Unassociated Document
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB
(Mark
One)
þ ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended December 31, 2007
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period from ___________ to _____________
Commission
File Number: 333-70932
Interact
Holdings Group, Inc.
(Name
of
small business issuer as specified in its charter)
Florida
|
|
65-1102865
|
(State
or other jurisdiction of
incorporation
or organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
8880
Rio
San Diego Drive, 8th Floor
San
Diego, CA 92108
(Address
of principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (619) 342-7443
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act: $.00001 par value common
stock
Check
whether the issuer is not required to file reports pursuant to Section 13 or
15(d) of the Exchange Act. o
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act of 1934 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 þ
No
o
Check
if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o
No
þ
The
issuer’s revenues for the most recent fiscal year were $4,473,499.
The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant was approximately $62,403 as of March 31,
2008.
State
the
number of shares outstanding of each of the Issuer’s classes of common equity,
as of the latest practicable date: March 31, 2008: 624,030,575
DOCUMENTS
INCORPORATED BY REFERENCE
None.
Transitional
Small Business Issuer Format Yes o
No
þ
Table
of Contents
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Page
|
|
|
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|
PART
I
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|
|
|
ITEM
1.
|
DESCRIPTION
OF BUSINESS
|
1
|
|
ITEM
2.
|
DESCRIPTION
OF PROPERTY
|
5
|
|
ITEM
3.
|
LEGAL
PROCEEDINGS
|
5
|
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
5
|
PART
II
|
|
|
|
ITEM
5.
|
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|
5
|
|
ITEM
6.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
8
|
|
ITEM
7.
|
FINANCIAL
STATEMENTS
|
11
|
|
ITEM
8.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
12
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|
ITEM 8(A).
|
CONTROLS
AND PROCEDURES.
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12
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ITEM
8(B).
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OTHER
INFORMATION.
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12
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PART III
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|
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ITEM
9.
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(A) OF THE EXCHANGE ACT
|
13
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|
ITEM
10.
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EXECUTIVE
COMPENSATION
|
14
|
|
ITEM
11.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
|
15
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ITEM
12.
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
16
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|
ITEM
13.
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EXHIBITS
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17
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SIGNATURES
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19
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PART
I
ITEM
1. |
DESCRIPTION
OF BUSINESS
|
Corporate
History
Interact
Holdings Group, Inc. (the “Company”, “we” or “us”) was incorporated on May 8,
2001 under the laws of the State of Florida as a development-stage company
under
the name, “The Jackson Rivers Company.”
On
August
31, 2005, Dennis N. Lauzon, our former President, Chief Executive Officer and
controlling stockholder, entered into a stock purchase agreement with Jeffrey
W.
Flannery, our current President and Chief Executive Officer, under which Mr.
Lauzon agreed to sell his 960,000 shares of our Series A Preferred Stock held
by
him to Mr. Flannery for a purchase price of $60,000. Payment was in the form
of
$15,000 in cash and a secured promissory note in the principal amount of $45,000
payable in three (3) monthly installments of $15,000 per month. This note was
fully paid in accordance with its terms.
On
December 2, 2005, we entered into a reverse merger agreement for the acquisition
of Diverse Networks Inc. (“DNI”), a Texas corporation which specializes in
technical, operational and engineering services. Pursuant to the definitive
agreement, each share of DNI common stock was converted into the right to
receive either (i) $0.21 for every share of common stock in DNI, in the form
of
a one-year 8% promissory note or (ii) one share of our Series B Preferred Stock,
at the election of each DNI stockholder.
On
March
17, 2006, we sold 100% of the equity interest in our wholly owned subsidiary,
JRC Global Products, Inc., to our former President and controlling shareholder,
Dennis Lauzon, for $1,100 in the form of a promissory note. Such note has since
been fully satisfied.
On
March
31, 2006, we entered into a securities purchase agreement with certain
accredited investors pursuant to which we agreed to issue, in three separate
tranches, up to $2,000,000 of convertible promissory notes, as well as warrants
to purchase shares of our common stock. The different tranches of the 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 5 days of filing of
a
registration statement with the Securities and Exchange Commission (the “SEC”)
registering the shares of common stock that are to be issued upon conversion
of
the notes and exercise of the warrants issued pursuant to the securities
purchase agreement; and (iii) $700,000 within 5 days of the registration
statement being declared effective by the SEC. The convertible notes have a
three year term and bear interest at a rate of six percent (6%) per annum.
The
notes are convertible into our 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 in the securities
purchase agreement) for our common stock during the 20 trading day period prior
to conversion. Upon an event of default (as defined in the securities purchase
agreement), the notes are immediately due and payable at an amount equal to
the
greater of (i) 140% of the then outstanding principal amount of the 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 our 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 our assets, including all of our intellectual property.
At
the time of this filing, $2,250,315.03 remains outstanding on the notes and
$84,395.00 has been converted into common shares of the Company.
Subject
to certain terms and conditions set forth therein, the notes are redeemable
by
us at a rate of 120% to 140% of the outstanding principal amount of the notes,
plus interest thereon at a rate of 6%. In addition, so long as the average
daily
price of our common stock is below the “initial market price” (as defined in the
agreement) we 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 us.
The
notes
were issued with warrants to purchase up to 50,000,000 shares of our common
stock at an exercise price of $0.07 per share, subject to
adjustment.
We
agreed
to register the secondary offering and resale of the shares issuable upon
conversion of the notes and the shares issuable upon exercise of the warrants
within 30 days of the execution of the securities purchase agreement. At the
time of this filing, we have not registered the secondary offering and resale
of
the shares issuable upon conversion.
We
relied
on the exemption from registration provided by Section 4(2) of the Securities
Act of 1933, as amended, for the offer and sale of the notes and the
warrants.
On
May 5,
2006, we acquired UTSI International Corporation (“UTSI”), a Texas corporation,
pursuant to a merger agreement whereby each share of UTSI common stock
outstanding was converted into the right to receive 1.4380297 shares of our
Series C Preferred Stock so that the 1,529,871 shares of common stock of UTSI
outstanding are convertible into an aggregate of 2,200,000 shares of Series
C
Preferred Stock of the Company.
In
December 2006, we entered into a securities purchase agreement with accredited
investors to which we agreed to issue an additional tranche of $250,000 of
convertible promissory notes. These notes have a three year term and bear
interest at a rate of eight percent (8%) per annum. The notes are convertible
into our common stock pursuant to a “variable conversion price” equal to the
“Applicable Percentage” multiplied by the “Market Price.” “Applicable
Percentage” is 50%. “Market Price” means the average of the lowest three trading
prices (as defined in the securities purchase agreement) for our common stock
during the 20 trading day period prior to conversion. Upon an event of default
(as defined in the securities purchase agreement), the notes are immediately
due
and payable at an amount equal to the greater of (i) 140% of the then
outstanding principal amount of the 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 our
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 also included warrants to purchase up to
10,000,000 shares of our common stock at an exercise price of $0.0007 per share,
subject to adjustment.
In
connection with the offer and sale of all of the notes and the warrants
discussed above, we engaged Envision Capital LLC as a finder for the
transaction. Under the terms of the engagement, Envision will receive a ten
percent (10%) cash commission on the sale of the notes, and 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 the securities purchase
agreement.
In
December 2006, the Company changed its name to “Interact Holdings Group, Inc.”
to reflect the diverse nature of its enterprises.
Our
executive offices are located at 8880 Rio San Diego Drive, 8th Floor, San Diego,
CA 92108 and our telephone number is (619) 342-7443. We maintain a website
at
www.interactholdings.com.
Recent
Developments
On
February 12, 2007, we effected a 500-to-1 reverse stock split. The financials
have been adjusted for all periods presented.
