U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-QSB
x |
QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
quarterly period ended September 30, 2007
o |
TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the
transition period from _______ to ________
COMMISSION
FILE NUMBER: 333-70932
Interact
Holdings Group, Inc.
(Name
of
small business issuer in its charter)
FLORIDA
|
|
65-1102865
|
(State or other jurisdiction of
incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
550
Greens Parkway, Suite 230, Houston, Texas 77067
(Address
of principal executive offices)
(619)
342-7449
(Issuer’s
telephone number)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No o
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: As of November 6, 2007, the issuer had
307,477,464 shares of its common stock issued and outstanding.
Transitional
Small Business Disclosure Format (check one): Yes o No x
TABLE
OF CONTENTS
PART
I. FINANCIAL INFORMATION
|
1
|
|
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
1
|
|
|
|
ITEM
2.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|
2
|
|
|
|
ITEM
3.
|
CONTROLS
AND PROCEDURES
|
5
|
|
|
|
PART
II. OTHER INFORMATION
|
6
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
6
|
|
|
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
6
|
|
|
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
6
|
|
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
6
|
|
|
|
ITEM
5.
|
OTHER
INFORMATION
|
6
|
|
|
|
ITEM
6.
|
EXHIBITS
|
6
|
|
|
|
SIGNATURES
|
7
|
PART
I. FINANCIAL INFORMATION
ITEM
1. FINANCIAL
STATEMENTS
Consolidated
Balance Sheets
|
F–1
|
|
|
Consolidated
Statements of Operations (Unaudited)
|
F–2
|
|
|
Consolidated
Statements of Cash Flows (Unaudited)
|
F–3
|
|
|
Notes
to Unaudited Consolidated Financial Statements
|
F–4
|
INTERACT
HOLDING GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
September 30,
2007
(Unaudited)
|
|
December 31,
2006
|
|
Assets
|
|
|
|
|
|
|
|
Current
assets
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
173,300
|
|
$
|
222,666
|
|
Accounts
receivable, net
|
|
|
690,463
|
|
|
525,697
|
|
Inventory
|
|
|
–
|
|
|
–
|
|
Prepaid
and other assets
|
|
|
137,704
|
|
|
146,143
|
|
Total
current assets
|
|
|
1,001,467
|
|
|
894,506
|
|
Property
and equipment
|
|
|
145,095
|
|
|
167,401
|
|
Customer
list-net
|
|
|
595,352
|
|
|
674,147
|
|
Goodwill
|
|
|
1,868,986
|
|
|
1,868,986
|
|
Other
Long Term Assets
|
|
|
28,206
|
|
|
28,206
|
|
Total
assets
|
|
$
|
3,639,906
|
|
$
|
3,633,246
|
|
Liabilities
and Stockholders’ Deficit
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$
|
599,202
|
|
$
|
669,361
|
|
Current
derivative liability
|
|
|
502,706
|
|
|
250,000
|
|
Note
payable - short term
|
|
|
967,288
|
|
|
1,245,585
|
|
Advance
Billings
|
|
|
33,632
|
|
|
120,657
|
|
Capital
lease - current portion
|
|
|
–
|
|
|
3,481
|
|
Other
current liabilities
|
|
|
–
|
|
|
–
|
|
Total
current liabilities
|
|
|
2,102,828
|
|
|
2,289,084
|
|
Derivative
liability
|
|
|
3,336,569
|
|
|
2,544,177
|
|
Note
payable - related parties
|
|
|
726,205
|
|
|
263,452
|
|
Total
Liabilities
|
|
$
|
6,165,602
|
|
$
|
5,096,713
|
|
Stockholders’
deficit
|
|
|
|
|
|
|
|
Series
A preferred stock, par value $.001 per share, 10,000,000 shares
authorized; 960,000 shares issued and outstanding at September
30, 2007
and December 31, 2006, respectively
|
|
|
10
|
|
|
10
|
|
Series
B preferred stock, par value $.001 per share, 10,000,000 shares
authorized; 8,413,607 issued and outstanding at September 30,
2007
|
|
|
1,000
|
|
|
1,000
|
|
Series
C preferred stock, par value $1.00 per share, 2,200,000 shares
authorized,
issued and outstanding as of September 30, 2007
|
|
|
2,200,000
|
|
|
2,200,000
|
|
Common
stock, par value $.00001 per share, 5,000,000,000 shares authorized,
177,880,864 and 486,380 issued and outstanding
|
|
|
1,778
|
|
|
5
|
|
Additional
paid-in capital
|
|
|
1,360,374
|
|
|
860,915
|
|
Stock
subscription receivable
|
|
|
–
|
|
|
–
|
|
Accumulated
deficit
|
|
|
(6,095,358
|
)
|
|
(4,562,376
|
)
|
Comprehensive
Income - translation of non-dollar currency financials of
Branch
|
|
|
6,500
|
|
|
6,979
|
|
Total
stockholders’ deficit
|
|
|
(2,525,696
|
)
|
|
(1,463,467
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
3,639,906
|
|
$
|
3,633,246
|
|
See
Accompanying Notes to Consolidated Financial
Statements
INTERACT
HOLDING GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the three months ended
September 30,
|
|
For the nine months ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
1,112,078
|
|
$
|
938,706
|
|
$
|
3,373,855
|
|
$
|
2,165,256
|
|
Cost
of goods sold
|
|
|
576,497
|
|
|
648,103
|
|
|
1,785,884
|
|
|
1,394,611
|
|
Gross
profit
|
|
|
535,581
|
|
|
290,603
|
|
|
1,587,971
