UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  FORM 10-Q
   (Mark
One)
 x
                QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended July 31, 2008
  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 000-28881
 
 MEGA
MEDIA GROUP, INC.
 (Exact
name of registrant as specified in its charter)
  Nevada
                88-0403762(State
      or other jurisdiction of incorporation or organization)
                (I.R.S.
      Employer Identification No.)
  1122 Coney Island
      Avenue, Brooklyn, NY
                11235(Address
      of principal executive offices)
                (Zip
      Code)
 
 (718)
      947-1100(Registrant’s
      telephone number, including area
code)
  Indicate
by check mark if the registrant (1) has filed reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
 Yes xNo o
 
 Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
  Large
      Accelerated Filer o
                Accelerated
      Filer  o
                Non
      Accelerated Filer  oSmaller
      Reporting Company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
 oYes     xNo
 
 As of
July 31, 2008, we had 95,831,470 outstanding shares of Common Stock, $0.001 par
value.
   
     MEGA
MEDIA GROUP, INC.
 TABLE OF CONTENTS
 
 PART I - FINANCIAL
      INFORMATIONItem
      1. Financial Statements
                1Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operation
                19Item
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                21Item
      4. Controls and Procedures
                21PART
      II - OTHER INFORMATIONItem
      1. Legal Proceedings
                22Item
      1A. Risk Factors
                22Item
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                22Item
      3. Defaults Upon Senior Securities
                22Item
      4. Submission of Matters to a Vote of Security Holders
                22Item
      5. Other Information
                22Item
      6. Exhibits
                22SIGNATURES
                23
 
  
 
 Except as
otherwise required by the context, all references in this report to "we", "us”,
"our", “MMDA”, “Mega Media Group”, “MMG” or "Company" refer to the consolidated
operations of Mega Media Group, Inc., a Nevada corporation, and its wholly-owned
subsidiaries.
 
 Forward-Looking
Statements and Associated Risks
  The Private Securities Litigation
Reform Act of 1995 provides a "safe harbor" for certain forward-looking
statements. Some of the statements contained in this annual report of the
Company discuss future expectations, contain projections of our operations
or financial condition or state other forward-looking information. Some
statements contained in this quarterly report on Form 10-QSB that are not
historical facts (including without limitation statements to the effect that we
"believe," "expect," "anticipate," "plan," "intend," "foresee," or other similar
expressions) and are forward-looking statements. These forward-looking
statements are based on our current expectations and beliefs concerning future
developments and their potential effects on us. There can be no assurance that
future developments affecting us will be those anticipated by us. All comments
concerning our expectations for future revenue and operating results are based
on our forecasts of our plan of operation and do not include the potential
impact of any future acquisitions or operations. These forward-looking
statements involve significant risks and uncertainties (some of which are beyond
our control) and assumptions. Should one or more of these risks or uncertainties
materialize, or should any of our assumptions prove incorrect, actual results
may vary in material respects from those projected in the forward-looking
statements.
   
   MEGA
      MEDIA GROUP, INC. AND SUBSIDIARIESCONSOLIDATED
      BALANCE SHEETSJuly
      31,
                
                
                January
      31,ASSETS
                
                2008
                
                
                2008Current
      Assets
                
                (Unaudited)Cash
                
                $
                7,705
                
                
                $
                396Accounts
      receivable, net (Note3)
                
                
                149,400
                
                
                
                68,036Accrued
      revenues
                
                
                20,137
                
                
                
                -Prepaid
      Expenses
                
                
                30,231
                
                
                
                76,222Note
      Receivable
                
                
                10,000
                
                
                
                -Total
      Current Assets
                
                
                217,474
                
                
                
                144,654Fixed
      assets, net (Note 4)
                
                
                313,043
                
                
                
                391,244Master
      records, net (Note 5)
                
                
                125,000
                
                
                
                125,000Other
      intangible assets, net (Note 5)
                
                
                -
                
                
                
                176,667Advances
                
                
                20,000
                
                
                
                20,000Note
      Receivable-Golden Gate Investors (Note 14)
                
                
                1,400,000
                
                
                
                -Deposits
                
                
                183,486
                
                
                
                183,486Other
                
                
                16,010
                
                
                
                16,010TOTAL
      ASSETS
                
                $
                2,275,014
                
                
                $
                1,057,061LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      LiabilitiesAccounts
      payable
                
                $
                1,295,244
                
                
                $
                458,009Bank
      overdraft
                
                
                -
                
                
                
                -Sales
      tax payable
                
                
                616
                
                
                
                616Payroll
      taxes payable (Note 13)
                
                
                951,062
                
                
                
                728,350Accrued
      Offices' Compensation
                
                
                469,062
                
                
                
                473,786Equipment
      loan - current portion (Note 9)
                
                
                8,304
                
                
                
                8,304Equipment
      lease - current portion (Note 10)
                
                
                19,440
                
                
                
                19,440Loans
      payable (Note 7)
                
                
                1,120,000
                
                
                
                795,000Due
      to related party (Note 6)
                
                
                386,283
                
                
                
                398,783Deferred
      revenues
                
                
                132,331
                
                
                
                301,661Accrued
      expenses
                
                
                86,421
                
                
                
                24,508Payable
      to shareholders (Note 6)
                
                
                409,148
                
                
                
                239,148Stock
      Payable (Note 10)
                
                
                -
                
                
                
                -Total
      Current Liabilities
                
                
                4,877,911
                
                
                
                3,447,605Equipment
      Loan Payable (Note 9)
                
                
                1,307
                
                
                
                4,767Equipment
      Lease Payable (Note 10)
                
                
                21,060
                
                
                
                30,780Note
      Payable (Note 14)
                
                
                1,500,000
                
                
                
                -TOTAL
      LIABILITIES
                
                
                6,400,278
                
                
                
                3,483,152Commitments
      and contingencies
                
                
                -
                
                
                
                -Stockholders'
      DeficitPreferred
      stock, $.001 par value, 20,000,000 shares authorized, 0 shares issued and
      outstanding as of 07/31/08 and 01/31/08 (Note 8)
                
                
                -
                
                
                
                -Common
      stock, $.001 par value, 500,000,000 shares authorized, 86,912,456 shares
      issued and outstanding as of 07/31/08 and 80,552,254 shares issued and
      outstanding as of 01/31/08 (Note 8)
                
                
                86,912
                
                
                
                80,552Additional
      paid-in capital
                
                
                8,664,276
                
                
                
                7,233,835Deferred
      compensation
                
                
                (315,502
                )
                
                
                (435,009
                )Accumulated
      Deficit
                
                
                (12,560,950
                )
                
                
                (9,305,469
                )Total
      Stockholders' Deficit
                
                
                (4,125,264
                )
                
                
                (2,426,091
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                
                $
                2,275,014
                
                
                $
                1,057,061The
      accompanying notes are an integral part of these financial
      statements.
   1
   MEGA
      MEDIA GROUP, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF OPERATIONSSix
      Months Ended July 31,
                
                
                Three
      Months Ended July 31,2008
                
                
                2007
                
                
                2008
                
                
                2007(unaudited)
                
                
                (unaudited)
                
                
                (unaudited)
                
                
                (unaudited)Revenues:Advertising
      revenues
                
                $
                566,921
                
                
                $
                1,875,812
                
                
                $
                329,671
                
                
                $
                920,571Other
      revenues
                
                
                46,158
                
                
                
                192,208
                
                
                
                38,194
                
                
                
                78,865Total
      Revenues
                
                
                613,079
                
                
                