On
March
31, 2007, we entered into another securities purchase agreement with the same
accredited investors as above, pursuant to which we agreed to issue an
additional tranche of $220,000 of convertible promissory notes. The convertible
notes have a three year term and bear interest at a rate of eight percent (8%)
per annum. The notes are convertible into our common stock pursuant to a
“variable conversion price” equal to the “Applicable Percentage” multiplied by
the “Market Price.” “Applicable Percentage” is 50%. “Market Price” means the
average of the lowest three trading prices (as defined in the securities
purchase agreement) for our common stock during the 20 trading day period prior
to conversion. Upon an event of default (as defined in the securities purchase
agreement), the notes are immediately due and payable at an amount equal to
the
greater of (i) 140% of the then outstanding principal amount of the 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 our 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 also included
warrants to purchase up to 10,000,000 shares of our common stock at an exercise
price of $0.07 per share, subject to adjustment.
On
August
21, 2007, we entered into another Securities Purchase Agreement with the same
accredited investors as above, 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 our common stock under the same terms set
forth for the Notes above. The notes also included warrants to purchase up
to
20,000,000 shares of our common stock at an exercise price of $0.07 per share,
subject to adjustment.
In
connection with the offer and sale of all 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, and 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.
In
January 2008, we entered into a separation agreement with one of our operating
subsidiaries UTSI International. Both parties mutually agreed to terminate
their
relationship. UTSI had the option to rescind the acquisition as set forth in
the
original stock purchase agreement between the parties, should we not meet or
cure certain conditions. Both companies agreed to the rescission, and each
returned stock which originally was given for consideration of the deal in
2006.
In
January 2008, Daniel Nagala resigned from the Board of Directors. Also in
January 2008, James Nelson resigned from the Board of Directors and resigned
his
positions as President and Chief Operating Officer of the Company. Upon his
resignation, the Preferred A Series shares held by Mr. Nelson were returned
to
Jeffrey Flannery, the remaining officer and board member.
Our
Business
Through
our remaining subsidiary, Diverse Networks, we continue to operate in the
infrastructure management and technology business. However, at this time we
are
unsure of our ability to support these activities on an ongoing basis.
Furthermore, our auditor has raised substantial doubts about our ability to
continue as a going concern. See Note 2 to the Consolidated Financial
Statements.
We
currently are seeking new business opportunities. We will endeavor to
restructure and grow through the acquisition of additional business
opportunities. We anticipate that proposed business ventures will be made
available to us through personal contacts of our directors, executive officers
and principal stockholders, professional advisors, broker dealers in securities,
venture capital personnel, and members of the financial community and others
who
may present unsolicited proposals. In certain cases, we may agree to pay a
finder’s fee or to otherwise compensate the persons who submit a potential
business endeavor in which we eventually participate. Since such persons may
include our directors, executive officers and beneficial owners of our
securities or their affiliates, such fees may become a factor in negotiations
regarding any potential venture and, accordingly, may present a conflict of
interest for such individuals. We do not presently intend to acquire or merge
with any business enterprise in which any member has a prior ownership
interest.
Although
we currently have no plans to do so, depending on the nature and extent of
services rendered, we may compensate members of management in the future for
services that they may perform for our Company. Because we currently have
extremely limited resources, we expect that any such compensation would take
the
form of an issuance of the Company’s common stock to these persons; this would
have the effect of further diluting the holdings of our other stockholders.
There are presently no preliminary agreements or understandings between us
and
members of management respecting such compensation.
Substantial
fees are often paid in connection with the completion of all types of
acquisitions, reorganizations or mergers, ranging from a small amount to as
much
as $400,000. These fees are usually divided among promoters or founders, after
deduction of legal, accounting and other related expenses, and it is not unusual
for a portion of these fees to be paid to members of management or to principal
stockholders as consideration for their agreement to retire a portion of the
shares of common stock owned by them. Management may actively negotiate or
otherwise consent to the purchase of all or any portion of their common stock
as
a condition to, or in connection with, a proposed reorganization, merger or
acquisition. It is not anticipated that any such opportunity will be afforded
to
other stockholders or that such other stockholders will be afforded the
opportunity to approve or consent to any particular stock buy-out transaction.
In the event that any such fees are paid, they may become a factor in
negotiations regarding any potential acquisition or merger by us and,
accordingly, may also present a conflict of interest for such individuals.
We
have no present arrangements or understandings respecting any of these types
of
fees or opportunities.
None
of
our directors, executive officers, founders or their affiliates or associates
has had any negotiations with any representatives of the owners of any business
or company regarding the possibility of an acquisition, reorganization, merger
or other business opportunity for the Company; nor are there any similar
arrangements with us.
Patents,
Trademarks, Licenses, Franchises, Concessions, Royalty Agreements or Labor
Contracts
None.
Governmental
Approval of Principal Products or Services
None.
Effect
of Existing or Probable Governmental Regulations on
Business
None.
Research
and Development
None.
Cost
and Effects of Compliance with Environmental Laws
We
are
not, at present, subject to existing environmental laws that may have an adverse
effect on us.
Employees
As
of
March 31, 2008, we had no full-time employees and no part-time employees.
ITEM
2. |
DESCRIPTION
OF PROPERTY
|
Our
executive and operational headquarters are based in Houston, Texas. We lease
office space under an operating lease that expires in May 2010 at a monthly
rent
of $23,560. We are seeking to sublet this space to a qualified tenant so as
to
eliminate or minimize these monthly office expenses while we restructure.
ITEM
3. |
LEGAL
PROCEEDINGS
|
None.
ITEM
4. |
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
None.
PART
II
ITEM
5. |
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
|
Our
common stock trades on the OTC Bulletin Board under the symbol “IHGR.” The
following table shows the high and low bid prices for our common stock for
each
quarter since January 1, 2006 as reported by the OTC Bulletin Board. All share
prices have been adjusted to provide for the 1-for-500 reverse stock split
which
was effected in January 2007. We consider our stock to be “thinly traded” and
any reported sale prices may not be a true market-based valuation of the stock.
Some of the bid quotations from the OTC Bulletin Board set forth below may
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and
may not represent actual transactions.
January 1, 2007 to December 31, 2007
|
|
High Bid
|
|
Low Bid
|
|
First
quarter
|
|
$
|
0.5000
|
|
$
|
0.0200
|
|
Second
quarter
|
|
|
0.0270
|
|
|
0.0013
|
|
Third
quarter
|
|
|
0.0042
|
|
|
0.0004
|
|
Fourth
quarter
|
|
|
0.0005
|
|
|
0.0001
|
|
January 1, 2006 to December 31, 2006
|
|
|
High Bid
|
|
|
Low Bid
|
|
First
quarter
|
|
$
|
1.25
|
|
$
|
1.10
|
|
Second
quarter
|
|
|
2.50
|
|
|
2.10
|
|
Third
quarter
|
|
|
1.60
|
|
|
0.37
|
|
Fourth
quarter
|
|
|
2.00
|
|
|
0.45
|
|
Holders
As
of
April 17, 2008, there were approximately 600 record holders of our common
stock.
Dividends
We
have
not paid any cash dividends since our inception and do not contemplate paying
dividends in the foreseeable future. It is anticipated that earnings, if any,
will be retained to retire debt and for the operation of the
business.
Shares
eligible for future sale could depress the price of our common stock, thus
lowering the value of a buyer’s investment. Sales of substantial amounts of
common stock, or the perception that such sales could occur, could adversely
affect prevailing market prices for shares of our common stock.