|
|
|
770,645
|
|
Research
& development
|
|
|
115,498
|
|
|
84,709
|
|
|
333,658
|
|
|
84,709
|
|
Selling,
general & administrative
|
|
|
51,573
|
|
|
598,573
|
|
|
2,120,772
|
|
|
2,292,314
|
|
Depreciation
and amortization
|
|
|
38,393
|
|
|
57,363
|
|
|
110,940
|
|
|
165,039
|
|
Total
operating expenses
|
|
|
205,464
|
|
|
655,936
|
|
|
2,565,370
|
|
|
2,457,353
|
|
Gain/(loss)
from operations
|
|
|
330,117
|
|
|
(450,042
|
)
|
|
(977,399
|
)
|
|
(1,771,417
|
)
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net
|
|
|
(79,990
|
)
|
|
(101,273
|
)
|
|
(296,354
|
)
|
|
(301,528
|
)
|
Gain/(loss)
on derivative liability
|
|
|
(71,000
|
)
|
|
(283,645
|
)
|
|
(225,000
|
)
|
|
(283,645
|
)
|
Debt
forgiveness
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Other
income (expense)
|
|
|
(70,576
|
)
|
|
75,549
|
|
|
(34,229
|
)
|
|
(20,004
|
)
|
Total
other income (expense)
|
|
|
(221,566
|
)
|
|
(309,369
|
)
|
|
(555,583
|
)
|
|
(605,177
|
)
|
Net
income (loss) from continued operations
|
|
|
108,551
|
|
|
(759,411
|
)
|
|
(1,532,982
|
)
|
|
(2,376,594
|
)
|
Loss
from discontinued operations
|
|
|
–
|
|
|
–
|
|
|
—
|
|
|
(81,454
|
)
|
Net
income (loss) attributable to common shareholders
|
|
$
|
108,551
|
|
$
|
(759,411
|
)
|
|
(1,532,982
|
)
|
|
(2,458,048
|
)
|
Basic
and diluted net income/(loss) from continuing operations
|
|
|
0.00
|
|
|
(0.01
|
)
|
|
(0.02
|
)
|
|
(0.03
|
)
|
Basic
and diluted net income/(loss) from discontinued operations
|
|
|
0.00
|
|
|
0.00
|
|
|
(0.00
|
)
|
|
(0.00
|
)
|
Income
(loss) per share, basic and diluted
|
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
$
|
(0.03
|
)
|
Weighted
average number of shares outstanding basic and diluted
|
|
|
114,981,339
|
|
|
151,158,574
|
|
|
81,928,439
|
|
|
94,898,121
|
|
See
Accompanying Notes to Consolidated Financial Statements
INTERACT
HOLDING GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the nine months ended
September 30,
|
|
|
|
2007
|
|
2006
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Loss
from continued operations
|
|
$
|
(1,532,982
|
)
|
$
|
(2,376,594
|
)
|
Loss
for discontinued operations
|
|
|
–
|
|
|
(81,456
|
)
|
Net
loss
|
|
|
(1,532,982
|
)
|
|
(2,458,050
|
)
|
Adjustments
to reconcile net income to net cash provided by operating
activities
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
110,940
|
|
|
165,039
|
|
Debt
forgiveness
|
|
|
–
|
|
|
–
|
|
Common
stock issued for consulting services rendered
|
|
|
446,343
|
|
|
307,351
|
|
Common
stock issued in exchange for employee services rendered
|
|
|
–
|
|
|
211,200
|
|
Common
stock issued from stock subscription receivable
|
|
|
24,889
|
|
|
92,400
|
|
Accretion
of discount on note payable
|
|
|
–
|
|
|
138,425
|
|
Derivative
loss
|
|
|
225,000
|
|
|
|
|
Changes
in assets and liabilities (Increase) decrease:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(164,766
|
)
|
|
(42,824
|
)
|
Inventories
|
|
|
–
|
|
|
19,633
|
|
Other
assets
|
|
|
8,439
|
|
|
(156,235
|
)
|
Increase
(decrease):
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
|
(70,159
|
)
|
|
(150,145
|
)
|
Other
liabilities
|
|
|
(87,025
|
)
|
|
(6,957
|
)
|
Net
cash used in operating activities
|
|
|
(1,039,321
|
)
|
|
(1,880,161
|
)
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
Purchase
of property and equipment
|
|
|
(9,839
|
)
|
|
(21,409
|
)
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
Proceeds
from sale of stock, net of costs and fees
|
|
|
–
|
|
|
13,407
|
|
Proceeds
from notes payable, net of repayments
|
|
|
541,001
|
|
|
1,421,172
|
|
Proceeds
from notes payable - related parties, net of repayments
|
|
|
462,753
|
|
|
420,751
|
|
Payment
for Capital Leases
|
|
|
(3,481
|
)
|
|
(8,844
|
)
|
Acquisition
of UTSI
|
|
|
–
|
|
|
195,229
|
|
Net
cash provided by financing activities
|
|
|
1,000,273
|
|
|
2,041,715
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
(48,887
|
)
|
|
140,145
|
|
Effect
of exchange rate on cash and cash equivalents
|
|
|
(479
|
)
|
|
11,383
|
|
Cash
and cash equivalents - beginning of period
|
|
|
222,666
|
|
|
36,361
|
|
Cash
and cash equivalents - end of period
|
|
$
|
173,300
|
|
$
|
187,889
|
|
Supplemental
disclosures of cash flow information
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
|
–
|
|
|
–
|
|
Cash
paid for interest
|
|
$
|
40,354
|
|
$
|
60,532
|
|
See
Accompanying Notes to Consolidated Financial Statements
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – Organization and Principal Activities
Organization
and Description of Business
Interact
Holdings Group, Inc. (formerly “The Jackson Rivers Company”), through its
operating subsidiaries, provides technology and services to the petroleum,
utility and communications industries.