                2,068,020
                
                
                
                367,865
                
                
                
                999,436Operating
      expenses
                
                
                1,481,246
                
                
                
                1,551,325
                
                
                
                710,614
                
                
                
                792,827Interest
      expense
                
                
                175,526
                
                
                
                40,139
                
                
                
                93,851Selling,
      general and administrative
                
                
                1,322,577
                
                
                
                1,683,917
                
                
                
                713,207
                
                
                
                797,559Depreciation
      and amortization
                
                
                105,513
                
                
                
                288,449
                
                
                
                51,090
                
                
                
                244,071Stock
      compensation expense
                
                
                -
                
                
                
                300,000
                
                
                
                -
                
                
                
                300,0003,084,861
                
                
                
                3,863,830
                
                
                
                1,568,762
                
                
                
                2,134,457Net
      loss from operations
                
                
                (2,471,782
                )
                
                
                (1,795,809
                )
                
                
                (1,200,897
                )
                
                
                (1,135,022
                )Other
      Expenses:Loss
      on sale of intangible assets
                
                
                40,168
                
                
                
                -
                
                
                
                40,168
                
                
                
                -Beneficial
      conversion expense
                
                
                743,531
                
                
                
                -
                
                
                
                93,211
                
                
                
                14,983Net
      loss before tax benefit
                
                
                (3,255,481
                )
                
                
                (1,795,809
                )
                
                
                (1,334,276
                )
                
                
                (1,150,004
                )Tax
      benefitNet
      loss
                
                $
                (3,255,481
                )
                
                $
                (1,795,809
                )
                
                $
                (1,334,276
                )
                
                $
                (1,150,004
                )Basic
      and diluted loss per share
                
                
                (0.04
                )
                
                
                (0.06
                )
                
                
                (0.02
                )
                
                
                (0.03
                )Weighted-Average
      shares used in computation of basic and diluted loss per
    share
                
                
                81,116,207
                
                
                
                30,367,419
                
                
                
                81,574,871
                
                
                
                34,787,305The
      accompanying notes are an integral part of these financial
      statements.
   2
   MEGA
      MEDIA GROUP, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CASH FLOWSJuly
      31,
                
                
                July
      31,2008
                
                
                2007(Unaudited)
                
                
                (Unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (3,255,481
                )
                
                $
                (1,795,809
                )Adjustments
      to reconcile net loss to net cashused
      by operating activities:Depreciation
      and amortization
                
                
                105,513
                
                
                
                288,449Loss
      on sale of intangible assets
                
                
                40,168Beneficial
      conversion of loans from shareholders
                
                
                743,531
                
                
                
                -Stock
      options issued to officers for services
                
                
                6,720
                
                
                
                -Stock
      options issued to lenders in exchange for loans
                
                
                6,250
                
                
                
                -Stock
      compensation for consulting services
                
                
                119,508
                
                
                
                1,000Stock
      issued for air lease rent
                
                
                92,000Non-cash
      stock based compensation
                
                
                -
                
                
                
                300,000Changes
      in operating assets and liabilities:(Increase)
      in note receivable
                
                
                (1,410,000
                )
                
                
                -(Increase)
      in accounts receivable
                
                
                (81,364
                )
                
                
                14,646(Increase)
      decrease in accrued revenues
                
                
                (20,137
                )
                
                
                -(Increase)
      decrease in prepaid expenses
                
                
                45,991
                
                
                
                45,990Increase
      in note payable
                
                
                1,400,000
                
                
                
                -Increase
      in accounts payable
                
                
                837,234
                
                
                
                (8,794
                )Increase
      in sales tax payable
                
                
                -
                
                
                
                (276
                )Increase
      in accrued officers' compensation
                
                
                (4,724
                )
                
                
                57,693Increase
      in accrued expenses
                
                
                92,398
                
                
                
                3,292Increase
      in deferred revenue
                
                
                (49,497
                )
                
                
                48,176Increase
      in payroll liabilities
                
                
                222,712
                
                
                
                271,872Increase
      in other current liabilities
                
                
                -
                
                
                
                5,902Total
      adjustments
                
                
                2,146,301
                
                
                
                1,027,950NET
      CASH USED BY OPERATING ACTIVITIES
                
                
                (1,109,180
                )
                
                
                (767,860
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Master
      records
                
                
                
                
                
                
                (14,000
                )Fixed
      assets
                
                
                (10,646
                )
                
                
                (16,015
                )Deposits
                
                
                -
                
                
                
                42,000CASH
      PROVIDED (USED) BY INVESTING ACTIVITIES
                
                
                (10,646
                )
                
                
                11,985CASH
      FLOWS FROM FINANCING ACTIVITIES:Loan
      proceeds
                
                
                875,000
                
                
                
                250,000Loan
      repayments
                
                
                (3,460
                )
                
                
                (9,958
                )Proceeds
      from loans from shareholders
                
                
                175,000
                
                
                
                254,030Repayments
      of loans from shareholders
                
                
                (5,000
                )
                
                
                -Repayments
      of loans from related parties
                
                
                (12,500
                )
                
                
                (5,000
                )Capital
      lease repayments
                
                
                (9,720
                )
                
                
                (9,720
                )Capital
      Contributions
                
                
                52,719
                
                
                
                -Sale
      of common stock
                
                
                -
                
                
                
                350,000Options
      exercised by officers
                
                
                55,096
                
                
                
                -CASH
      PROVIDED BY FINANCING ACTIVITIES
                
                
                1,127,135
                
                
                
                829,352NET
      INCREASE IN CASH
                
                
                7,309
                
                
                
                73,477CASH:
      Beginning of period
                
                
                396
                
                
                
                37,444End
      of period
                
                $
                7,705
                
                
                $
                110,921Supplemental
      disclosure of noncash financing and investing activities:Cash
      paid during the period for income taxes
                
                $
                2,275
                
                
                $
                2,275Cash
      paid during the period for interest
                
                $
                16,674
                
                
                $
                30,945Non
      Cash Financing and Investing Activities:Stock
      issued for conversion of loans to shareholders
                
                $
                -
                
                
                $
                877,000Stock
      issued for conversion of loans from third parties
                
                
                450,000Preferred
      stock issued for services
                
                $
                -
                
                
                $
                1,100The
      accompanying notes are an integral part of these financial
      statements.
   3
 MEGA
      MEDIA GROUP, INC. AND SUBSIDIARIESCONSOLIDATED
      STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)UNAUDITEDTotalPreferred
      Stock
                
                
                Common
      Stock
                
                
                Additional
                
                
                Deferred
                
                
                
                
                
                Stockholders'($.001
      par value)
                
                
                ($.001
      par value)
                
                
                Paid-In
                
                
                Stock
                
                
                Accumulated
                
                
                EquityShares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Capital
                
                
                Comp
                
                
                Deficit
                
                
                (Deficit)Balance
      January 31, 2007
                
                
                14,492,000
                
                
                
                14,492
                
                
                
                5,277,446
                
                
                
                5,277
                
                
                
                4,067,546
                
                
                
                (1,392
                )
                
                
                (6,146,720
                )
                
                
                (2,060,797
                )Sale
      of common stock
                
                
                
                
                
                
                
                
                
                
                50,000
                
                
                
                50
                
                
                
                49,950
                
                
                
                
                
                
                
                
                
                
                
                50,000Cancellation
      of restricted stock awardto officers and
      shareholders
                
                
                (1,175,000
                )
                
                
                (1,175
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                1,175
                
                
                
                
                
                
                