Our
revenues and operating results may fluctuate significantly from quarter to
quarter, which can lead to significant volatility in the price and volume of
our
stock. In addition, stock markets have experienced extreme price and volume
volatility in recent years. This volatility has had a substantial effect on
the
market prices of securities of many smaller public companies for reasons
unrelated or disproportionate to the operating performance of the specific
companies. These broad market fluctuations may adversely affect the market
price
of our common stock.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following provides information concerning compensation plans under which our
equity securities are authorized for issuance as of December 31,
2007:
|
|
(a)
|
|
(b)
|
|
(c)
|
|
Plan
Category
|
|
Number
of Securities
to
Be Issued upon Exercise of
Outstanding
Options, Warrants and Rights
|
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and
Rights
|
|
Number
of Securities Remaining Available for Future Issuance under Equity
Compensation Plans (Excluding Securities Reflected in Column (a)
)
|
|
Equity
compensation plans approved by security holders
|
|
|
45,577,624
|
|
$
|
0.0127
|
|
|
99,655,000
|
|
Equity
compensation plans not approved by security holders
|
|
|
–
|
|
|
–
|
|
|
|
|
Total
|
|
|
45,577,624
|
|
$
|
0.0127
|
|
|
99,655,000
|
|
RECENT
SALES OF UNREGISTERED SECURITIES
In
January 2006, we issued an 8% Convertible Note in the aggregate principal amount
of $250,000 to a single accredited investor in consideration for services
rendered under a fee agreement dated November 2005. This note is due and payable
on or before January 1, 2007. This note is convertible into that number of
shares of our common stock as would be determined by dividing (i) the unpaid
principal balance plus accrued interest by (ii) 80% of the average of the three
lowest closing bid prices for the twenty trading days immediately prior to
conversion. No conversions can be made which would result in a holder owning
more than 4.99% of our common stock after conversion. The issuance of the note
was exempt under Section 4(2) of the Securities Act of 1933, as amended. No
underwriter was used in connection with this sale.
In
March
2006, we issued an 8% Convertible Note in the aggregate principal amount of
$60,000 to a single accredited investor. Upon consummation of a funding in
the
aggregate amount of $300,000, the holder is entitled to full payment of all
outstanding principal and interest. In addition, the holder is entitled to
receive common stock equal to the value of the principal and interest at a
conversion price equal to the average of the lowest 3 closing bid prices in
the
20 trading days immediately preceding the repayment date. No conversions can
be
made which would result in the holder owning more than 4.99% of our common
stock
after conversion. The issuance of this note was exempt under Section 4(2) of
the
Securities Act of 1933, as amended. This note was paid in full in April of
2006.
In
December 2006, we entered into a securities purchase agreement with accredited
investors to which we agreed to issue an additional tranche of $250,000 of
convertible promissory notes. These notes have a three year term and bear
interest at a rate of eight percent (8%) per annum and are convertible into
our
common stock under the same terms set forth for the notes described above.
The
notes also included warrants to purchase up to 10,000,000 shares of our common
stock at an exercise price of $0.0007 per share, subject to
adjustment.
On
March
31, 2007, we entered into another securities purchase agreement with accredited
investors to which we agreed to issue an additional tranche of $220,000 of
convertible promissory notes. The convertible notes have a three year term
and
bear interest at a rate of eight percent (8%) per annum. The notes are
convertible into our common stock pursuant to a “variable conversion price”
equal to the “Applicable Percentage” multiplied by the “Market Price.”
“Applicable Percentage” is 50%. “Market Price” means the average of the lowest
three trading prices (as defined in the securities purchase agreement) for
our
common stock during the 20 trading day period prior to conversion. Upon an
event
of default (as defined in the securities purchase agreement), the notes are
immediately due and payable at an amount equal to the greater of (i) 140% of
the
then outstanding principal amount of the 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 our 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 also included warrants to
purchase up to 10,000,000 shares of our common stock at an exercise price of
$0.07 per share, subject to adjustment.
On
August
21, 2007, we entered into another Securities Purchase Agreement with the same
accredited investors as above, 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. The
notes
are convertible into our common stock pursuant to a “variable conversion price”
equal to the “Applicable Percentage” multiplied by the “Market Price.”
“Applicable Percentage” is 50%. “Market Price” means the average of the lowest
three trading prices (as defined in the securities purchase agreement) for
our
common stock during the 20 trading day period prior to conversion. Upon an
event
of default (as defined in the securities purchase agreement), the notes are
immediately due and payable at an amount equal to the greater of (i) 140% of
the
then outstanding principal amount of the 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 our 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
also included warrants to purchase up to 20,000,000 shares of our 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 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, and 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
the
securities purchase agreement.
ITEM
6. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
|
The
following discussion and analysis should be read in conjunction with our audited
consolidated financial statements and related notes included in this annual
report. This report contains “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. The statements contained
in this report that are not historic in nature, particularly those that utilize
terminology such as “may,” “will,” “should,” “expects,” “anticipates,”
“estimates,” “believes,” or “plans” or comparable terminology are
forward-looking statements based on current expectations and
assumptions.
The
forward-looking events discussed in this annual report, the documents to which
we refer and other statements made from time to time by us or our
representatives may not occur, and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about us.
For
these statements, we claim the protection of the “bespeaks caution” doctrine.
All forward-looking statements in this document are based on information
currently available to us as of the date of this report, and we assume no
obligation to update any forward-looking statements, unless required by law
or
regulation. Forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements.
Results
of Continuing Operations
Basis
of Presentation
The
results of operations set forth below for the years ended December 31, 2007
and
2006 are those of the continuing operations of Interact Group Holdings, Inc.,
which include DNI and UTSI on a consolidated basis.
The
following table sets forth, for the periods indicated, certain selected
financial data expressed as a percentage of net sales from continuing
operations:
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Net
sales
|
|
$
|
4,473,499
|
|
$
|
3,198,853
|
|
Cost
of sales
|
|
|
2,275,046
|
|
|
1,782,458
|
|
Gross
profit
|
|
$
|
2,198,454
|
|
$
|
1,416,395
|
|
Research
and Development
|
|
|
413,531
|
|
|
185,565
|
|
Selling,
general and administrative
|
|
|
3,454,474
|
|
|
2,851,800
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
|
|
|
175,375
|
|
|
195,096
|
|
Operating
loss
|
|
$
|
(1,844,926
|
)
|
$
|
(1,816,166
|
)
|
Comparison
of the Years ended December 31, 2007 and 2006
Net
sales.
Net
sales for operations increased to $4,473,499, or an increase of approximately
28.5%, for the year ended December 31, 2007, from $3,198,853 for the year ended
December 31, 2006. This increase was attributable to higher sales levels and
UTSI.
Cost
of Sales.
Cost of
sales for continued operations increased to $2,275,046, or approximately 27.7%,
for the year ended December 31, 2007, from $1,782,458 for the year ended
December 31, 2006. As a percentage of net sales, cost of sales decreased to
51%
of net sales for the year ended December 31, 2007 versus approximately 56%
of
sales for the year ended December 31, 2006. The decrease in cost of sales as
a
percentage of net sales resulted primarily from improved costing of new business
products through the mergers. As a result, we generated a gross profit of
$2,198,454 with a gross profit margin of approximately 49% for the year ended
December 31, 2007.
Selling,
general and administrative.
Selling,
general and administrative expenses increased to $3,454,474, or an increase
of
approximately 17.5%, for the year ended December 31, 2007, from $2,851,800
for
the year ended December 31, 2006. As a percentage of net sales, selling, general
and administrative expenses were approximately 77% for the year ended December
31, 2006, as compared to approximately 89% for the comparable period in 2006.
The increase in selling, general and administrative expenses primarily resulted
from the newly merged companies.
Operating
loss.
We
incurred an operating loss of $1,844,926 for the year ended December 31, 2007,
compared to an operating loss of $1,816,166 for the year ended December 31,
2006.
Revenue
Recognition
We
recognize revenue when persuasive evidence of an arrangement exists, services
have been rendered, the sales price is fixed or determinable, and collectibility
is reasonably assured.
Liquidity
and Capital Resources
We
have
financed our operations, acquisitions, debt service and capital requirements
through cash flows generated from operations, debt financing and issuance of
securities.
We
used
$1,372,429 of net cash in operating activities for the year ended December
31,
2007 compared to $2,026,287 used in the year ended December 31,
2006.