The
accompanying consolidated financial statements include the accounts of Interact
Holdings Group, Inc. and its wholly owned subsidiaries, Diverse Networks, Inc.
and UTSI International Corporation (collectively, the “Company”). Significant
inter-company transactions and accounts have been eliminated in
consolidation.
Note
2 - Summary of Significant Accounting Policies
Basis
of Presentation
The
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.
Cash
Equivalents
Cash
equivalents consist primarily of cash deposits and highly liquid investments
with maturities of three months or less.
Intangible
Assets
In
accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142
“Goodwill and Other Intangible Assets,” the Company evaluates intangible assets
and other long-lived assets for impairment, at least on an annual basis and
whenever events or changes in circumstances indicate that the carrying value
may
not be recoverable from its estimated future cash flows. Recoverability of
intangible assets and other long-lived assets is measured by comparing their
net
book value to the related projected undiscounted cash flows from these assets,
considering a number of factors including: past operating results, budgets,
economic projections, market trends and product development cycles. If the
net
book value of the asset exceeds the related undiscounted cash flows, the asset
is considered impaired, and a second test is performed to measure the amount
of
impairment loss.
Revenue
Recognition
Revenue
is recognized in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101,
“Revenue Recognition in Financial Statements.” The Company recognizes revenue
when the significant risks and rewards of ownership have been transferred to
the
customer pursuant to applicable laws and regulations, including factors such
as
when there has been evidence of a sales arrangement, delivery has occurred,
or
service has been rendered, the price to the buyer is fixed or determinable,
and
collectibility is reasonably assured.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Stock-Based
Compensation
SFAS
No.
123, “Accounting for Stock-Based Compensation,” established and encourages the
use of the fair value based method of accounting for stock-based compensation
arrangements under which compensation is determined using the fair value of
stock-based compensation determined as of the date of the grant and is
recognized over the periods in which the related services are rendered. The
statement also permits companies to elect to continue using the current
intrinsic value accounting method specified in Accounting Principles Board
(“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” to account
for stock-based compensation. The Company has elected to use the
modified-prospective transition method. Under the modified-prospective
transition method, compensation cost recognized includes (a) compensation cost
for all share-based payments granted prior to, but not yet vested, as of
December 31, 2005 based on the grant date fair value estimated in accordance
with the original provisions of SFAS No. 123 and (b) compensation cost for
all
share-based payments granted on or subsequent to January 1, 2006, based on
the
grant-date fair value estimated in accordance with the provisions of SFAS No.
123R. As of June 30, 2007, all options were fully vested; therefore, there
are
no expenses to the Company related to the implementation of SFAS No.
123R.
Property
and Equipment
Property
and equipment are recorded at acquisition cost and increased by the cost of
any
significant improvements made after purchase. The Company depreciates the cost
over the estimated useful lives of the respective assets using the straight-line
method over the estimated useful life.
Software
Software
is stated at acquisition cost and amortized on a straight-line basis over their
estimated useful life.
Income
Taxes
The
Company accounts for income taxes under SFAS No. 109, “Accounting for Income
Taxes.” Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts
of
existing assets and liabilities and their respective tax bases. Deferred tax
assets, including tax loss and credit carryforwards and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under
SFAS No. 109, the effect on deferred tax assets and liabilities of a change
in
tax rates is recognized as income in the period the enactment occurs. A
valuation allowance is provided for certain deferred tax assets if it is more
likely than not that the Company will not realize tax assets through future
operations.
Basic
and Diluted Income/(Loss) Per Share
SFAS
No.
128, “Earnings per Share,” requires presentation of basic earnings per share
(“Basic EPS”) and diluted earnings per share (“Diluted EPS”). Basic
earnings/(loss) per share is computed by dividing earnings/(loss) available
to
common stockholders by the weighted average number of common shares outstanding
(including shares reserved for issuance) during the period. Diluted earnings
per
share give effect to all dilutive potential common shares outstanding during
the
period.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
All
common stock shares are presented to reflect a 500-to-1 reverse stock split
approved by the Board of Directors on November 21, 2006.
Segmented
Information
Management
has determined that the Company operates in one dominant industry segment.
Additional segment disclosure requirements will be evaluated as it expands
its
operations.
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist of cash, cash equivalents and accounts receivable. The Company
places its cash with high quality financial institutions and at times may exceed
the FDIC $100,000 insurance limit. The Company extends credit based on an
evaluation of the customer’s financial condition, generally without collateral.
Exposure to losses on receivables is principally dependent on each customer’s
financial condition. The Company monitors its exposure for credit losses and
maintains allowances for anticipated losses, as required. Accounts are
“written-off” when deemed uncollectible.
Special-Purpose
Entities
The
Company does not have any off-balance sheet financing activities.
Going
Concern
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern. As of September
30,
2007, the Company had a retained deficit of $6,095,358. This condition raises
substantial doubt as to the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments that might result
from
the outcome of this uncertainty. These 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 be necessary
should the Company be unable to continue as a going concern.
In
order
to improve the Company’s liquidity, the Company has and is actively pursuing
additional equity financing through discussions with investment bankers and
private investors. There can be no assurance that the Company will be successful
in its continuing efforts to secure additional equity financing.
If
operations and cash flows continue to improve through these efforts, management
believes that the Company can continue to operate. However, no assurance can
be
given that management’s actions will result in profitable operations or the
resolution of its liquidity problems.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles (“GAAP”) requires management to make estimates and
assumptions that affect the amounts reported in the financial statements. The
Company bases its estimates on historical experience, management expectations
for future performance, and other assumptions as appropriate. Key areas affected
by estimates include the assessment of the recoverability of long-lived assets,
which is based on such factors as estimated future cash flows. The Company
re-evaluates its estimates on an ongoing basis. Actual results may vary from
those estimates.
