balance of the notes; (iv) if we raised $3,000,000 in the direct public offering, we must pay $201,126 of the principal balance of the notes; or (v) if we raised $4,000,000 in the direct public offering, we must pay the entire principal balance of the notes.  If we fail to pay the principal balance through the direct public Offering proceeds, the remaining principal balance of the notes shall become due and payable on December 31, 2011.
 
Third Landlord Note; Fourth Landlord Note:
 
On December 31, 2010 the Company entered into a Rent Satisfaction Agreement (the “2010 RSA”) with its landlord, Sinacola Commercial Properties, Ltd. (“Sinacola”). In terms of the 2010 RSA, all of the Company’s then outstanding rent obligations for the 2010 financial year under its lease agreement, up to and including December 31, 2010 including, but not limited to, base rent, deferred rent, and its share of operating costs, are satisfied in full.
 
The Company issued Sinacola two Promissory Notes pursuant to the 2010 RSA, as follows:
 
Third Landlord Note:  The first note (the “Third Landlord Note”) is a subordinated convertible note in the principal amount of $110,000. The Third Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.
 
Fourth Landlord Note:  The second note (the “Fourth Landlord Note”) is a subordinated convertible note in the principal amount of $110,715. The Fourth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Fourth Landlord Note is convertible at the Company’s option.
 
Maturity Date – Each of the Third Landlord Note and the Fourth Landlord Note has a maturity date of October 31, 2012.
 
Fifth Landlord Note; Sixth Landlord Note:
 
On March 23, 2011 the Company entered into a rent satisfaction agreement (the “2011 RSA”) with its landlord, Sinacola Commercial Properties, Ltd. (“Sinacola”). In terms of the 2011 RSA, certain of the Company’s rent obligations for the period January 1, 2011 through June 30, 2011 under its lease agreement, including base rent and deferred rent, are satisfied in full.
 
The Company issued Sinacola two Promissory Notes pursuant to the 2011 RSA, as follows:
 
Fifth Landlord Note:  The first note (the “Fifth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Fifth Landlord Note carries no interest and is convertible, at Sinacola’s option, into the common stock of the Company at an exercise price of $1.00 per common share on the maturity date.
 
Sixth Landlord Note:  The second note (the “Sixth Landlord Note”) is a subordinated convertible note in the principal amount of $50,000. The Sixth Landlord Note carries no interest and is convertible into the common stock of the Company at an exercise price of $1.50 per common share on the maturity date.  However, if the common stock has traded at $1.50 or above for four (4) consecutive weeks on a nationally recognized market (based on daily closing prices) then the Sixth Landlord Note is convertible at the Company’s option.
 
Maturity Date – Each of the Fifth Landlord Note and the Sixth Landlord Note has a maturity date of June 30, 2013.
 
In estimating the needed amount, the following assumptions were made:
 
·  
There are no deferments of accounts payable or exchange of rent expense for equity; and
·  
There is no refinancing of our debt obligations.
·  
Non-cash obligations are included.
 
 
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The following table sets out the major components of our estimates of cash needs over the next 12 months to remain viable, subject to the above assumptions:
 
Accounts Payable & Accrued Expenses
    443,602  
Capital leases - current
    327,493  
Notes payable- current
    996,765  
         
   Subtotal
    1,767,860  
         
Rent expense
    200,813  
Insurance & taxes
    38,000  
Regulatory compliance costs
    100,000  
Salaries & wages
    559,000  
Inventory
    75,000  
General corporate expenses
    125,000  
         
   Subtotal
    1,097,813  
         
  Total estimate
    2,865,673  
 
Our business is relatively new, and we are not aware of any material trends that are at least likely to impact our financial condition, liquidity and results of operation.
 
Going Concern
 
Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow from operations to meet our obligations on a timely basis or obtain financing as may be required.  As of March 31, 2011 and December 31, 2010, we have incurred net losses from operations and have stockholders’ deficits of $12,266,175 and $11,898,260, respectively.  We had a working capital deficit of approximately $1,594,791 as of March 31, 2011 and $1,577,151 as of December 31, 2010.  These factors raise substantial doubt about our ability to continue as a going concern.
 
 
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During the next 12 months, our foreseeable cash requirements will relate to continual development of the operations of our business, maintaining our good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with reviewing or investigating any potential business ventures.  We may experience a cash shortfall and be required to raise additional capital.  Historically, we have relied upon internally generated funds and funds from the sale of shares of stock and loans from our shareholders and private investors to finance our operations and growth.  Management may raise additional capital through future public or private offerings of our stock or through loans from private investors, although there can be no assurance that we will be able to obtain such financing.  Our failure to do so could have a material and adverse affect upon us and our shareholders.
 
We have a series of plans to mitigate the going concern:
 
·  
We have a draw down provision in place – the JTR Senior Note, which allows the Company to draw down up to $2,000,000. As at March 31, 2011, we had approximately $1,211,999 available under this facility.   As of the date of this Prospectus, we had approximately $982,294 available under this facility.
 