                -Restricted stock
      award to
      officers and shareholders
                
                
                1,100,000
                
                
                
                1,100
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (100
                )
                
                
                
                
                
                
                1,000Effect
      of reversed merger
                
                
                (14,417,000
                )
                
                
                (14,417
                )
                
                
                67,651,248
                
                
                
                67,651
                
                
                
                857,726
                
                
                
                
                
                
                
                (103,288
                )
                
                
                807,672Sale
      of common stock
                
                
                
                
                
                
                
                
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                599,000
                
                
                
                
                
                
                
                
                
                
                
                600,000Sale
      of common stock
                
                
                
                
                
                
                
                
                
                
                166,667
                
                
                
                167
                
                
                
                58,167
                
                
                
                
                
                
                
                
                
                
                
                58,333Capital
      contribution
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                79,737
                
                
                
                
                
                
                
                -
                
                
                
                79,737Beneficial
      conversion of loans from shareholders
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                51,810
                
                
                
                
                
                
                
                
                
                
                
                51,810Stock
      issued in exchange for air lease rent
                
                
                
                
                
                
                
                
                
                
                3,000,000
                
                
                
                3,000
                
                
                
                897,000
                
                
                
                
                
                
                
                
                
                
                
                900,000Stock
      issued in exchange for legal services
                
                
                
                
                
                
                
                
                
                
                406,893
                
                
                
                407
                
                
                
                95,898
                
                
                
                
                
                
                
                
                
                
                
                96,305Restricted
      stock award to contractorfor future consulting
      services
                
                
                
                
                
                
                
                
                
                
                3,000,000
                
                
                
                3,000
                
                
                
                477,000
                
                
                
                (480,000
                )
                
                
                
                
                
                
                -Restricted
      stock award to contractorfor earned services during the three
      months endedJanuary 31,
      2008
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                45,308
                
                
                
                
                
                
                
                45,308Loss
      for thre year endedJanuary
      31, 2008
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,055,461
                )
                
                
                (3,055,461
                )Balance
      January 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                80,552,254
                
                
                
                80,552
                
                
                
                7,233,835
                
                
                
                (435,009
                )
                
                
                (9,305,469
                )
                
                
                (2,426,091
                )Stock
      options issued to officers for services
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                6,720
                
                
                
                
                
                
                
                
                
                
                
                6,720Stock
      options issued to lenders in exchange for loans
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                6,250
                
                
                
                
                
                
                
                
                
                
                
                6,250Stock
      issued in exchange for air lease rent
                
                
                
                
                
                
                
                
                
                
                1,000,000
                
                
                
                1,000
                
                
                
                91,000
                
                
                
                
                
                
                
                
                
                
                
                92,000Beneficial
      conversion of loans payable
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                743,531
                
                
                
                
                
                
                
                
                
                
                
                743,531Stock
      issued for conversion ofloans payable
                
                
                
                
                
                
                
                
                
                
                5,182,472
                
                
                
                5,182
                
                
                
                475,302
                
                
                
                
                
                
                
                
                
                
                
                480,485Restricted
      stock award to contractorfor earned services during the six months
      endedJuly 31,
      2008
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                119,508
                
                
                
                
                
                
                
                119,508Capital
      contribution
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                52,719
                
                
                
                
                
                
                
                -
                
                
                
                52,719Stock
      options exercised by officers
                
                
                
                
                
                
                
                
                
                
                177,730
                
                
                
                178
                
                
                
                54,919
                
                
                
                
                
                
                
                
                
                
                
                55,096Loss
      for six months endedJuly 31,
      2008
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,255,481
                )
                
                
                (3,255,481
                )Balance
      July 31, 2008
                
                
                -
                
                
                
                -
                
                
                
                86,912,456
                
                
                
                86,912
                
                
                
                8,664,276
                
                
                
                (315,502
                )
                
                
                (12,560,950
                )
                
                
                (4,125,264
                )The
      accompanying notes are an integral part of these financial
      statements.


4






MEGA
MEDIA GROUP, INC. AND SUBSIDIARIES
 NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts
and Disclosures at and for the six months
 Ended
July 31, 2008 and 2007 Are Unaudited)
  NOTE 1 -
ORGANIZATION AND NATURE OF BUSINESS
 
 Mega
Media Group, Inc. (the “MMG”) was incorporated in New York State on February 3,
2004. The Company is a multi-media holding company with five wholly owned
subsidiaries. The Company’s focus is mainstream entertainment and media. The
corporate headquarters is located in Brooklyn, NY.  All references to
the year ending January 31, 2005 are for the period February 3, 2004 (date of
inception) to January 31, 2005.
 
 As
reflected in the accompanying combined financial statements, the Company has an
accumulated deficit of $9,305,469 at January 31, 2008 that includes losses of
$3,055,461 for the year ended January 31, 2008 and a working deficit of
$3,302,951 at January 31, 2008. Also, as reflected in the accompanying combined
financial statements, the Company has an accumulated deficit of $12,560,950 and
$8,045,817 at July 31, 2008 and 2007 respectively that includes losses of
$3,255,484 and $1,795,809 for six months ended July 31, 2008 and 2007
respectively and a working deficit of $4,660,437 and $3,347,265 at July 31, 2008
and 2007 respectively. The Company’s shareholders have funded the losses and
cash shortfalls allowing management to develop sales and contingencies plans.
The Company’s also arranging for additional funding. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going
concern.
 
 Management
has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. The Company is actively pursing
additional funding and a potential merger or acquisition candidate and strategic
partners, which would enhance stockholders’ investment. Management believes that
the above actions will allow the Company to continue operations through the next
fiscal year.
  NOTE-2 –
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Preparation of Interim
Financial Statements
 
 The
accompanying unaudited consolidated financial statements were prepared by Mega
Media Group, Inc. pursuant to the rules and regulations of the Securities and
Exchange Commission (“SEC”) and, in the opinion of management, include all
adjustments (consisting of normal recurring accruals and adjustments necessary
for adoption of new accounting standards) necessary to present fairly the
results of the interim periods shown. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles in the United States have been
condensed or omitted pursuant to such SEC rules and regulations. Management
believes that the disclosures made are adequate to make the information
presented not misleading. Due to seasonality and other factors, the results for
the interim periods are not necessarily indicative of results for the full year.
The financial statements contained herein should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company’s
2006 Annual Report on Form 10-K and Form 8-K filed on June 26,
2007.
 
 Basis Of
Consolidation
 
 The
accompanying consolidated financial statements include the accounts of the Mega
Media Group Inc., and its subsidiary Mega Media Film, Inc., Mega Media Studios,
Inc., Mega Media Records, Inc., VSE Magazine, Inc., and Echo Broadcasting Group,
Inc. All significant intercompany balances and transactions have been
eliminated.
   5
  
 Estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that effects the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the of the combined financial statements and the reported amounts of revenue and
expenses during the reported period. Actual results could differ from these
estimates.
 
 Cash And Cash
Equivalents
  Short-term
investments with an original maturity of three months or less are considered to
be cash equivalents.
 
 Depreciation and
Amortization
 
 The cost
of furniture and equipment is depreciated over the estimated useful lives of the
related assets. The cost of leaseholds improvements is amortized over the lesser
of the length of the related lease or the estimated useful life of the assets.
Depreciation is computed on a straight line basis, with lives ranging from 3 to
7 years.  Leasehold improvements are amortized over the life of the
lease.
 