Net
cash
flows used in investing activities were $31,738 for the year ended December
31,
2007, compared to $66,606 in the year ended December 31, 2006. The cash used
in
investing activities for the year ended December 31, 2006 was for purchase
of
equipment and software.
Net
cash
flows provided by financing activities were $1,333,429 for the year ended
December 31, 2007, compared to net cash provided for financing activities of
$2,272,289 in the year ended December 31, 2006. The difference results primarily
from proceeds of notes payable.
Capital
Requirements
We
had a
working capital deficit of $2,973,117 as of December 31, 2007. We are
anticipating raising funds through new issuances of stock or through private
transactions.
In
the
event we seek to expand our operations or launch new products for sale into
the
marketplace, or in the event we seek to acquire a company or business or
business opportunity, or in the event that our cash flows from operations are
insufficient to fund our operations, working capital requirements, and debt
service requirements, we would need to finance our operations through additional
debt or equity financing, in the form of a private placement or a public
offering, a strategic alliance or a joint venture. Such additional financing,
alliances or joint venture opportunities might not be available to us, when
and
if needed, on acceptable terms or at all. If we are unable to obtain additional
financing in sufficient amounts or on acceptable terms under such circumstances,
our operating results and prospects could be adversely affected.
Off-Balance
Sheet Arrangements
None.
ITEM
7. |
FINANCIAL
STATEMENTS
|
Table
of Contents
Report
of Independent Registered Public Accounting Firm
|
F–1
|
|
|
Consolidated
Balance Sheet
|
F–2
|
|
|
Consolidated
Statements of Operations
|
F–3
|
|
|
Consolidated
Statements of Cash Flows
|
F–4
|
|
|
Consolidated
Statements of Stockholders’ Deficit
|
F–5
|
|
|
Notes
to Financial Statements
|
F–6
|
[Letterhead
of Gruber &Company, LLC]
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO
THE BOARD OF DIRECTORS AND STOCKHOLDERS OF INTERACT
HOLDINGS GROUP, INC.
We
have
audited the accompanying consolidated balance sheet of Interact Holdings Group,
Inc. as of December 31, 2007 and 2006 and the related consolidated statements
of
operations, changes in shareholders’ equity, and cash flows for the two years
then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform our audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides
a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Interact Holdings Group, Inc.
as of
December 31, 2007 and 2006 and the results of its operations and its cash flows
for the periods described in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As indicated in these financial statements,
the Company has incurred a loss in 2007 of $3,253,721 and has a cumulative
loss
since inception of $7,816,097. Further, the Company’s current liabilities exceed
its current assets by $2,973,717 and it separated in January 2008 from its
main
operating subsidiary. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern unless it is able to generate
sufficient cash flows to meet its obligations and sustain its operations.
Management’s plans regarding those matters are also described in Note 2. The
financial statements do not include any adjustments that might result from
the
outcome of this uncertainty.
Gruber
& Company, LLC
Lake
Saint Louis, Missouri
April
2,
2008
INTERACT
HOLDINGS GROUP, INC.
CONSOLIDATED
BALANCE SHEET
As
of December 31, 2007
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
and equivalents
|
|
$
|
201,937
|
|
Accounts
receivable, net
|
|
|
577,681
|
|
Prepaid
expenses and other assets
|
|
|
108,704
|
|
Total
Current Assets
|
|
$
|
888,322
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
128,824
|
|
Customer
list, net of amortization
|
|
|
569,087
|
|
Goodwill
|
|
|
1,868,986
|
|
Other
long-term assets
|
|
|
55,926
|
|
Total
Assets
|
|
$
|
3,511,145
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
Current
liabilities
|
|
|
|
|
Derivative
liability
|
|
$
|
1,337,141
|
|
Notes
payable
|
|
|
773,497
|
|
Line
of credit
|
|
|
355,089
|
|
Accounts
payable and accrued expenses
|
|
|
1,389,622
|
|
Customer
deposits and advance billings
|
|
|
6,090
|
|
Total
Current Liabilities
|
|
$
|
3,861,439
|
|
|
|
|
|
|
Convertible
notes payable
|
|
$
|
2,789,764
|
|
Note
payable - Related parties
|
|
|
965,144
|
|
Total
Liabilities
|
|
$
|
7,616,347
|
|
|
|
|
|
|
Stockholders’
Deficit
|
|
|
|
|
Series
A preferred stock, par value $0.001 per share, 10,000,000 shares
authorized; 960,000 shares issued and outstanding at December 31,
2007
|
|
$
|
10
|
|
Series
B preferred stock, par value $0.001 per share, 10,000,000 shares
authorized; 10,000,000 issued and outstanding at December 31, 2007
|
|
|
1,000
|
|
Series
C preferred stock, par value $1.00; 2,200,000 shares authorized
issued and
outstanding at December 31, 2007
|
|
|
2,200,000
|
|
Common
stock, par value $0.00001 per share, 5,000,000,000 authorized,
594,992,267
issued and outstanding at December 31, 2007
|
|
|
5,855
|
|
Additional
paid-in capital
|
|
|
1,497,930
|
|
Accumulated
deficit
|
|
|
(7,816,097
|
)
|
Comprehensive
income
|
|
|
6,100
|
|
Total
Stockholders’ Deficit
|
|
$
|
(4,105,202
|
)
|
Total
Liabilities and Stockholders’ Deficit
|
|
$
|
3,511,145
|
|
See
Accompanying Summary of Accounting Policies and Notes to Financial
Statements
INTERACT
HOLDINGS GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Years
Ended December 31, 2007 and 2006
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Sales,
net
|
|
$
|
4,473,499
|
|
$
|
3,198,853
|
|
|
|
|
|
|
|
|
|
Cost
of sales
|
|
|
2,275,046
|
|
|
1,782,458
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$
|
2,198,454
|
|
$
|
1,416,395
|
|
.
|
|
|
|
|
|
.