Impairment
of Long-Lived Assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company periodically assesses the impairment of
long-lived assets when conditions indicate a possible loss. When necessary,
the
Company records charges for impairments of long-lived assets for the amount
by
which the present value of future cash flows, or some other fair value measure,
is less than the carrying value of these assets. The Company has recorded no
impairment charges.
Operating
leases
The
Company enters into lease agreements for a variety of business purposes,
including facilities and equipment. These arrangements are noncancellable
operating leases which do not meet the requirements of capital leases under
SFAS
No. 13, “Accounting for Leases” and are therefore expensed straight-line over
the life of the operating lease.
Fair
Value of Financial Instruments
The
Company uses the following methods and assumptions to estimate the fair value
of
derivative and other financial instruments at the relative balance sheet
date:
|
·
|
Short-term
financial statements (cash equivalents, accounts receivable and payable,
short-term borrowings, and accrued liabilities) – cost approximates
fair value because of the short maturity
period.
|
|
·
|
Long-term
debt – fair value is based on the amount of future cash flows
associated with each debt instrument discounted at our current borrowing
rate for similar debt instruments of comparable
terms.
|
Note
3 – Recently Issued Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, entitled “Accounting Changes and Error
Corrections – a replacement of APB Opinion No. 20 and FASB Statement No.
3.” This Statement replaces APB Opinion No. 20, “Accounting Changes” and FASB
Statement No. 3, “Reporting Accounting Changes in Interim Financial Statements,”
and changes the requirements for the accounting for and reporting of a change
in
accounting principle. This statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. Opinion 20 previously required that most
voluntary changes in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of the change to the
new accounting principle. This Statement requires retrospective application
to
prior periods’ financial statements of changes in accounting principle, unless
it is impracticable to determine either the period-specific effects or the
cumulative effect of the change. This Statement defines the application of
a
different accounting principle to prior accounting periods as if that principle
had always been used or as the adjustment of previously issued financial
statements to reflect a change in the reporting entity. This Statement also
redefines “restatement” as the revising of previously issued financial
statements to reflect the correction of an error. The adoption of SFAS 154
did
not impact the financial statements.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
February 2006, FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Statements.” SFAS No. 155 amends SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities” and SFAS No. 140, “Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.”
SFAS No. 155, permits fair value measurement for any hybrid financial instrument
that contains an embedded derivative that otherwise would require bifurcation,
clarifies which interest-only strips and principal-only strips are not subject
to the requirements of SFAS No. 133, establishes a requirement to evaluate
interest in securitized financial assets to identify interests that are
freestanding derivatives or that are hybrid financial statements that contain
an
embedded derivative requiring bifurcation, clarifies that concentrations of
credit risk in the form of subordination are not embedded derivatives, and
amends SFAS No. 140 to eliminate the prohibition on the qualifying
special-purpose entity from holding a derivative financial instrument that
pertains to a beneficial interest other than another derivative financial
instrument. This statement is effective for all financial instruments acquired
or issued after the beginning of the Company’s first fiscal year that begins
after September 15, 2006. Management believes that this statement will not
have
a significant impact on the financial statements.
In
March
2006, FASB issued SFAS 156 “Accounting for Servicing of Financial Assets.” This
Statement amends FASB Statement No. 140, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities,” with respect to the
accounting for separately recognized servicing assets and servicing liabilities.
This Statement:
|
1.
|
Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract.
|
|
2.
|
Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
|
|
3.
|
Permits
an entity to choose “Amortization method” or “Fair value measurement
method” for each class of separately recognized servicing assets and
servicing liabilities.
|
|
4.
|
At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
|
|
5.
|
Requires
separate presentation of servicing assets and liabilities subsequently
measured at fair value in the statement of financial position and
additional disclosures for all separately recognized servicing assets
and
servicing liabilities.
|
Management
believes that this statement will not have a significant impact on the financial
statements.
In
June
2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes “ FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS No. 109, “Accounting
for Income Taxes.” FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective in fiscal years beginning after
December 15, 2006. Management believes that this Statement will not have a
significant impact on the financial statements.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
In
September 2006, FASB issued SFAS No. 157, “Fair Value Measures.” SFAS No. 157
defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), expands disclosures about
fair value measurements, and applies under other accounting pronouncements
that
require or permit fair value measurements. SFAS No. 157 does not require any
new
fair value measurements, however the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. SFAS No. 157
is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, which for the Company would be its fiscal year beginning
January 1, 2008. The implementation of SFAS No. 157 is not expected to have
a
material impact on the Company’s results of operations and financial
condition.
In
September 2006, the FASB issued SFAS No. 158, “Employer’s Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB
Statements No. 87, 88, 106 and 132(R).” This statement requires employers to
recognize the overfunded or underfunded status of a defined benefit
postretirement plan (other than a multi-employer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income
of a
business entity or changes in unrestricted net assets of a not-for-profit
organization. This statement also requires an employer to measure the funded
status of a plan as of the date of its year-end statement of financial position
with limited exceptions. The provisions of SFAS No. 158 are effective for
employers with publicly traded equity securities as of the end of the fiscal
year ending after December 15, 2006. This pronouncement does not currently
apply
to the Company.