 Master
Records
 
 The
Company records the cost of a record master borne by the Company as an asset if
the past performance and current popularity of the artist provides a sound basis
for estimating that the cost will be recovered from future sales. Otherwise,
that cost is charged to expense. The amount recognized as an asset is amortized
over the estimated life of the recorded performance.
 
 Accounts
Receivable
 
 Accounts
receivable are stated at the amount management expects to collect from
outstanding balances.  Management provides for probable uncollected
amounts through a charge to earnings and a credit to a allowance for bad debts
based on its assessment of the current status of individual
accounts.  Balances that are still outstanding after management has
used reasonable collection efforts are written off through a charge to the
allowance for bad debts and a credit to accounts receivable.
 
 Revenue
Recognition
 
 The
Company recognizes revenue for broadcast advertising when the commercial is
broadcast and is reported, net of agency and outside sales representative
commissions, in accordance with Staff Accounting Bulletin (“SAB”) No. 104,
Topic 13, “Revenue
Recognition, Revised and Updated.” Agency and outside sales
representative commissions are calculated based on a stated percentage applied
to gross billing. Generally, clients remit the gross billing amount to the
agency or outside sales representative, and the agency or outside sales
representative remits the gross billing, less their commission, to the
Company.
 
 Financial
Instruments
 
 Due to
their short maturity, the carrying amounts of accounts and notes receivable,
accounts payable, accrued liabilities, and short-term borrowings approximated
their fair values at July 31, 2008 and January 31, 2008.
 
 Income
Taxes
 
 The
Company accounts for income taxes using the liability method. Under this method,
deferred tax assets and liabilities are determined based on differences between
financial reporting bases and tax bases of assets and liabilities and are
measured using the enacted tax rates expected to apply to taxable income in the
periods in which the deferred tax asset or liability is expected to be realized
or settled. Deferred tax assets are reduced by valuation allowances if the
Company believes it is more likely than not that some portion or all of the
asset will not be realized.
   6
  
 Certain
Reclassifications
 
 The
Company has reclassified a portion of prior quarters selling, general and
administrative expense to be included as a separate component of operating
expenses.
 
 Barter
Transactions
 
 The
Company provides broadcast advertising time in exchange for advertising time in
other media, as well as certain goods and services. The terms of the exchanges
generally permit the Company to preempt such broadcast time in favor of
advertisers who purchase time in exchange for cash. The Company includes the
value of such exchanges in both broadcasting net revenues and station operating
expenses. The valuation of barter time is based upon the fair value of the
advertising time provided and goods and services received. For the year ended
January 31, 2008, barter transactions reflected in net broadcast revenue,
operating expenses and selling, general and administrative expenses were
approximately $290,896. For the six months ended July 31, 2008 and 2007, barter
transactions reflected in net broadcast revenue, operating expenses and selling,
general and administrative expenses were approximately $84,396 and $127,668
respectively.
 
 New Accounting
Pronouncements
 
 In
March 2008, the FASB issued SFAS 161, “Disclosures about Derivative
Instruments and Hedging Activities”. The new standard is intended to improve
financial reporting about derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. It is effective for financial statements issued for fiscal years and
interim periods beginning after November 15, 2008, with early application
encouraged. The Company is currently evaluating the impact of adopting SFAS 161
on its consolidated financial statements.
 
 On
December 4, 2007, the FASB issued SFAS No. 160, Noncontrolling interest in
Consolidated Financial Statements(SFAS No. 160).  SFAS No. 160
requires all entities to report noncontrolling (minority) interests in
subsidiaries as equity in the consolidated financial statements.  The
statement establishes a single method of accounting for changes in a parent’s
ownership interest in a subsidiary that do not result in deconsolidation and
expands disclosures in the consolidated financial statements.  SFAS
No. 160 is effective for fiscal years beginning after December 15, 2008 and
interim periods within those fiscal years.  We have not yet determined
the impact of the adoption of SFAS No. 160 on our consolidated financial
statements and footnote disclosures.
 
 On
December 4, 2007, the FASB issued SFAS No.141R, Business Combinations (SFAS
No. 141R).  SFAS No. 141R requires the acquiring entity in a business
combination to recognize all the assets acquired and liabilities assumed,
establishes the acquisition date fair value as the measurement objective for all
assets acquired and liabilities assumed, and requires the acquirer to expand
disclosures about the nature and financial effect of the business
combination.  SFAS No. 141R is effective for business combinations for
which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008.  We have not
yet determined the impact of the adoption of SFAS No. 141R on our consolidated
financial statements and footnote disclosures.
 
 In
September 2006, the FASB issued Statement of Financial Accounting Standards
(“SFAS”) No. 157, “Fair Value Measurements”, which establishes a framework for
reporting fair and expands disclosure about fair value measurements. SFAS No.
157 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 and interim periods within those fiscal years. The
adoption of this standard had no impact on the Company’s financial position or
results of operations.
 
 In
February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities-Including an amendment of FASB Statement No. 115,
(“SFAS No. 159”). SFAS No. 159 permits entities to choose to
measure many financial instruments and certain other items at fair value. Most
of the provisions of this Statement apply only to entities that elect the fair
value option. However, the amendment to FASB Statement No. 115, “Accounting
for Certain Investments in Debt and Equity Securities,”
(“SFAS No. 115”), applies to all entities with available-for-sale and
trading securities. SFAS No. 159 is effective for the Company’s
consolidated financial statements for the annual reporting period beginning
after November 15, 2007. The adoption of SFAS 159 is not expected to have
impact on the consolidated financial position or results of
operations.
   7
 
 NOTE 3 –
ACCOUNTS RECEIVABLE
  Accounts receivable
      consist of the following:
              
              July
      31, 2008
              
              
              January
      31, 2008Accounts
      receivable-trade
              
              $
              162,400
              
              
              $
              81,036Allowance for
      doubtful accounts
              
              
              (13,000
              )
              
              
              (13,000
              )$
              149,400
              
              
              $
              68,036
  NOTE 4 –
FIXED ASSETS
  July
31,
                2008
              
              
              January
      31,
                2008Fixed Assets consist
      of the following:Equipment
              
              $
              515,710
              
              
              $
              505,065Leasehold
              
              
              230,969
              
              
              
              230,969Furniture
              
              
              38,162
              
              
              
              38,162Trucks
              
              
              41,188
              
              
              
              41,188Computer
      software
              
              
              43,989
              
              
              
              43,988870,018
              
              
              
              859,372Less accumulated
      depreciation
              
              
              556,975
              
              
              
              468,129$
              313,043
              
              
              $
              391,243
  Depreciation
expense was $88,846 and $89,439 for the six months ended July 31, 2008 and
2007.
 
 In August
2007 Company disposed one of its trucks. In addition, in August 2007 Company
abandoned leasehold improvements for one of its office locations, since the
lease agreement was terminated.
  NOTE 5 –
INTANGIBLE ASSETS
  July
31,
                2008
              
              
              January
      31,
                2008Intangible Assets
      consist of the following:Master
    records
              
              $
              320,676
              
              
              $
              320,676Other intangible
      assets (see Notes 2 & 16)
              
              
              0
              
              
              
              200,000Less accumulated
      amortization
              
              
              (195,676
              )
              
              
              (219,009
              )$
              125,000
              
              
              $
              301,667
  Amortization expense was $16,667
and $199,010 for the six months ended July 31, 2008 and 2007.
  NOTE 6 –
LOANS FROM SHARESHOLDERS AND RELATED PARTY TRANSACTIONS
 
 In June,
2007 the company entered into debt conversion agreements with company's
shareholders according to which loans from shareholders and certain loans due to
related party in the amount of $877,000 were converted into shares of common
stock at the conversion prices of $0.30 and $0.25 per share. These conversion
agreements were part of the reverse merger agreement between the company and
Family Healthcare Solutions, Inc., a Nevada Corporation (see note
12).
 