·  
We plan to raise $5 million in a Direct Public Offering when the Registration Statement on Form S-1 of which this Prospectus forms a part is declared effective by the SEC.
 
·  
We anticipate that our sales during the remainder of 2011 and 2012 will be derived from existing markets (schools/districts, churches, commercial), government markets and international markets.
 
·  
We plan to add delivery capacity through additional distributors. We had approximately 22 distributors in the US and management expects that to grow to approximately 30 by the end of 2011. In addition, we had three international distributors and it plans to increase that to approximately six by the end of 2011.
 
·  
We have migrated to selling solutions, thereby diversifying our revenue opportunities.  Our early sales efforts were focused primarily on institutional customers, such as schools and school districts, colleges, and churches.  We sell to these customers primarily through distributors.  Generally, the buying decisions for our customers are made or influenced by individuals such as safety managers, risk managers, nurses, administrators, facilities managers and medical directors.  These individuals are usually also responsible for acquiring other safety or health emergency solutions or products, such as Automated External Defibrillators (“AEDs”), resuscitator bags (used for CPR), first aid kits, etc.  We have recently started sourcing AEDs, resuscitator bags, and first aid kits in order to provide our customers with bundled solutions for their health emergency and preparedness requirements.  That means, our customers can order these products from us as a single source, along with our portable emergency oxygen products.
 
·  
Rent Satisfaction Agreement: We have concluded a third rent satisfaction agreement with our landlord, which allowed us to refinance a total of approximately $100,000 in 2011 rent expense.
 
·  
We have obtained consent from Vencore Solutions, LLC to a payment moratorium on our Vencore equipment leases. The payment moratorium will continue until the earlier to occur of (i) the execution and completion of a mutually agreed upon cash settlement ("Settlement"), (ii) the execution of a mutually agreed upon repayment plan ("Plan") or February 29, 2012.
 
 
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Results of Operations
 
Results for the three months ended March 31, 2011 compared to the three months ended March 31, 2010
 
Revenue
 
Total revenues for the three months ended March 31, 2011 decreased to $51,825 from $267,177 for the three months ended March 31, 2010.
 
Revenue from license fees totaled $0 and $225,000 for the three months to March 31, 2011 and 2010, respectively.  This decrease is due to a license agreement entered into on March 26, 2010 which resulted in the recording of a non-recurring license fee in the prior period.  The license agreement is with Afritex Medical Products (Pty) Ltd, a South African company. Revenue from products increased from $42,177 for the three months ended March 31, 2010 to $51,825 for the three months ended March 31, 2011.
 
Expenses
 
Total expenses for the three months ended March 31, 2011 were $453,491, which amount includes $285,209 of selling, general and administrative expenses, $37,194 in cost of goods sold, and $131,088 in interest expense, as compared to total expenses for the three months ended March 31, 2010 of $640,729, which amount includes $546,183 of selling, general and administrative expenses, $20,702 in cost of goods sold, and $73,844 in interest expense.  The decrease in selling, general and administrative expenses is partly attributable to a decrease in advertising and promotion expense.
 
Research and Development
 
$80 and $649 were incurred in the three months periods ended March 31, 2011 and 2010, respectively.  This decrease is due to our limited budgets during this period.
 
Net Loss
 
Net loss as of March 31, 2011 was $367,915 and diluted net loss per share was $0.02 as compared to a net loss as of March 31, 2010 of $370,545 and diluted net loss per share of $0.02.  The decrease in net loss is primarily attributable to a decrease in selling, general and administrative expenses and the effect of a non-recurring license fee of $225,000 recognized in the prior period.
 
 
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Results for the fiscal year ended December 31, 2010 compared to the fiscal year ended December 31, 2009.
 
Revenue
 
Total revenues for the year ended December 31, 2010 decreased to $356,013  from $387,361 for the year ended December 31, 2009.  The decrease is primarily a result of a decrease in product revenue.
 
Expenses
 
Total expenses for the year ended December 31, 2010 were $1,941,016, which amount includes $1,462,475 of selling, general and administrative expenses, $54,781 in cost of goods sold, and $423,760 in interest expense, as compared to total expenses for the year ended December 31, 2009 of $2,710,067, which amount includes $2,193,853 of selling, general and administrative expenses, $194,518 in cost of goods sold, and $321,696 in interest expense.  The significant decrease in selling, general and administrative expenses is partly attributable to a decrease in operating expenses, including consulting expenses and payroll.
 
Research and Development
 
Research and development (“R&D”) expenses for the year ended December 31, 2010 was $2,777 as compared to $0 for the year ended December 31, 2009.  This increase is due to costs related to the development of production process improvements.
 
Net Loss
 
Net loss decreased to $1,578,957 for the year ended December 31, 2010, from $2,327,858 for the year ended December 31, 2009, and basic and diluted net loss per share decreased to $0.10 from $0.15 in the prior period.  The reduction in net loss is attributable to a reduction in selling, general and administrative expenses and a non-recurring license fee of $225,000 recorded during the year ended December 31, 2010.
 