In
September 2006, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 108 (Topic IN), “Quantifying Misstatements in Current
Year Financial Statements” (“SAB No. 108”). SAB No. 108 addresses how the effect
of prior year uncorrected misstatements should be considered when quantifying
misstatements in current year financial statements. SAB No. 108 requires SEC
registrants (i) to quantify misstatements using a combined approach which
considers both the balance sheet and income statement approaches; (ii) to
evaluate whether either approach results in quantifying an error that is
material in light of relevant quantitative and qualitative factors; and (iii)
to
adjust their financial statements if the new combined approach results in a
conclusion that an error is material. SAB No. 108 addresses the mechanics of
correcting misstatements that include effects from prior years. It indicates
that the current year correction of a material error that included prior period
effects may result in the need to correct prior year financial statements even
if the misstatement in the prior year or years is considered immaterial. Any
prior year financial statements found to be materially misstated in years
subsequent to the issuance of SAB No. 108 would be restated in accordance with
SFAS No. 154, “Accounting Changes and Error Corrections.” Because the combined
approach represents a change in practice, the SEC staff will not require
registrants that followed an acceptable approach in the past to restate prior
years’ historical financial statements. Rather, these registrants can report the
cumulative effect of adopting the new approach as an adjustment to the current
year’s beginning balance of retained earnings. If the new approach is adopted in
a quarter other than the first quarter, financial statements for prior interim
periods within the year of adoption may need to be restated. SAB No. 108 is
effective for fiscal years ending after November 15, 2006, which for the Company
would be its fiscal year beginning January 1, 2007. The implementation of SAB
No. 108 is not expected to have a material impact on the Company’s financial
position or results of operations.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
4 – Acquisitions
On
December 2, 2005, the Company acquired Diverse Networks, Inc. (“DNI”) pursuant
to an Agreement and Plan of Merger, which provided that each share of DNI’s
common stock would be converted into the right to receive either (i) $0.21
in
the form of a one-year 8% promissory note, or (ii) one share of Series B
Preferred Stock, at the election of each DNI stockholder. The transaction was
accounted for as a recapitalization effected through a reverse merger, in which
DNI was treated as the “acquiring” company for financial reporting
purposes.
Each
share of Series B Preferred Stock will initially be convertible starting
December 1, 2007, into that number of shares of the Company’s common stock
obtained by multiplying the number of shares to be converted by a fraction,
the
numerator of which is .5942795 and the denominator of which is equal to the
prevailing market price of the Company’s common stock at the time of conversion.
The conversion rate is subject to adjustment.
The
Company issued approximately $862,000 in promissory notes and one million shares
of Series B Preferred Stock to DNI stockholders. In addition, the Company
assumed $228,000 of outstanding DNI debt in connection with the
transaction.
The
Company expensed $401,727 of net liabilities assumed upon the recapitalization
and recorded the amount to recapitalization expense on the statement of
operations.
On
May 5,
2006, the Company acquired UTSI International Corporation (“UTSI”) pursuant to
an “Agreement and Plan of Merger,” dated May 5, 2006. Pursuant to the Merger
Agreement, UTSI merged with and into the Company, with the Company as the
surviving corporation. Each share of UTSI’s common stock outstanding at the
effective time of the merger was converted into the right to receive 1.4380297
shares of Series C Preferred Stock. The 1,529,871 shares of UTSI’s common stock
outstanding were converted into an aggregate of 2,200,000 shares of Series
C
Preferred Stock.
Each
share of Series C Preferred Stock will initially be convertible, starting after
May 5, 2008, into that number of shares of the Company’s common stock obtained
by multiplying the number of shares to be converted by a fraction, the number
of
which is $1.00 and the denominator of which is equal to the “market price” of
the Company’s common stock at the time of conversion subject to
adjustment.
The
purchase price was allocated to tangible and intangible assets and liabilities
at the date of acquisition as follows:
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Current
assets
|
|
$
|
389,884
|
|
Property
and equipment
|
|
|
23,630
|
|
Customer
list
|
|
|
735,433
|
|
Goodwill
|
|
|
1,868,986
|
|
Total
assets
|
|
$
|
3,017,933
|
|
Less –
Total liabilities
|
|
|
817,933
|
|
|
|
$
|
2,200,000
|
|
The
following unaudited pro forma financial information presents the combined
results of operations of the Company and UTSI as if the acquisition had occurred
as of the beginning of the period presented. The unaudited pro forma financial
information is not necessarily indicative of what the Company’s consolidated
results of operations actually would have been had the Company completed the
acquisition at the beginning of each period. In addition, the unaudited pro
forma financial information does not attempt to project the future results
of
operations of the combined company.