 In
January 2008 the company borrowed two loans of $100,000 each from the
shareholders. Each loan has a beneficial conversion clause proving the option
that the loan can be converted into the company’s common shares at a discount of
20% to market value, with a conversion price limit not to exceed $.40 per share.
The company recognizes beneficial conversion features in accordance with the
FASB Emerging Issues Task Force Issue 98-5. Accordingly, the company fully
amortized the discount through the interest expense in the amount of $51,810 at
the date of issuance of the loans.
   8
  
 At
January 31, 2008 total loans payable to shareholders of $239,148 and due to
related party of $398,783 mature in various amounts from July 11, 2008 to
January 24, 2009 and have a stated interest rate of 9%.
 
 During
six months ended 07/31/08, the Company borrowed from its shareholders three
loans of $50,000, $50,000 and $75,000, a total of $175,000. Loans from
shareholders mature in various amounts from July 12, 2008 to September 18, 2008
and have a stated interest rate of 9%.
 
 At July
31, 2008 total loans payable to shareholders of $409,148 and due to related
party of $386,283 mature in various amounts from July 11, 2008 to January 24,
2009 and have a stated interest rate of 9%.
 
 Certain
founding shareholders of Echo Broadcasting Group Inc. have received free
advertising time on Radio VSE. The fair market value of these services was $0
and $176,130 at July 31, 2008 and January 31, 2008 respectively.
  NOTE 7 -
LOANS PAYABLE
 
 During
fiscal 2006, the Company borrowed two loans of $220,000 each, a total of
$440,000 payable on June 7, 2008.   ("STATUS") Extended for 12
months. The interest rate is the UBS Rate plus 5.5%.
 
 During
2007, the Company borrowed $250,000 from First Capital Invest Corp (“FCIC”),
Swiss-based financial institution. Loan is payable in six months from the
inception.
 On July
15, 2008, the Company issued to FCIC 2,729,014 shares in exchange for
satisfaction of the Loan Agreement dated March 14, 2007, for the principal of
$250,000 and accrued interest of $29,301.37, at conversion price 0.10 per
share.
 
 In August
2007, the Company borrowed $105,000 from Ocean Bridge, Inc. Loan has interest
payable on the unpaid balance at the rate of 12%. Loan matures on February 28,
2008.
 
 In
February 2008 the Company borrowed $90,000 from ESJA Enterprises Inc. Loan has
interest payable on the unpaid balance at the rate of 9%. Loan matures on August
20, 2008. Loan has a beneficial conversion clause proving the option that the
loan can be converted into the company’s common shares at a discount of 20% to
market value, with a conversion price limit not to exceed $.40 per share. The
company recognizes beneficial conversion features in accordance with the FASB
Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized
the discount through the interest expense in the amount of $58,171 at the date
of issuance of the loan.
 
 In
February 2008 the Company borrowed $100,000 from FD Import & Export Corp.
Loan has interest payable on the unpaid balance at the rate of 9%. Loan matures
on September 28, 2008. Loan has a beneficial conversion clause proving the
option that the loan can be converted into the company’s common shares at a
discount of 20% to market value, with a conversion price limit not to exceed
$.40 per share. The company recognizes beneficial conversion features in
accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the
company fully amortized the discount through the interest expense in the amount
of $145,665 at the date of issuance of the loan.
 
 In March
2008 the Company borrowed another $100,000 from FD Import & Export Corp.
Loan has interest payable on the unpaid balance at the rate of 9%. Loan matures
on September 28, 2008. Loan has a beneficial conversion clause proving the
option that the loan can be converted into the company’s common shares at a
discount of 20% to market value, with a conversion price limit not to exceed
$.40 per share. The company recognizes beneficial conversion features in
accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly, the
company fully amortized the discount through the interest expense in the amount
of $39,286 at the date of issuance of the loan.
 
 In March
2008 the Company borrowed $75,000 from Tangiers Investors LP. Loan has interest
payable on the unpaid balance at the rate of 9.9%. Loan matures on March 24,
2010. Loan has a beneficial conversion clause proving the option that the loan
can be converted into the company’s common shares at a discount of 30% to market
value, with a conversion price limit not to exceed $.50 per share. The company
recognizes beneficial conversion features in accordance with the FASB Emerging
Issues Task Force Issue 98-5. Accordingly, the company fully amortized the
discount through the interest expense in the amount of $24,668 at the date of
issuance of the loan.
   9
  
 On May
29, 2008 the Company borrowed $100,000 from Jaworek Capital LLC. Loan had
interest payable on the unpaid balance at the rate of 9% with the initial
maturity date as of May 28, 2009. Loan had a beneficial conversion clause
proving the option that the loan can be converted into the company’s common
shares at a discount of 20% to market value, with a conversion price limit not
to exceed $.40 per share. The company recognizes beneficial conversion features
in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly,
the company fully amortized the discount through the interest expense in the
amount of $22,283 at the date of issuance of the loan.
  On July
2, 2008, the Company issued to Jaworek Capital LLC 1,229,435 shares in exchange
for satisfaction of the Loan Agreement dated May 29, 2008, for the principal of
$100,000 and accrued interest of $813.70, at conversion price 0.0820 per
share.
 
 On June
16, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan
had interest payable on the unpaid balance at the rate of 9% with the initial
maturity date as of June 15, 2009. Loan had a beneficial conversion clause
proving the option that the loan can be converted into the company’s common
shares at a discount of 20% to market value, with a conversion price limit not
to exceed $.40 per share. The company recognizes beneficial conversion features
in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly,
the company fully amortized the discount through the interest expense in the
amount of $15,741 at the date of issuance of the loan.
  On July
2, 2008, the Company issued to Jaworek Capital LLC 1,224,023 shares in exchange
for satisfaction of the Loan Agreement dated June 16, 2008, for the principal of
$100,000 and accrued interest of $369.86, at conversion price 0.0820 per
share.
 
 On July
1, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan had
interest payable on the unpaid balance at the rate of 9% with the initial
maturity date as of June 30, 2009. Loan had a beneficial conversion clause
proving the option that the loan can be converted into the company’s common
shares at a discount of 20% to market value, with a conversion price limit not
to exceed $.40 per share. The company recognizes beneficial conversion features
in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly,
the company fully amortized the discount through the interest expense in the
amount of $36,139 at the date of issuance of the loan. Also, the
Company entered into a Stock Purchase Agreement with the lender which entitles
the lender to purchase 500,000 shares of the Company's common stock at a price
of $0.11 cents per share for a period of 12 months from the time of the
agreement. The total cost of the stock options granted was $4,350.
 
 On July
31, 2008 the Company borrowed another $100,000 from Jaworek Capital LLC. Loan
had interest payable on the unpaid balance at the rate of 9% with the initial
maturity date as of June 30, 2009. Loan had a beneficial conversion clause
proving the option that the loan can be converted into the company’s common
shares at a discount of 20% to market value, with a conversion price limit not
to exceed $.40 per share. The company recognizes beneficial conversion features
in accordance with the FASB Emerging Issues Task Force Issue 98-5. Accordingly,
the company fully amortized the discount through the interest expense in the
amount of $19,048 at the date of issuance of the loan. Also, the
Company entered into a Stock Purchase Agreement with the lender which entitles
the lender to purchase 150,000 shares of the Company's common stock at a price
of $0.075 cents per share for a period of 12 months from the time of the
agreement. The total cost of the stock options granted was $0.
  NOTE 8 -
PREFERRED AND COMMON STOCK
 
 During
the fiscal year ended January 31, 2008:
 
 In April
2007 the Company sold 50,000 of its $.001 par value common shares to unrelated
investors in private placements for $1.00 per share for proceeds of
$50,000.
 