|
|
Operating
expenses
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
413,531
|
|
|
188,665
|
|
Selling,
general and administrative
|
|
|
3,709,474
|
|
$
|
2,851,800
|
|
Depreciation
and amortization
|
|
|
175,375
|
|
|
195,096
|
|
Total
operating expenses
|
|
$
|
4,298,380
|
|
$
|
3,235,561
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
$
|
(2,099,926
|
)
|
$
|
(1,819,166
|
)
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
Other
income
|
|
|
–
|
|
$
|
–
|
|
Other
expense
|
|
$
|
–
|
|
|
(34,674
|
)
|
Change
in accrued derivative liability
|
|
|
(997,187
|
)
|
|
(577,507
|
)
|
Interest
expense
|
|
|
(156,608
|
)
|
$
|
(391,748
|
)
|
Net
other income (expense)
|
|
$
|
(1,153,795
|
)
|
$
|
(1,003,929
|
)
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(3,253,721
|
)
|
$
|
(2,823,095
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding
|
|
|
358,231,400
|
|
|
601
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per share
|
|
$
|
(0.01
|
)
|
$
|
(4,697.33
|
)
|
INTERACT
HOLDINGS GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Years
Ended December 31, 2007 and 2006
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
Net
loss from operations
|
|
$
|
(3,253,721
|
)
|
$
|
(2,820,095
|
)
|
Adjustments
to reconcile net income to net cash provided by (used by)
operations:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
70,315
|
|
|
146,024
|
|
Amortization
|
|
|
105,060
|
|
|
61,286
|
|
Common
stock issued in exchange for consulting services rendered
|
|
|
341,535
|
|
|
307,350
|
|
Common
stock issued in exchange for employee services rendered and related
transaction costs
|
|
|
30,228
|
|
|
25,200
|
|
Change
in accrued derivative liability
|
|
|
509,634
|
|
|
577,507
|
|
Accretion
of discount on notes payable
|
|
|
|
|
|
138,425
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(51,984
|
)
|
|
(58,712
|
)
|
Inventory
|
|
|
|
|
|
19,633
|
|
Prepaid
expenses
|
|
|
9,719
|
|
|
(113,462
|
)
|
Accounts
payable and accrued expenses
|
|
|
720,261
|
|
|
(395,600
|
)
|
Customer
deposits and advance billings
|
|
|
(114,567
|
)
|
|
86,157
|
|
Net
Cash Used by Operating Activities
|
|
$
|
(1,627,420
|
)
|
$
|
(2,026,287
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
$
|
(31,738
|
)
|
$
|
(38,400
|
)
|
Acquisition
of other assets
|
|
|
|
|
|
(28,206
|
)
|
Net
Cash Used in Investing Activities
|
|
$
|
(31,738
|
)
|
$
|
(66,606
|
)
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
Proceeds
from notes payable, net of repayments
|
|
$
|
1,635,810
|
|
$
|
2,179,350
|
|
Payment
on capital lease obligations
|
|
|
(3,481
|
)
|
|
(11,571
|
)
|
Acquisition
of UTSI
|
|
|
|
|
|
195,229
|
|
Cash
Flows from Financing Activities
|
|
$
|
1,632,329
|
|
$
|
2,272,219
|
|
Net
Increase (Decrease) in Cash
|
|
$
|
(26,829
|
)
|
$
|
179,326
|
|
|
|
|
|
|
|
|
|
Effect
of Exchange Rate on Cash and Cash Equivalents
|
|
|
6,100
|
|
|
6,979
|
|
Cash,
beginning of period
|
|
|
222,666
|
|
|
36,361
|
|
Cash
at end of period
|
|
$
|
201,937
|
|
$
|
222,666
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
Income
taxes paid
|
|
|
–
|
|
|
–
|
|
Interest
paid
|
|
$
|
|
|
$
|
391,748
|
|
Common
stock issued to retire convertible debt
|
|
$
|
241,102
|
|
$
|
|
|
See
Accompanying Summary of Accounting Policies and Notes to Financial
Statements
INTERACT
HOLDINGS GROUP, INC.
CONSOLIDATED
STATEMENTS STOCKHOLDERS’ DEFICIT
Years
Ended December 31, 2007 and 2006
|
|
Preferred Series A
|
|
Preferred Series B
|
|
Preferred Series C
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
Shares
|
|
Stock
|
|
Capital
|
|
Subscribed
|
|
(Deficit)
|
|
Equity
|
|
Balance,
January 1, 2006
|
|
|
960,000
|
|
$
|
10
|
|
|
10,000,000
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
99,055
|
|
$
|
1
|
|
$
|
508,249
|
|
$
|
9,299
|
|
$
|
(1,742,281
|
)
|
$
|
(1,325,421
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,400
|
)
|
|
|
|
|
|
|
Receipt
of subscription of stock
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92,400
|
)
|
|
92,400
|
|
|
—
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
based Compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
182,500
|
|
|
2
|
|
|
307,348
|
|
|
—
|
|
|
—
|
|
|
307,350
|
|
Acquisition
of UTSI
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,2000000
|
|
|
2,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,200,000
|
|
Common
Stock issued for debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,824
|
|
|
2
|
|
|
142,518
|
|
|
—
|
|
|
—
|
|
|
142,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
16,000
|
|
|
—
|
|
|
25,200
|
|
|
—
|
|
|
—
|
|
|
25,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2006
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,820,095
|
)
|
|
(2,820,095
|
)
|
Comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,979
|
|
Balance,
December 31, 2006
|
|
|
960,000
|
|
|
10
|
|
|
10,000,000
|
|
|
1,000
|
|
|
2,200000
|
|
|
2,200,000
|
|
|
486,379
|
|
|
5
|
|
|
890,915
|
|
|
-
|
|
|
(4,562,376
|
)
|
|
(1,463,467
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for consulting services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
51,900,529
|
|
|
519
|
|
|
341,016
|
|
|
—
|
|
|
—
|
|
|
341,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock to employees for services
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
3,287,742
|
|
|
33
|
|
|
30,195
|
|
|
|
|
|
—
|
|
|
30,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued to retire debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,213,020
|
|
|
62
|
|
|
15,600
|
|
|
—
|
|
|
—
|
|
|
15,662
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock issued for convertible debt
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
523,611,031
|
|
|
5,236
|
|
|
220,204
|
|
|
—
|
|
|
—
|
|
|
225,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2007
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,253,721
|
)
|
|
(2,942,621
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007 before OCI
|
|
|
960,000
|
|
$
|
10
|
|
|
10,000,000
|
|
$ |
1,000
|
|
|
2,200,000
|
|
$
|
2,200,000
|
|
|
585,498,701
|
|
$ |
5,855
|
|
$ |
1,497,930
|
|
|
|
|
$ |
(7,816,097
|
)
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,055,202
|
)
|
See
Accompanying Summary of Accounting Policies and Notes to Financial
Statements
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
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
intercompany 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
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
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 December 31, 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
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
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 December
31,
2007, the Company had a retained deficit of $7,816,097 and a working capital
deficit of $2,973,117. In addition as discussed in note 10, the Company and
its
main operating subsidiary announced they are separating in January 2008. 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.
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.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
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,
we
record 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
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (FAS
141(R)). This Statement provides greater consistency in the accounting and
financial reporting of business combinations. It requires the acquiring entity
in a business combination to recognize all assets acquired and liabilities
assumed in the transaction, establishes the acquisition-date fair value as
the
measurement objective for all assets acquired and liabilities assumed, and
requires the acquirer to disclose the nature and financial effect of the
business combination. FAS 141(R) is effective for fiscal years beginning
after
December 15, 2008. We will adopt FAS 141(R) no later than the first quarter
of
fiscal 2010 and are currently assessing the impact the adoption will have
on our
financial position and results of operations.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements”(“FAS 160”). This Statement amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. FAS 160 is effective
for
fiscal years beginning after December 15, 2008. We will adopt FAS 160 no
later
than the first quarter of fiscal 2010 and are currently assessing the impact
the
adoption will have on our financial position and results of operations.
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, which permits entities to choose to measure
at
fair value eligible financial instruments and certain other items that are
not
currently required to be measured at fair value. The standard requires that
unrealized gains and losses on items for which the fair value option has
been
elected be reported in earnings at each subsequent reporting date. SFAS No.
159
is effective for fiscal years beginning after November 15, 2007. We will
adopt
SFAS No. 159 no later than the first quarter of fiscal 2009. We are currently
assessing the impact the adoption of SFAS No. 159 will have on our financial
position and results of operations.
In
September 2006, the FASB issued SFAS No. 158, Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statement
Nos. 87, 88, 106, and 132(R). SFAS No. 158 requires company plan sponsors
to
display the net over- or under-funded position of a defined benefit
postretirement plan as an asset or liability, with any unrecognized prior
service costs, transition obligations or actuarial gains/losses reported
as a
component of other comprehensive income in shareholders’ equity. SFAS No. 158 is
effective for fiscal years ending after December 15, 2006. We adopted the
recognition provisions of SFAS No. 158 as of the end of fiscal 2007. The
adoption of SFAS No. 158 did not have an effect on the Company’s financial
position or results of operations.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. SFAS
No.
157 establishes a framework for measuring fair value in generally accepted
accounting principles, clarifies the definition of fair value and expands
disclosures about fair value measurements. SFAS No. 157 does not require
any new
fair value measurements. However, the application of SFAS No. 157 may change
current practice for some entities. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. We will adopt SFAS No. 157 in
the
first quarter of fiscal 2009. We are currently assessing the impact that
the
adoption of SFAS No. 157 will have on our financial position and results
of
operations.