|
|
Years
Ended December 31,
|
|
|
|
2006
|
|
2005
|
|
Revenues
|
|
$
|
3,587,107
|
|
$
|
4,288,505
|
|
Cost
of goods sold
|
|
|
1,897,884
|
|
|
2,401,321
|
|
Gross
profit
|
|
$
|
1,689,223
|
|
$
|
1,887,184
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
185,665
|
|
|
–
|
|
Selling,
general and administrative
|
|
|
3,810,324
|
|
$
|
2,169,869
|
|
Recapitalization
expense
|
|
|
–
|
|
|
1,513,727
|
|
Depreciation
and amortization
|
|
|
170,215
|
|
|
185,986
|
|
Total
operating expenses
|
|
$
|
4,166,204
|
|
$
|
3,869,582
|
|
Loss
from operations
|
|
$
|
(2,476,981
|
)
|
$
|
(1,982,398
|
)
|
Other
expense, net
|
|
|
682,236
|
|
|
48,815
|
|
Loss
before income taxes
|
|
$
|
(3,159,217
|
)
|
$
|
(2,031,213
|
)
|
Income
taxes (benefit)
|
|
|
81,139
|
|
|
(200,229
|
)
|
Net
loss from continuing operations
|
|
$
|
(3,240,356
|
)
|
$
|
(1,830,984
|
)
|
Note
5 – Property and equipment
Property
and equipment consists of the following:
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Life
|
|
As of June 30,
2007
|
|
Office
furniture and equipment
|
|
|
3–7
|
|
$
|
1,122,899
|
|
Leasehold
improvements
|
|
|
10
|
|
|
299,112
|
|
|
|
|
|
|
$
|
1,422,011
|
|
Less –
Accumulated depreciation
|
|
|
|
|
|
1,276,916
|
|
|
|
|
|
|
$
|
145,095
|
|
Note
6 – Derivative liability
On
March
31, 2006, the Company entered into a Securities Purchase Agreement with certain
accredited investors pursuant to which they agreed to issue up to $2,000,000
of
principal amount of convertible promissory notes in three separate tranches
and
warrants to purchase shares of the Company’s common stock (the “Securities
Purchase Agreement”). The tranches of notes are to be issued and sold as
follows: (i) $700,000 upon execution and delivery of the Securities Purchase
Agreement; (ii) $600,000 within five days of filing of a registration statement
with the SEC registering the shares of common stock issuable upon conversion
of
the notes and exercise of the warrants issued pursuant to the Securities
Purchase Agreement (the “Registration Statement”) and (iii) $700,000 within five
days of the Registration Statement being declared effective by the SEC. The
convertible notes have a three year term and bear interest at 6%. The notes
are
convertible into the Company’s common stock pursuant to a “variable conversion
price” equal to the “Applicable Percentage” multiplied by the “Market Price.”
“Applicable Percentage” is initially 50%, provided that such percentage will be
increased to 55% if the Registration Statement is filed on or before April
30,
2006 and further increased to 60% if the Registration Statement is declared
effective by the SEC on or before July 29, 2006. “Market Price” means the
average of the lowest three trading prices (as defined) for the Company’s common
stock during the twenty trading day period prior to conversion. Upon an event
of
default, the notes are immediately due and payable at an amount equal to the
greater of (i) 140% of the then outstanding principal amount of notes plus
interest and (ii) the “parity value” defined as (a) the highest number of shares
of common stock issuable upon conversion of the notes multiplied by (b) the
highest closing price for the Company’s common stock during the period beginning
on the date of the occurrence of the event of default and ending one day prior
to the demand for prepayment due to the event of default. The notes are secured
by a first lien on all of the Company’s assets, including all intellectual
property.
Subject
to certain terms and conditions, the notes are redeemable by the Company at
a
rate of between 120% to 140% of the outstanding principal amount of the notes
plus interest. In addition, so long as the average daily price of the Company’s
common stock is below the “initial market price,” the Company may prepay such
monthly portion due on the outstanding notes and the investors agree that no
conversions will take place during such month where this option is exercised
by
the Company.
The
notes
were issued with warrants to purchase up to 50,000,000 shares of the Company’s
common stock at an exercise price of $0.07 per share, subject to
adjustment.
In
connection with the offer and sale of the notes and warrants, the Company
engaged Envision Capital LLC, as a finder for the transaction. Envision received
a ten percent cash commission on the sale of the notes and warrants to purchase
up to 5,000,000 shares of the Company’s common stock on the same terms and
conditions as the warrants issued to purchasers under the Securities Purchase
Agreement.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company is accounting for the conversion option in the convertible note and
the
conversion price in the Securities Purchase Agreement and the associated
warrants as derivative liabilities in accordance with SFAS No. 133, “Accounting
for Derivative Instruments and Hedging Activities” and EITF 00-19 “Accounting
for Derivative Financial Instruments Indexed to and Potentially Settled in
a
Company’s Own Stock” due to the fact that the conversion feature and the
warrants both have a variable conversion price.
The
fair
value of the Convertible Note was determined utilizing the Black-Scholes stock
option valuation model. The significant assumptions used in the valuation are:
the exercise price as noted above; the stock price as of June 30, 2007; expected
volatility of 66%; risk-free interest rate of approximately 4.50%; and a term
of
one year.
The
fair
value of the Securities Purchase Agreement was determined utilizing the
Black-Scholes option valuation model. The significant assumptions used in the
valuation are: the exercise price as noted above; the stock price as of
September 30, 2007; expected volatility of 66%; risk free interest rate of
approximately 4.50%; and a term of three years.
The
notes
are due as follows:
March
31, 2009
|
|
$
|
690,630
|
|
May
4, 2009
|
|
|
600,000
|
|
October
11, 2009
|
|
|
700,000
|
|
|
|
$
|
1,990,630
|
|
On
August
21, 2007, the Company entered into another Securities Purchase Agreement with
the same accredited investors who previously invested in the Company on March
31, 2006, pursuant to which the Company agreed to issue an additional tranche
of
$330,000 of convertible promissory notes. The convertible notes have a
three-year term and bear interest at a rate of eight percent (8%) per annum,
and
are convertible into shares of our common stock under the same terms set forth
above in this Note 6. The notes also include warrants to purchase up to
20,000,000 shares of the Company’s common stock at an exercise price of $0.0014
per share, subject to adjustment. In connection with the offer and sale of
these
notes and the warrants, the Company has engaged Envision Capital LLC as a finder
for the transaction. Under the terms of the engagement, Envision received a
ten
percent (10%) cash commission on the sale of the notes, as well as warrants
to
purchase up to 5,000,000 shares of the Company’s common stock on the same terms
and conditions as the warrants issued to purchasers under such Securities
Purchase Agreement.
INTERACT
HOLDING GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
7 – Notes Payable
The
Company is obligated to individuals and corporations for notes with interest
rates between 8 and 10%, mostly payable in monthly and quarterly
installments.