 In June
2007 the company entered into stock conversion agreements with company's
shareholders according to which all preferred shares issued to shareholders in
the amount of $14,417 shall be converted into shares of common stock at the par
value of 0.001 per share. These conversion agreements were part of the exchange
agreement between the company and Family Healthcare Solutions, Inc., a Nevada
Corporation (see Note 6).
   10
  
 In June
2007 as discussed, in Note 6, the company entered into debt conversion
agreements with company's shareholders according to which loans from
shareholders and certain loans from related party in the amount of $877,000
shall be converted into shares of common stock at the conversion prices of $0.30
and 0.25 per share.
 
 In July
2007 the Company sold 1,000,000 of its $.001 par value common shares to
unrelated investors for $0.30 per share for proceeds of $300,000. Market value
of the stock at the time of sale was $0.60 per share.
 
 In August
2007 the Company sold 166,667 of its $.001 par value common shares to unrelated
investors for $0.30 per share for proceeds of $50,000. Market value of the stock
at the time of sale was $0.35 per share.
 
 On
November 1, 2007, the Company issued to its attorney 177,420 unrestricted shares
of common stock in pay of past and future legal services. Market value of the
stock at the time of agreement was $0.31 per share.
 
 On
November 9, 2007, the Company issued to Island Broadcasting Company 3,000,000
restricted shares of common stock as a part of new Time Brokerage Agreement (see
Note 10). Market value of the stock at the time of agreement was $0.30 per
share.
 
 On
November 23, 2007, the Company issued to Ronn Torrossian, an independent
consultant, 3,000,000 restricted shares of common stock as a part of new
Consulting Agreement (see Note 11). Market value of the stock at the time of
agreement was $0.16 per share.
 
 On
January 16, 2008, the Company issued to its attorney 229,473 unrestricted shares
of common stock in pay of past and future legal services. Market value of the
stock at the time of agreement was $0.18 per share.
 
 During
six months ended July 31, 2008:
 
 On
February 6, 2008 certain officers and directors of the Company were granted a
total of 3,200,000 stock options to purchase company’s $.001 par value common
shares for $0.31 per share. The total cost of the stock options granted was
$6,720.
 
 In March
2008 certain officers of the Company exercised their options and purchased a
total of 177,730 of the company’s $.001 par value common shares for $0.31 per
share for a total of $55,096.
 
 On July
1, 2008, as discussed in the Note 10, the Company issued to Island Broadcasting,
Inc 1,000,000 of the company’s $.001 shares for $0.11 per share for satisfaction
of the payment postponement agreement.
 
 On July
2, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC
1,224,023 shares in exchange for satisfaction of the Loan Agreement dated May
29, 2008, for the principal of $100,000 and accrued interest of $369.86, at
conversion price 0.0820 per share.
 
 On July
2, 2008, as discussed in the Note 7, the Company issued to Jaworek Capital LLC
1,224,023 shares in exchange for satisfaction of the Loan Agreement dated June
16, 2008, for the principal of $100,000 and accrued interest of $369.86, at
conversion price 0.0820 per share.
 
 On July
15, 2008, as discussed in the Note 7, the Company issued to FCIC 2,729,014
shares in exchange for satisfaction of the Loan Agreement dated March 14, 2007,
for the principal of $250,000 and accrued interest of $29,301.37, at conversion
price 0.10 per share.
 
  11
 
 NOTE 9 –
EQUIPMENT LOANS PAYABLE
  July
31,
                2008
              
              
              January
      31,
                2008Equipment loans
      consist of the following:Raritan Bay FCU
      ("RBFCU")
              
              $
              0
              
              
              $
              0Chrysler Credit
      ("CC")
              
              
              9,611
              
              
              
              13,0719,611
              
              
              
              13,071Less current
      portion
              
              
              8,304
              
              
              
              8,304$
              1,307
              
              
              $
              4,767
  The loan
from RBFCU is payable in 72 monthly loan payments of $899 that include principal
and interest at 6.75% per annum and matures on September 1, 2011.  The
loan is secured by the vehicle purchased. The August 2007 loan was terminated
and vehicle was returned to the lender.
 
 The loan
payable CC is payable in 60 monthly payments of $782 which includes principal
and interest at 6.75% per annum and matures on July 9, 2010.  The loan
is secured by the truck purchased.
  NOTE 10 -
COMMITMENTS AND CONTINGENCIES
 
 Airtime Agreement
(Lease)
 
 The
Company has an agreement (the "Agreement") with Island Broadcasting Company (the
"Licensee") for airtime.  Pursuant to the Agreement the Company has
purchased airtime for the period November 1, 2005 to July 1,
2010.  However, after July 1, 2006 the Licensee may terminate the
Agreement upon 90 days notice to the Company.  Per the Agreement the
airtime is paid monthly.
 
 On
November 9, 2007, Echo Broadcasting Group, Inc. ("Echo Broadcasting "), a
subsidiary of the Company, amended its Time Brokerage Agreement, originally
dated November 1, 2005, with Island Broadcasting Company. In particular, Echo
extended the term of the Time Brokerage Agreement through December 31, 2012 at
12:00 a.m. EST, modified the events of defaults for both Echo and Island
Broadcasting Company, and converted the $170,000 escrow amount currently being
held by Island Broadcasting Company into a payment from Echo to Island
Broadcasting Company. Additionally, Company issued to Island Broadcasting
Company 3,000,000 restricted shares of common stock, at the price of $0.30 per
share.
 
 Finally,
the amended Time Brokerage Agreement now requires Echo to pay Island
Broadcasting Company five percent of the gross receipts received by or credited
to Echo and derived from advertising payments, sponsorships and other sources
relating to the Station's activities. Echo must make such payments within sixty
days following the close of each of Echo's full fiscal quarter from October 1,
2008 through December 31, 2012.
 
 During
the year ended January 31, 2008 the company paid $2,853,775 for
airtime.
 
 On April
28, 2008 Echo Broadcasting made a payment postponement agreement with Island
Broadcasting Company. According to this provision, Echo Broadcasting will pay an
annual interest rate charge of 8% on all outstanding monthly balances. In
addition Echo Broadcasting will pay a fee of 200,000 restricted shares of the
Company’s common stock per month for each month for which payment is not made.
All shares are due to be issued on July 1, 2008. Accordingly, on July 1, 2008
the Company issued 1,000,000 of its $.001 par value common shares Island
Broadcasting. Market value of the stock at the time when additional provision to
the Time Brokerage Agreement was adopted was $0.11 per share.
 
 During
the six months ended July 31, 2008 and 2007 company paid $1,292,243 and
$1,142,997 for airtime respectively.
 
 Remaining
commitments under the Agreement are as follows:
  Year
      Ending January 31,2009
              
              $
              1,400,0002010
              
              
              3,100,0002011
              
              
              3,410,0002012
              
              
              3,751,0002013
              
              
              3,670,075$
              16,531,075
   12
 
 Premises and
Equipment
 
 The
Company has entered into lease agreements for office space and equipment, which
expire at various times through April 2009. During the year ended January 31,
2008 the Company paid $155,249 in rent expense. During six months ended July 31,
2008 and 2007 the Company paid $71,159 and $78,069 in rent expense respectfully.
Remaining commitments under the operating leases mature as follows:
 
  Year
      Ending January 31,2009
              
              $
              54,6062010
              
              
              15,105$
              69,711
  On May 1,
2006 the Company has entered into a new lease agreement for office space, which
was originally expected to expire on April 30, 2011.
 