In
July
2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in
Income Taxes — an interpretation of FASB Statement No. 109 (FIN 48). This
interpretation clarifies the application of SFAS No. 109, Accounting for
Income
Taxes, by defining a criterion that an individual tax position must meet
for any
part of the benefit of that position to be recognized in an enterprise’s
financial statements and also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. FIN 48 is effective for fiscal years beginning
after
December 15, 2006, but earlier adoption is permitted. The Company is in the
process of evaluating the impact of the application of the Interpretation
to its
financial statements.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
Note
4 – Acquisitions
On
December 2, 2005, the Company acquired Diverse Networks, Inc. (“DNI”) pursuant
to the “Merger Agreement”, which provided that each share of DNI 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 equal to the “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
the “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 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 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 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:
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
|
|
On
January 8, 2008 the Company and its main operating subsidiary UTSI announced
they were separating. UTSI’s financial information for the year ended December
31, 2007 is presented below, and will no longer be part of the Company in 2008.
Further, assets of $3,121,168 of the total consolidated assets of $3,511,145
will no longer be present, along with liabilities of $749,997.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
|
|
Year Ended
December 31,
2007
|
|
Revenues
|
|
$
|
2,956,880
|
|
Cost
of goods sold
|
|
|
1,635,767
|
|
Gross
profit
|
|
$
|
1,321,114
|
|
|
|
|
|
|
Research
and development
|
|
$
|
–
|
|
Selling,
general and administrative
|
|
|
1,042,564
|
|
Depreciation
and amortization
|
|
|
110,785
|
|
Total
operating expenses
|
|
$
|
1,153,349
|
|
|
|
|
|
|
Profit
from operations
|
|
$
|
167,765
|
|
Other
expense, net
|
|
|
(33,090
|
)
|
Profit
|
|
$
|
134,675
|
|
Note
5 – Property and equipment
Property
and equipment consists of the following:
|
|
Life
|
|
As of
December 31,
2007
|
|
Office
furniture and equipment
|
|
|
3–7
|
|
$
|
864,836
|
|
Leasehold
improvements
|
|
|
10
|
|
|
285,591
|
|
|
|
|
|
|
$
|
1,150,427
|
|
Less –
Accumulated depreciation
|
|
|
|
|
|
1,021,603
|
|
|
|
|
|
|
$
|
128,824
|
|
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 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 Securities and Exchange Commission (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 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.
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
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 will
receive 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.
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 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 December 31, 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.
Note
7 – Notes Payable
The
Company is obligated to individuals and corporations for notes with interest
rates of between 8 and 10%, mostly payable in monthly and quarterly
installments
INTERACT
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
December
31, 2007
Note
8- Leases
The
Company leases office space for its various subsidiaries.
Future
minimum payments under capital and operating leases as of December 31, 2007
are
as follows:
2008
|
|
$
|
381,461
|
|
2009
|
|
|
381,461
|
|
2010
|
|
|
215,433
|
|
2011
|
|
|
106,095
|
|
|
|
$
|
1,084,450
|
|
Note
9 – Major Customers
During
the year ending December 31, 2007, the Company had four major customers, sales
to which represent approximately 55% of the Company’s total
revenues.
Note
10 - Subsequent Event
On
January 8, 2008, the Company and its main operating subsidiary UTSI announced
they were separating. UTSI’s financial information for the year ended December
31, 2007 is presented below, and will no longer be part of the Company in
2008.
Further, assets of $3,121,168 of the total consolidated assets of $3,511,145
will no longer be present, along with liabilities of $749,997.
|
|
Year
Ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Revenues
|
|
$
|
2,956,880
|
|
|
1,727,336
|
|
Cost
of goods sold
|
|
|
1,635,767
|
|
|
818,757
|
|
Gross
profit
|
|
$
|
1,321,114
|
|
|
908,579
|
|
|
|
|
|
|
|
|
|
Research
and development
|
|
$
|
-
|
|
|
|
|
Selling,
general and administrative
|
|
|
1,042,564
|
|
|
818,892
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
110,785
|
|
|
3,984
|
|
Total
operating expenses
|
|
$
|
1,153,349
|
|
|
822,876
|
|
Profit
from operations
|
|
$
|
167,765
|
|
|
85,703
|
|
Other
expense, net
|
|
|
(33,090
|
)
|
|
(27,310
|
)
|
ITEM
8. |
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
On
January 15, 2007, the services of Malone & Bailey, PC. (“M&B”), the
auditors for the Company, were terminated. Such termination was recommended
and
approved by the Board of Directors of the Company.
The
report issued by M&B on the financial statements of the Company contained no
adverse opinion or disclaimer of opinion, nor were they modified as to
uncertainty, audit scope or accounting principles.
Prior
to
and up to the time of termination, the Company had no disagreements with M&B
with regard to any matter of accounting principles or practice, financial
statement disclosure or auditing scope or procedure.
On
January 16, 2007, the Company engaged the services of Gruber & Company, LLC,
121 Civic Center Drive, Suite 225, Lake Saint Louis, Missouri 63367 (“Gruber”)
as auditor.
ITEM 8(A). |
CONTROLS
AND PROCEDURES.
|
As
of the
end of the period covered by this Annual Report, we 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. Based on this
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
required to be included in our periodic Securities and Exchange Commission
reports. 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. In
addition, we reviewed our internal controls over financial reporting and there
have been no changes in our internal controls or in other factors in the last
fiscal quarter that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
ITEM 8(B). |
OTHER
INFORMATION.
|
None.
PART
III
ITEM
9. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION
16(A) OF THE EXCHANGE ACT
|
Executive
Officer and Directors
The
following table sets forth the names of all of our current directors and
executive officers. These persons will hold their respective positions until
the
next annual meeting of the stockholders or until their successors are elected
or
appointed and qualified, or their prior resignation or termination.
Name
|
|
Age
|
|
Position
|
Jeffrey
W. Flannery
|
|
51
|
|
Director,
Chief Executive Officer, Chief Financial Officer, interim President
and
interim Chief Operating
Officer
|
Jeffrey
W. Flannery
has been
serving as a director of Interact Group Holdings, Inc. and its Chief Executive
Officer, Chief Financial Officer, Treasurer and Secretary since August 31,
2005.
Since December 31, 2007, Mr. Flannery has been serving as the interim President
and Chief Operating Officer. Mr. Flannery brings extensive experience in
business development and fiscal management to these positions. Since 2005,
he
has been serving as Chairman of Titan Energy Worldwide, Inc., a company which
manufactures, markets and sells mobile utility systems for emergency power
generation. Since 1999, as a member of FLC Partners, Inc., an investment banking
services company, Mr. Flannery has provided financial consulting and business
development services for many public and private companies. From 1994 to 1999,
Mr. Flannery served as the Chief Executive Officer of Enhanced Information
Systems, Inc., an online home health care provider for the pharmacy industry,
Vice President of Development for IUSA, an information technology company,
and
Director of Corporate Communications for Center for Special Immunology, a public
company dedicated to medical treatments for immune disorders. Mr. Flannery
received his B.A. in Philosophy from the University of California, Los
Angeles.
Significant
Employees
Other
than our executive officer, we do not have any employees who are expected to
make a significant contribution to our business.
Family
Relationships
There
are
no family relationships between any director or executive officer.
Involvement
in Certain Legal Proceedings
None.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our
directors, executive officers, and stockholders holding more than 10% of our
outstanding common stock, to file with the Securities and Exchange Commission
initial reports of ownership and reports of changes in beneficial ownership
of
our common stock. Executive officers, directors and greater-than-10%
stockholders are required by SEC regulations to furnish us with copies of all
Section 16(a) reports they file. To our knowledge, based solely on review of
the
copies of such reports furnished to us for the period ended December 31, 2007,
no Section 16(a) reports required to be filed by our executive officers,
directors and greater-than-10% stockholders were filed on a timely
basis.
Audit
Committee
We
do not
have an audit committee at this time.