Note
8- Leases
The
Company leases office space for its various subsidiaries.
The
Company leases certain equipment under capital leases. The capital leases will
expire during the year ending December 31, 2007. The future minimum lease
payments due in 2007 total $2,781. These leases are secured by the leased
equipment.
Future
minimum payments under capital and operating leases as of December 31, 2006
are
as follows:
|
|
$
|
384,908
|
|
2008
|
|
|
381,461
|
|
2009
|
|
|
381,461
|
|
2010
|
|
|
215,433
|
|
2011
|
|
|
106,095
|
|
|
|
|
|
|
Note
9 – Major Customers
During
the nine months ending September 30, 2007, the Company had four major customers,
sales to which represent approximately 55% of the Company’s total
revenues.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The
following discussion and analysis should be read in conjunction with our
unaudited consolidated financial statements and related notes included in this
report. This report contains “forward looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements contained
in this report that are not historic in nature, particularly those that utilize
terminology such as “may” or “will,” or comparable terminology, are forward
looking statements based upon current expectations and assumptions. Various
risks and uncertainties could cause actual results to differ materially from
those expressed in these forward looking statements. This report should be
read
in conjunction with the Company’s Annual Report on Form 10-KSB for the year
ended December 31, 2006 filed on May 10, 2007 and its Quarterly Reports on
Form
10-QSB for the quarter ended March 31, 2007 and June 30, 2007 filed with the
Securities and Exchange Commission (the “SEC”).
The
Jackson Rivers Company was incorporated on May 8, 2001 under the laws of the
State of Florida as a development-stage company. On January 4, 2007, The Jackson
Rivers Company changed its name to Interact Holdings Group, Inc. (the “Company”,
“we” or “us”) pursuant to a written consent passed by stockholders owning a
majority of the Company’s issued and outstanding common stock.
Recent
Developments
On
August
21, 2007, we entered into another Securities Purchase Agreement with the same
accredited investors who previously invested in us on March 31, 2006, pursuant
to which we agreed to issue an additional tranche of $330,000 of convertible
promissory notes. The convertible notes have a three-year term and bear interest
at a rate of eight percent (8%) per annum, and are convertible into shares
of
our common stock under the same terms set forth in Note 6 to the consolidated
financial statements included with this Quarterly Report. The notes also include
warrants to purchase up to 20,000,000 shares of our common stock at an exercise
price of $0.0014 per share, subject to adjustment. In connection with the offer
and sale of these notes and the warrants, we engaged Envision Capital LLC as
a
finder for the transaction. Under the terms of the engagement, Envision received
a ten percent (10%) cash commission on the sale of the notes, as well as
warrants to purchase up to 5,000,000 shares of our common stock on the same
terms and conditions as the warrants issued to purchasers under such Securities
Purchase Agreement.
On
September 28, 2007, Management received a letter of default from its subsidiary
UTSI International Corporation (“UTSI”), indicating that we were in default on
several conditions set forth in the Agreement and Plan of Merger signed on
May
5, 2006. These conditions included our responsibility to provide UTSI with
operating capital, and a requirement that our capitalization exceed an
agreed-upon amount. Management drafted a letter offering cures to these
default conditions through seeking new financing and restructuring our common
stock, which cures were accepted by UTSI. These cures must be in place by
December 31, 2007.
Our
Business
The
Company is in the business of providing operational and technical support to
companies in the oil & gas pipeline industries, electrical utility and other
industries. We offer a wide range of expertise specific to these industries
including engineering design, inspection and audit services. We provide
customers with hardware and automation systems. We offer and help integrate
business efficiency and real time operations software applications. Through
our
networks operations facility, we can also provide our customers with a variety
of managed services.
Several
factors can be identified as to why our services are sought after: (i)
escalating energy costs are necessitating higher production standards and great
resource management; (ii) aging infrastructures have increased maintenance
budgets and initiated new efforts to update equipment and operations; and (iii)
increases in security and control systems post-9/11 have put greater emphasis
and more dollars into operations management.
To
meet
these industry needs, we provide high technology tools and services that help
other companies, government/institutions, and functional organizational units
manage their industrial infrastructure and economic assets more effectively.
Our
customers today include major petroleum companies such as Shell, BP, Chevron
and
others.
We
presently own two operational companies, UTSI and Diverse Networks, Inc.
(“DNI”), both located in Houston, Texas. Taken together, DNI and UTSI have more
than 30 years of experience and have worked with over 40 of the world’s top
petroleum companies.
Plan
of Operations
We
are
actively seeking to expand the commercialization of our services to other key
industries such as telecommunications, water and waste water, and distributed
energy, but cannot guarantee we will be successful in doing so. We also maintain
operations in Madrid, Spain, which we hope to use to reach out to a growing
international market for our products and services.
Results
of Continuing Operations
The
results of operations are set forth below for the periods ended September 30,
2007 and September 30, 2006.