 On May 1,
2007 the Company and the lessor of the premises, mutually terminated a lease
agreement for office space, which was originally due to expire on April 30,
2011. All prior commitments under the original lease are terminated. The company
continued to rent the office space on the month-to-month basis. During the year
ended January 31, 2008 the Company paid $72,400 in rent expense. As of February
1, 2008 the Company vacated the premises.
 
 Capital
Lease
 
 On
October 4, 2006 the Company has entered into a lease agreement of the equipment,
which expire on April 30, 2011. During the year ended January 31, 2008 the
company paid $19,440 in lieu of the lease. During the six months ended July 31,
2008 the company paid $9,720 in lieu of the lease. The commitments under the
lease agreement mature as follows:
  Year
      Ending January 31,2009
              
              $
              9,7202010
              
              
              19,4402011
              
              
              11,340$
              40,500
  NOTE 11 -
STOCK-BASED COMPENSATION
 
 The
Company accounts for its employee stock-based compensation for all such
compensation awarded beginning February 1, 2006 under FASB Statement No. 123R,
Accounting for Stock-Based Compensation. For employee stock-based compensation
awarded prior to January 1, 2006, we accounted for such compensation under
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees.
   13
  
 In
February 2007, the Company canceled 1,175,000 preferred shares, $.001 par value,
with a market value of $1,175 that were priorly awarded to employees and were
part of deferred compensation in the equity section.
 
 Also, In
February 2007, the Company has issued 1,100,000, $.001 par value, preferred
shares for past and future services performed by its officers, directors,
employees and consultants. The preferred stock is convertible into common shares
in 18 months after the issuance based upon a 2 to 1 conversion ratio. The shares
of preferred stock have preferential treatment in case of liquidation. Each
share of the preferred stock has 5 voting rights. Out of 1,100,000 preferred
shares, 1,000,000 shares, with market value of $1,000, are fully vested and
expensed under selling, general and administrative expenses. 100,000 of
preferred shares, with market value of $100 are included in deferred
compensation in the equity section of the balance sheets at January 31,
2008.
 
 On
November 23, 2007, the Company has issued 3,000,000, $.001 par value, common
shares for future consulting services performed by Ronn Torrosian over a period
two years. Market value of the stock at the time of agreement was $0.16 per
share for a total cost of $480,000. At July 31, 2008, Ronn Torrosian earned
consulting fees in the amount of $119,507.53. The remaining value of the Ronn
Torrosian’s future services in the amount of $362,492.47 are included in
deferred compensation in the equity section of the balance sheets at July 31,
2008.
 
 NOTE 12 –
REVERSED MERGER
 
 On June
20, 2007, the company entered into a Stock Purchase and Share Exchange Agreement
(the “Exchange Agreement”) Family Healthcare Solutions, Inc., a Nevada
Corporation (“FHCS”), pursuant to which FHCS acquired 100% of the issued
and outstanding capital stock of the company and wholly owned subsidiaries,
making the company a wholly owned subsidiary of FHCS, and convert into equity
$877,000 in convertible debentures from the company. Note Holders, in exchange
for the issuance by FHCS to the company Shareholders and the company Note
Holders of 49,990,406 shares of FHCS common stock, par value $0.001 per share,
which constituted 68.50% of the company’s issued and outstanding fully diluted
common stock after the transaction is closed. As additional consideration, the
FHCS’s Shareholders agreed to cancel 13,161,033 shares of common
stock.  The FHCS’s stockholders own 28.50% of the issued and
outstanding fully diluted common stock of the company after the transaction was
closed.
 
 NOTE 13 -
PAYROLL TAXES
 
 The
company has outstanding payroll taxes payable as of July 31, 2008 and January
31, 2008. As of July 31, 2008 the company has recorded an estimate for interest
and penalties that are due to the company’s failure to timely pay payroll taxes
for prior periods. The outstanding payroll tax liability is as
following:
  July
31,
                2008
              
              
              January
      31,
                2008Payroll taxes
      payable
              
              $
              869,289
              
              
              $
              728,350Penalties and
      interest
              
              
              81,773
              
              
              
              0Accrued payroll and
      payroll taxes
              
              $
              929,592
              
              
              $
              728,350
  The
Company is in the process of negotiating a payment plan with Internal Revenue
Service.
 
 NOTE 14 –
NOTE PAYABLE AND NOTE RECEIVABLE
 
 On April
18, 2008, the Company entered into a Securities Purchase Agreement with Golden
Gate Investors, Inc. The aggregate purchase price was $1,500,000 for the initial
tranche and the investment was as follows:
   14
  
 The
Securities Purchase Agreement includes two tranches. The initial tranche
consists of a 7.00% convertible
debenture (the "Debenture")issued by the Company, in exchange for
$100,000 in cash and a 7.25% Secured Promissory Note  for $1,400,000
issued by the Golden Gate Investors, Inc which matures on May 31, 2012. The
Promissory Note contains a prepayment provision which requires the Golden Gate
Investors, Inc to make prepayments of interest and principal of $200,000 monthly
upon satisfaction of certain conditions. One of the conditions to prepayment is
that shares of the Company's common stock issued pursuant to the conversion
rights under the debenture must be freely tradable under Rule 144 of the
Securities Act of 1933, as amended. Pursuant to the terms of the debenture, the
Golden Gate Investors, Inc shall have the right from time to time, and at any
time on or prior to maturity to convert all or any part of the outstanding and
unpaid principal amount of this debenture into fully paid and non-assessable
shares of the Company's Common Stock, $.001 par value per share. The number of
shares of Common Stock to be issued upon each conversion of the debenture shall
be determined by dividing the amount of principal and accrued interest to be
converted ("Conversion Amount") by the applicable conversion price then in
effect on the date specified in the notice of conversion, as set forth in
Exhibit A to the Debenture (the "Notice of Conversion"). The conversion price
shall be equal to the lesser of: (i)$0.50 or (ii) the average of the lowest
three (3) volume weighted average prices of the Company's Common Stock as
reported on the OTC Bulletin Board (the "Volume Weighted Average Price") during
the twenty (20) trading days prior to the date of the Conversion Notice (the
"Conversion Date") multiplied by .75. As described in the respective
instruments, the Debenture provides for an upward adjustment of the interest
rate under certain circumstances and the Promissory Note provides for a downward
adjustment of the interest rate under certain circumstances. In addition the
Golden Gate Investors, Inc is required to prepay $250,000 of the Promissory Note
issued on April 18, 2008 on the five month anniversary of the purchase of the
Debenture that occurred on April 18, 2008, provided that certain conditions set
forth in the Securities Purchase Agreement are satisfied.
 