Code
of Ethics
We
have
adopted a code of ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions. The code of ethics is designed to deter
wrongdoing and to promote:
|
·
|
Honest
and ethical conduct, including the ethical handling of actual or
apparent
conflicts of interest between personal and professional
relationships;
|
|
·
|
Full,
fair, accurate, timely, and understandable disclosure in reports
and
documents that we file with, or submit to, the SEC and in other public
communications made by us;
|
|
·
|
Compliance
with applicable governmental laws, rules and
regulations;
|
|
·
|
The
prompt internal reporting of violations of the code to an appropriate
person or persons identified in the code;
and
|
|
·
|
Accountability
for adherence to the code.
|
A
copy of
our code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions was attached as an exhibit to our Annual Report
for
the year ended December 31, 2003, filed with the SEC on April 14, 2004. We
have
posted a copy of the code of ethics on our website at
www.interactgroupholdings.com.
We
will
provide to any person without charge, upon request, a copy of our code of
ethics. Any such request should be directed to our corporate secretary at 8880
Rio San Diego Drive, 8th Floor, San Diego, CA 92108 address, telephone number
(619) 342-7443.
Nominating
Committee
The
Company does not have a nominating committee.
ITEM
10. |
EXECUTIVE
COMPENSATION
|
The
following table sets forth, for the fiscal year ended December 31, 2007, all
compensation paid by the Company, including salary, bonuses and certain other
compensation, if any, to its Chief Executive Officer and Chief Financial Officer
and the Company’s highest paid executive officer other than the CEO. The
executive officers listed in the table below are sometimes referred to as the
“named executive officers” in this Annual Report.
SUMMARY
COMPENSATION TABLE
Name and
Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Options
Awards
($)
|
|
Non-
Equity
Incentive
Plan
Compensation
($)
|
|
Change
in
Pension
Value
and Non-
qualified
Deferred
Compensation
Earnings
($)
|
|
All Other
Compensation
($)
|
|
Total
($)
|
|
Jeffrey Flannery
CEO
and CFO
|
|
|
2007
|
|
|
180,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
180,000
|
|
James
E. Nelson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
former
Director, President and Chief Operating Officer
|
|
|
2007
|
|
|
285,000
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
0
|
|
|
285,000
|
(1)
|
(1)
|
This
amount includes Mr. Nelson’s yearly salary as an officer of the Company in
the amount of $120,000 and his yearly salary as an officer of DNI
in the
amount of $165,000.
|
Option
Grants and Exercises
There
were no option grants or exercises by any of the executive officers named in
the
Summary Compensation Table above.
Employment
Agreements
We
do not
have employment agreements with any of our other executive
officers.
Compensation
of Executives
Mr.
Jeffrey W. Flannery receives an annual salary of $180,000. To date no payments
have been made to Mr. Flannery. All amounts due to Mr. Flannery to date have
been deferred.
Compensation
of Directors
All
directors receive reimbursement for reasonable out-of-pocket expenses in
attending board of directors meetings and for promoting our business. From
time
to time we may engage certain members of the board of directors to perform
services on our behalf. In such cases, we compensate the members for their
services at rates no more favorable than could be obtained from unaffiliated
parties. During the year ended December 31, 2007, our directors have not
received any compensation for services rendered in such capacity.
ITEM
11. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
|
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 2008 by the following persons:
|
·
|
each
person who is known to be the beneficial owner of more than five
percent
(5%) of our issued and outstanding shares of common
stock;
|
|
·
|
each
of our directors and executive officers;
and
|
|
·
|
all
of our directors and executive officers as a
group.
|
Except
as
set forth in the footnotes to the table, the persons named in the table have
sole voting and investment power with respect to all shares of common stock
shown as beneficially owned by them, subject to community property laws where
applicable. A person is considered the beneficial owner of any securities as
of
a given date that can be acquired within 60 days of such date through the
exercise of any option, warrant or right. Shares of common stock subject to
options, warrants or rights which are currently exercisable or exercisable
within 60 days are considered outstanding for computing the ownership percentage
of the person holding such options, warrants or rights, but are not considered
outstanding for computing the ownership percentage of any other
person.
|
|
Beneficially
Owned
|
|
Percentage
Owned
|
|
Jeffrey
W. Flannery
|
|
|
960,000
|
(2)
|
|
75.5
|
%
|
All
directors and officers as a group (one person)
|
|
|
960,000
|
|
|
75.5
|
%
|
(1)
|
The
address for Jeffrey W. Flannery is 8880 Rio San Diego Drive, 8th
Floor,
San Diego, CA 92108(San Diego
Office).
|
(2)
|
All
are Series A Preferred Stock, each share of which is convertible
into one share of our common stock, and hold 2000 to 1 voting
rights.
|
ITEM
12. |
CERTAIN
RELATIONSHIPS AND RELATED
TRANSACTIONS
|
None.
Exhibit
No.
|
|
Description
|
|
|
|
3.1*
|
|
Articles
of Incorporation filed May 8, 2001 (incorporated by reference to
Exhibit 3.1(i) of the Company’s Form SB-2 filed with the
SEC on October 4, 2001).
|
|
|
|
3.2*
|
|
Articles
of Amendment to the Articles of Incorporation, filed effective
August 3,
2004.
|
|
|
|
3.3*
|
|
Articles
of Amendment to the Articles of Incorporation, filed effective
November
22, 2004.
|
|
|
|
3.4*
|
|
Articles
of Amendment to the Articles of Incorporation, filed effective
January 31,
2005.
|
|
|
|
3.5*
|
|
Bylaws
(incorporated by reference to Exhibit 3(ii) of the Company’s Form SB-2
filed with the SEC on October 4, 2001).
|
|
|
|
3.6*
|
|
Amended
and Restated Bylaws.
|
|
|
|
4.1*
|
|
Certificate
of Designation for the Series A Preferred Stock, filed effective
October
18, 2004.
|
|
|
|
4.2*
|
|
Certificate
of Designation for the Series B Preferred Stock, filed effective
December
1, 2005.
|
|
|
|
4.3* |
|
Form
of Callable Secured Promissory Note dated March 31, 2006 (incorporated
by
reference to Exhibit 10.3 of the Company’s Form 8-K filed with the SEC on
April 6, 2006). |
|
|
|
4.4* |
|
Form
of Stock Purchase Warrant dated March 31, 2006 (incorporated by reference
to Exhibit 10.4 of the Company’s Form 8-K filed with the SEC on April 6,
2006). |
|
|
|
4.5* |
|
Convertible
Promissory Note dated as of January 2, 2006 (incorporated by reference
to
Exhibit 10.13 of the Company’s Form 10KSB filed with the SEC on April
17, 2006). |
|
|
|
4.6* |
|
Convertible
Promissory Note dated as of March 12, 2006 (incorporated by reference
to
Exhibit 10.14 of the Company’s Form 10KSB filed with the SEC on April
17, 2006). |
|
|
|
4.7* |
|
Stock
Purchase Warrant dated as of January 5, 2007 (incorporated by reference
to
Exhibit 4.1 of the Company’s Form 8-K, filed with the SEC on January 11,
2007).
|
|
|
|
4.8* |
|
Callable
Secured Convertible Note, dated as of January 5, 2007 (incorporated
by
reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the SEC on
January 11, 2007).
|
|
|
|
10.1*
|
|
Securities
Purchase Agreement dated as of March 31, 2006 by and among The
Jackson
Rivers Company and the Purchaser set forth therein (incorporated
by
reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on
April 6, 2006).
|
|
|
|
10.2*
|
|
Security
Agreement dated as of March 31, 2006 (incorporated by reference
to Exhibit
10.5 of the Company’s Form 8-K filed with the SEC on April 6,
2006).
|
|
|
|
10.3*
|
|
Registration
Rights Agreement dated as of March 31, 2006 (incorporated by reference
to
Exhibit 10.2 of the Company’s Form 8-K filed with the SEC on April 6,
2006).