The
following table sets forth, for the periods indicated, selected financial data
from continuing operations:
|
|
For
the three months
ended
September
30,
|
|
For
the nine months ended
September
30,
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
1,112,078
|
|
$
|
938,706
|
|
$
|
3,373,855
|
|
$
|
2,165,256
|
|
Cost
of goods sold
|
|
|
576,497
|
|
|
648,103
|
|
|
1,785,884
|
|
|
1,394,611
|
|
Gross
profit
|
|
|
535,581
|
|
|
290,603
|
|
|
1,587,971
|
|
|
770,645
|
|
Research
& development
|
|
|
115,498
|
|
|
84,709
|
|
|
333,658
|
|
|
84,709
|
|
Selling,
general & administrative
|
|
|
51,573
|
|
|
598,573
|
|
|
2,120,272
|
|
|
2,292,314
|
|
Depreciation
and amortization
|
|
|
38,393
|
|
|
57,363
|
|
|
110,940
|
|
|
165,039
|
|
Total
operating expenses
|
|
|
205,464
|
|
|
655,936
|
|
|
2,565,370
|
|
|
2,457,353
|
|
Profit/(loss)
from operations
|
|
|
330,117
|
|
|
(450,042
|
)
|
|
(977,399
|
)
|
|
(1,771,417
|
)
|
Comparison
of the Three Months and Nine Months ended September 30, 2007 and September
30,
2006
Net
Sales
Our
net
sales for operations increased to $1,112,078 and $3,373,855 for the three months
and nine months ended September 30, 2007, respectively. This translates to
an
increase of approximately 15.6% and 31.9% respectively for each of the periods
indicated. This increase is primarily due to the acquisitions of DNI and UTSI,
as well as an overall increase in sales.
Cost
of Sales
Cost
of
sales decreased to $576,497 for the three months ended September 30, 2007,
and
increased to $1,785,884 for the nine months ended September 30, 2007. As a
percentage of net sales, cost of sales decreased to 52% and 64% for the three
and nine months ended September 30, 2007, respectively, versus approximately
69%
and 64% of sales for the three and nine months ended September 30, 2006. This
decrease is primarily due to better margins being achieved after acquisition.
Research
and Development
Research
and development expenses related to the development of future products were
$115,498 for the three months ended September 30, 2007 compared to $84,709
for
the corresponding period in 2006. For the nine months ended September 30, 2007,
research and development expenses totaled $333,658, compared to $84,709 for
the
corresponding period in 2006. We incurred such expenses because we continue
to
develop and research new ideas and products.
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses decreased to $2,120,272 for the nine months
ended September 30, 2007 from $2,292,314 for the corresponding period in 2006.
These expenses decreased to $51,573 for the three months ended September 30,
2007 from $598,573 for the corresponding period in 2006, as we did not incur
as
significant stock for services in the most recent quarter.
Operating
profit/loss
We
incurred an operating profit of $330,117 for the three months ended September
30, 2007, compared to a loss of $450,042 for the corresponding period in 2006.
Our loss for the nine months ended September 30, 2007 decreased to $977,399
from
$1,771,417 for the corresponding period in 2006. This decreased loss was
primarily due to us beginning to achieve our goals.
Liquidity
and Capital Resources
We
have
financed our operations, acquisitions, debt service, and capital requirements
through cash flows generated from financing activities and debt financing,
and
the Company expects to fund its operations for the next 12 months through the
same means. Our working capital deficit at September 30, 2007 was $1,101,361.
We
used
$1,039,921 of net cash in operating activities for the nine months ended
September 30, 2007 and we were provided with $1,000,273 from financing
activities.
Off-Balance
Sheet Arrangements
None.
ITEM
3. CONTROLS
AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures. As
of the
end of the period covered by this quarterly report, our management carried
out
an evaluation, under the supervision and with the participation of our CEO
and
CFO, of the effectiveness of our disclosure controls and procedures pursuant
to
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”). Based on this evaluation, our CEO and CFO concluded that our disclosure
controls and procedures as of the end of the period covered by this quarterly
report are effective to provide reasonable assurance that the information we
are
required to disclose in the reports that we file under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms. It should be noted that the design of any system
of controls is based in part upon certain assumptions about the likelihood
of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions, regardless
of
how remote.
Changes
in Internal Controls. We
reviewed our internal controls over financial reporting and there have been
no
changes in our internal controls or in other factors that occurred during the
quarter ended September 30, 2007 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
None.
ITEM
2. UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On
August
21, 2007, we entered into a Securities Purchase Agreement with the same
accredited investors who previously invested in us on March 31, 2006, pursuant
to which we agreed to issue an additional tranche of $330,000 of convertible
promissory notes. The convertible notes have a three-year term and bear interest
at a rate of eight percent (8%) per annum, and are convertible into shares
of
our common stock under the same terms set forth in Note 6 to the consolidated
financial statements included with this Quarterly Report. The notes also include
warrants to purchase up to 20,000,000 shares of our common stock at an exercise
price of $0.0014 per share, subject to adjustment. Such notes and warrants
were
issued pursuant to the exemption from registration provided by Section 4(2)
of
the Securities Act of 1933, as amended. In connection with the offer and sale
of
these notes and the warrants, we engaged Envision Capital LLC as a finder for
the transaction. Under the terms of the engagement, Envision received a ten
percent (10%) cash commission on the sale of the notes, as well as warrants
to
purchase up to 5,000,000 shares of our common stock on the same terms and
conditions as the warrants issued to purchasers under such Securities Purchase
Agreement.
ITEM
3. DEFAULTS
UPON SENIOR SECURITIES
None.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER
INFORMATION
There
were no matters required to be disclosed in a Current Report on Form 8-K during
the fiscal quarter covered by this report that were not so
disclosed.
There
were no changes to the procedures by which security holders may recommend
nominees to the Company’s Board of Directors since the Company last disclosed
such procedures.
ITEM
6. EXHIBITS
No.
|
|
Description
|
31.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
Rules
13a-14(a) and 15d-14(a) of the Exchange Act.
|
32.1
|
|
Certification
of Chief Executive Officer and Chief Financial Officer Pursuant to
18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused
this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
INTERACT
HOLDINGS GROUP, INC.
|
|
|
November
15, 2007
|
By:
|
/s/ Jeffrey W. Flannery
|
|
|
Jeffrey W. Flannery
|
|
|
Chief Executive Officer and
Chief Financial Officer
|