Our future is dependent upon our ability to obtain financing and upon future profitable operations from the development of our services.  The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event we cannot continue in existence.
 
We have limited financial resources available which has had an adverse impact on our liquidity, activities and operations.  These limitations have adversely affected our ability to obtain certain projects and pursue additional business.  There is no assurance that we will be able to raise sufficient funding to enhance our financial resources sufficiently to generate volume or to engage in any significant research and development, or purchase plant or significant equipment.
 
 
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Seasonality
 
Our business is not seasonal in nature.  The seasonal effect does not have a material impact on our sales.
 
Off-Balance Sheet Arrangements
 
We have no material off-balance sheet transactions.
 
Quantitative and Qualitative Disclosure Regarding Market Risk
 
Interest Rate Risk.  We may face some risk from potential fluctuations in interest rates, although our debt obligations are primarily short-term in nature.
 
 
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DESCRIPTION OF BUSINESS
 
Background
 
We were formed on January 15, 2004 as a Delaware “C” Corporation for the purpose of developing products with the capability of generating medical grade oxygen “on demand,” without the necessity of storing oxygen in compressed tanks.  We developed a unique technology that generates medically pure (USP) oxygen from two dry, inert powders.  Other available chemical oxygen generating technologies contain hazards that we believe make them commercially unviable for broad-based emergency use by lay persons.  Our launch product is the OxySure Model 615 portable emergency oxygen device.  We believe that the OxySure Model 615 is currently the only product on the market that can be safely pre-positioned in public and private venues for emergency administration of medical oxygen by lay persons, without the need for training.  
 
We were founded by our current Chairman, Chief Executive Officer, President, and Chief Financial Officer, Julian T. Ross, who conducted or managed all of the related research and development of our product function Mr. Ross continues to oversee.  In early 2004, Mr. Ross moved his research and development efforts into the North Texas Enterprise Center for Medical Technology (“NTEC”).  NTEC is a Frisco-based medical technology accelerator, and we were accepted as an NTEC program company in early 2004.
 
We were the first program company to graduate from the NTEC program in November 2005.  For an NTEC program company to graduate from the NTEC program, they have to attain key milestones for funding, research, product development, operations management, capture of intellectual property, personnel, and regulatory planning.
 
Upon graduation from NTEC, we proceeded with the development of our purpose-built production facility in Frisco, Texas, which also serves as our headquarters.  The facility comprises 16,200 square feet of light industrial space, of which approximately 10,000 square feet is dedicated to production and warehousing.  We received an economic incentive from the Frisco Economic Development Corporation (“FEDC”) in the amount of $243,000 in support of the development of the facility. This incentive was structured as a promissory note in the amount of $243,000 issued by us to FEDC.  The promissory note is forgiven over a period of five years subject to us achieving targets such as headcount and square footage occupied in the city of Frisco.  On August 5, 2008, the amount of $30,000 was forgiven for meeting the first year targets in the Performance Agreement with the FEDC.  The performance targets for the second and third years have not been achieved.  On March 22, 2011, we entered into an Amended and Restated Performance Agreement with the FEDC. The FEDC provided us with economic assistance in the form of the renewal and extension of the forgivable loan of $213,000 together with revised performance credits over five years, commencing on March 22, 2011 and ending on the earlier to occur of: (i) the full payment of the economic incentives; or (ii) March 31, 2016.   The revised promissory note for $213,000 is forgiven over a period of five years subject to us achieving targets such as headcount, product donations and square footage occupied in the city of Frisco.  We expect that we will achieve the performance target for 2011 from operational cash flow, an existing draw down facility and inventory.  However, achievement of subsequent performance targets will be dependent on the success of this Offering and revenue generation and cash flow.

In addition to the FEDC economic incentive, we received a further amount of $324,000 in the form of a Tenant Improvement Allowance from our landlord.  Upon completion of the build-out, we moved into the facility in October 2007.  We commenced commercial shipment of Model 615 during the 2008 financial year.
 
Government Regulation
 
Our primary product, the OxySure portable oxygen device, Model 615, is a medical device, subject to extensive and rigorous regulation by the FDA, as well as other Federal and state regulatory bodies in the United States and comparable authorities in other countries.  These regulatory approvals can be lengthy and can cause delays in getting our products into other countries.  Our South African distributor experienced delays in obtaining customs approvals and approval from the South African Medicines Control Council for the importation of Model 615.  We expect that many of our future products will also be similarly subject to regulation by the FDA and other regulatory bodies both in the United States and in other countries.  We currently market our primary product, the Model 615 in the United States under a pre-market notification, or 510(k), clearance for emergency use.  Model 615 was cleared by the FDA for over the counter sale, without the need for a prescription, and the FDA approval number is K052396.  If we seek to market new products or to market new indications for our existing product, we may be required to file for and obtain either 510(k) clearances or Premarket Approval Applications (“PMAs”).
 
 
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