|
|
|
|
10.4*
|
|
Intellectual
Property Security Agreement dated as of March 31, 2006 (incorporated
by
reference to Exhibit 10.6 of the Company’s Form 8-K filed with the SEC on
April 6, 2006).
|
|
|
|
10.5* |
|
Securities
Purchase Agreement dated as of January 5, 2007 (incorporated by reference
to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on January
11, 2007). |
|
|
|
10.6* |
|
Security
Agreement dated as of January 5, 2007 (incorporated by reference
to
Exhibit 10.2 of the Company’s Form 8-K, filed with the SEC on January 11,
2007). |
|
|
|
14*
|
|
Code
of Ethics (incorporated by reference to Exhibit 14 of the Company’s
Form 10KSB filed with the SEC on April 13, 2005).
|
|
|
|
16*
|
|
Letter
Regarding Change of Certifying Accountant (incorporated by reference
to
Exhibit 16.1 of the Company’s Form 8-K filed on January 19,
2007).
|
|
|
|
21**
|
|
Subsidiaries.
|
|
|
|
23.1**
|
|
Consent
of Gruber & Co. LLC
|
|
|
|
31.1**
|
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer, Chief Financial
Officer
and Director of the Company, pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of
2002.
|
Exhibit
No.
|
|
Description
|
|
|
|
32.1**
|
|
Certification
of Jeffrey W. Flannery, Chief Executive Officer, Chief Financial
Officer
and Director of the Company, pursuant to 18 U.S.C. Sec. 1350, as
adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of
2002.
|
*
Previously Filed
**
Filed
Herewith
ITEM
14. |
PRINCIPAL
ACCOUNTANT FEES AND
SERVICES
|
Appointment
of Auditors
Our
Board
of Directors selected Malone & Bailey, PC, independent accountants
(“M&B”), as our auditors for the year ended December 31, 2005.
In
January 2007, our board of directors dismissed M&B and appointed Gruber
& Company LLC (“Gruber”) as our independent auditors. There were no
disagreements with M&B.
Audit
Fees
Gruber
has billed us $15,000 for our annual audit for the fiscal year ended December
31, 2006 and $20,000 for the fiscal year ended 2007.
Audit-Related
Fees
Gruber
billed us $0 for assurance and related services for the fiscal year ended 2006
and $25,000 for the fiscal year ended 2007.
Tax
and All Other Fees
We
did
not pay any fees to Gruber for tax compliance, tax advice, tax planning or
other
work during our fiscal years ending December 31, 2006 and 2007.
Pre-Approval
Policies and Procedures
We
have
implemented pre-approval policies and procedures related to the provision of
audit and non-audit services. Under these procedures, our board of directors
pre-approves all services to be provided by Gruber and the estimated fees
related to these services.
With
respect to the audit of our financial statements as of December 31, 2007 and
for
the year then ended, none of the hours expended on Gruber’s engagement to audit
those financial statements were attributed to work by persons other than their
full-time, permanent employees.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the
registrant caused this report to be signed on its behalf this 16th day of April,
2008 by the undersigned, thereunto duly authorized.
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INTERACT
HOLDINGS GROUP, INC.
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By:
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/s/
Jeffrey W. Flannery
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Jeffrey
W. Flannery
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Chief
Executive Officer
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Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signatures
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Title
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Date
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/s/ Jeffrey W. Flannery
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Chief Executive Officer, Chief Financial Officer,
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April 16, 2008
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Jeffrey
W. Flannery
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interim
Chief Operating Officer, interim President, Secretary, Treasurer,
Director
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Exhibit
No.
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Description
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3.1*
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Articles
of Incorporation filed May 8, 2001 (incorporated by reference
to
Exhibit 3.1(i) of the Company’s Form SB-2 filed with the
SEC on October 4, 2001).
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3.2*
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Articles
of Amendment to the Articles of Incorporation, filed effective
August 3,
2004.
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3.3*
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Articles
of Amendment to the Articles of Incorporation, filed effective
November
22, 2004.
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3.4*
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Articles
of Amendment to the Articles of Incorporation, filed effective
January 31,
2005.
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3.5*
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Bylaws
(incorporated by reference to Exhibit 3(ii) of the Company’s Form SB-2
filed with the SEC on October 4, 2001).
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3.6*
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Amended
and Restated Bylaws.
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4.1*
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Certificate
of Designation for the Series A Preferred Stock, filed effective
October
18, 2004.
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4.2*
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Certificate
of Designation for the Series B Preferred Stock, filed effective
December
1, 2005.
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4.3* |
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Form
of Callable Secured Promissory Note dated March 31, 2006 (incorporated
by
reference to Exhibit 10.3 of the Company’s Form 8-K filed with the SEC on
April 6, 2006). |
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4.4* |
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Form
of Stock Purchase Warrant dated March 31, 2006 (incorporated by
reference
to Exhibit 10.4 of the Company’s Form 8-K filed with the SEC on April 6,
2006). |
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4.5* |
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Convertible
Promissory Note dated as of January 2, 2006 (incorporated by reference
to
Exhibit 10.13 of the Company’s Form 10KSB filed with the SEC on April
17, 2006). |
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4.6* |
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Convertible
Promissory Note dated as of March 12, 2006 (incorporated by reference
to
Exhibit 10.14 of the Company’s Form 10KSB filed with the SEC on April
17, 2006). |
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4.7* |
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Stock
Purchase Warrant dated as of January 5, 2007 (incorporated by
reference to
Exhibit 4.1 of the Company’s Form 8-K, filed with the SEC on January 11,
2007).
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4.8* |
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Callable
Secured Convertible Note, dated as of January 5, 2007 (incorporated
by
reference to Exhibit 4.2 of the Company’s Form 8-K, filed with the SEC on
January 11, 2007).
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10.1*
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Securities
Purchase Agreement dated as of March 31, 2006 by and among The
Jackson
Rivers Company and the Purchaser set forth therein (incorporated
by
reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on
April 6, 2006).
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10.2*
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Security
Agreement dated as of March 31, 2006 (incorporated by reference
to Exhibit
10.5 of the Company’s Form 8-K filed with the SEC on April 6,
2006).
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10.3*
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Registration
Rights Agreement dated as of March 31, 2006 (incorporated by
reference to
Exhibit 10.2 of the Company’s Form 8-K filed with the SEC on April 6,
2006).
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10.4*
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Intellectual
Property Security Agreement dated as of March 31, 2006 (incorporated
by
reference to Exhibit 10.6 of the Company’s Form 8-K filed with the SEC on
April 6, 2006).
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10.5* |
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Securities
Purchase Agreement dated as of January 5, 2007 (incorporated by
reference
to Exhibit 10.1 of the Company’s Form 8-K, filed with the SEC on January
11, 2007). |
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10.6* |
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Security
Agreement dated as of January 5, 2007 (incorporated by reference
to
Exhibit 10.2 of the Company’s Form 8-K, filed with the SEC on January 11,
2007). |
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14*
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Code
of Ethics (incorporated by reference to Exhibit 14 of the Company’s
Form 10KSB filed with the SEC on April 13, 2005).
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16*
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Letter
Regarding Change of Certifying Accountant (incorporated by reference
to
Exhibit 16.1 of the Company’s Form 8-K filed on January 19,
2007).
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21**
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Subsidiaries.
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23.1**
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Consent
of Gruber & Co. LLC
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31.1**
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Certification
of Jeffrey W. Flannery, Chief Executive Officer, Chief Financial
Officer
and Director of the Company, pursuant to 18 U.S.C. Sec. 1350, as
adopted pursuant to Sec. 302 of the Sarbanes-Oxley Act of
2002.
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32.1**
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Certification
of Jeffrey W. Flannery, Chief Executive Officer, Chief Financial
Officer
and Director of the Company, pursuant to 18 U.S.C. Sec. 1350, as
adopted
pursuant to Sec. 906 of the Sarbanes-Oxley Act of
2002.
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