 Provided
that no event of default exists, as defined in the Debenture, the second tranche
of the financing consists of the Company selling and the Golden Gate Investors,
Inc purchasing a Debenture in the principal amount of $1,500,000 in exchange for
a purchase price of $1,500,000 (the "Second Debenture"), with such purchase
price paid via a cash payment of $250,000 and the issuance of a promissory note
in the principal amount of $1,250,000 (the "Second Promissory Note"), with the
form of and terms of the Second Debenture and the Second Promissory Note and
payment of the purchase price subject to the same terms and conditions of the
Securities Purchase Agreement, the Debenture and the Promissory Note, provided
that the Discount Multiplier (as defined in the Second Debenture) for the Second
Debenture shall be 90%, and when the Second Debenture is issued, the term
"Debenture" as used in the Securities Purchase Agreement shall be deemed to
include the Second Debenture in all respects and when the Second Promissory Note
is issued, the term "Promissory Note" as used in the Securities Purchase
Agreement shall be deemed to include the Second Promissory Note in all respects.
Pursuant to the Securities Purchase Agreement, the Golden Gate Investors, Inc
may eliminate the requirement to purchase the Second Debenture by a payment to
the Company of $25,000, which payment shall be reduced under certain conditions
to $5,000 or $0. As also set forth in the Securities Purchase Agreement, the
Company has the right, during a specified ten trading day period prior to the
Golden Gate Investors, Inc's purchase of the Second Debenture, subject to the
satisfaction of certain conditions set forth in the Securities Purchase
Agreement, to terminate the right of the Golden Gate Investors, Inc to purchase
the Second Debenture.
 If the
Golden Gate Investors, Inc elects to convert a portion of the Debenture and, on
the day that the election is made, the Volume Weighted Average Price per share
of the Company's Common Stock is below $0.04 per share, the Company shall have
the right to prepay that portion of the Debenture that the Golden Gate
Investors, Inc elected to convert, plus any accrued and unpaid interest, at 125%
of such amount. In the event that the Company elects to prepay that portion of
the Debenture, the Golden Gate Investors, Inc shall have the right to withdraw
its Conversion Notice. Pursuant to its terms, the Golden Gate Investors, Inc may
not convert the principal amount of the Debenture to the extent that, following
such conversion, the Golden Gate Investors, Inc would beneficially own in excess
of 4.99% of the Company's outstanding Common Stock, which cap may be increased
to 9.99% or entirely removed by the Investor on not less than 61 days' prior
notice.
 
 Finally,
in the event that the Company obtains a commitment for any other financing
(either debt, equity, or a combination thereof) which is to close during the
term of the Debenture, Golden Gate Investors shall be entitled to a right of
first refusal to enable it to, at Golden Gate Investors, Inc’s option, either:
(i) match the terms of the other financing, or (ii) add additional principal to
the Debenture, in the amount of such other financing, on the same terms and
conditions as the Debenture.
 Pursuant
to the terms of the Securities Purchase Agreement, the Golden Gate Investors,
Inc does not have any registration rights.
 Other
than their relationship as a result of the Securities Purchase Agreement, there
is no material relationship between the Company and the Golden Gate Investors,
Inc.
 
 The
company recognizes beneficial conversion features in accordance with the FASB
Emerging Issues Task Force Issue 98-5. Accordingly, the company fully amortized
the discount through the interest expense in the amount of $382,530 at the date
of issuance of the loan.
   15
 
  NOTE 15 –
SALE OF INTANGIBLE ASSETS
  On July
14th, 2008 the Company entered into an asset purchase agreement with Dr. Lev
Paukman, a director of the Company (the "Buyer").
  Pursuant
to the terms of the agreement, the Company sold substantially all of the assets
and business of its wholly-owned subsidiary, VSE Magazine, to the Buyer. The
Buyer will assume an advertising credit of $109,832 owed to KSP. The Buyer will
also assume advertising credits in the magazine from clients that the Company or
Echo Broadcasting Group, a wholly-owned subsidiary of the Company, might direct
up to the amount of $50,000. In the event there are no advertising client
credits then the buyer will pay the seller $10,000 cash within 90 days of this
agreement.
  VSE
Magazine, Inc. is a Russian language publication currently operating under the
trade name "METPO" that is distributed in the greater New York metro
area.
 
 As a
result of the above-mentioned assets and share purchase agreement, the Company
incurred losses from the discontinued operations in the amount of
$40,168.
  NOTE 16 -
SEGMENT DATA
 
 Currently
the Company has three reportable segments, which it believes best reflects how
the Company is currently managed – radio broadcasting, recorded music and
corporate divisions. The category “other” includes audio & video recording
studios, METRO magazine and other general support services and initiatives.
Revenue and expenses earned and charged between segments are recorded at fair
value and eliminated in consolidation.
 
 Year
      Ended January 31, 2008
  Radio
              
              
              Recorded
      Music
              
              
              Corporate
              
              
              Metro
              
              
              Other
              
              
              TotalRevenue
              
              $
              4,227,882
              
              
              $
              70,000
              
              
              $
              38,345
              
              
              $
              155,806
              
              
              $
              43,421
              
              
              $
              4,535,455Direct operating
      expenses
              
              
              3,605,862
              
              
              
              70,838
              
              
              
              150
              
              
              
              227,888
              
              
              
              12,170
              
              
              
              3,916,908Selling, general and
      administrative expenses
              
              
              1,579,994
              
              
              
              504,223
              
              
              
              1,027,644
              
              
              
              44,305
              
              
              
              31,988
              
              
              
              3,188,154Depreciation and
      amortization
              
              
              52,077
              
              
              
              205,962
              
              
              
              108,525
              
              
              
              23,333
              
              
              
              363
              
              
              
              390,260Loss on disposal of
      fixed assets
              
              
              (4,960
              )
              
              
              64,985
              
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              60,025Stock compensation
      expense
              
              
              0
              
              
              
              0
              
              
              
              308,333
              
              
              
              0
              
              
              
              0
              
              
              
              308,333Gain on
      extinguishment of debt
              
              
              0
              
              
              
              0
              
              
              
              (403,400
              )
              
              
              0
              
              
              
              0
              
              
              
              (403,400
              )Interest
      expenses
              
              
              64,019
              
              
              
              0
              
              
              
              66,617
              
              
              
              0
              
              
              
              0
              
              
              
              130,636Operating income
      (loss)
              
              $
              (1,069,109
              )
              
              $
              (776,008
              )
              
              $
              (1,069,524
              )
              
              $
              (139,720
              )
              
              $
              (1,100
              )
              
              $
              (3,055,461
              )
  Six
Months Ended July 31, 2008
 Radio
                
                
                Recorded
      Music
                
                
                Corporate
                
                
                Metro
                
                
                Other
                
                
                TotalRevenue
                
                $
                520,231
                
                
                $
                3,213
                
                
                $
                27,923
                
                
                $
                61,712
                
                
                $
                0
                
                
                $
                613,079Direct operating
      expenses
                
                
                1,409,483
                
                
                
                0
                
                
                
                0
                
                
                
                71,763
                
                
                
                0
                
                
                
                1,481,246Selling, general and
      administrative expenses
                
                
                731,931
                
                
                
                417
                
                
                
                559,740
                
                
                
                20,678
                
                
                
                837
                
                
                
                1,322,577Depreciation and
      amortization
                
                
                32,159
                
                
                
                4,780
                
                
                
                51,726
                
                
                
                16,667
                
                
                
                182
                
                
                
                105,513Loss on sale of
      intangible assets
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                40,168
                
                
                
                0
                
                
                
                40,168Interest
      expenses
                
                
                53,156
                
                
                
                0
                
                
                
                859,981
                
                
                
                0
                
                
                
                0
                
                
                
                991,057Operating income
      (loss)
                
                $
                (1,706,498
                )
                
                $
                (1,984
                )
                
                $
                (1,443,524
                )
                
                $
                (87,564
                )
                
                $
                (1,019
                )
                
                $
                (3,255,481
                )
 
 16
   Three
Months Ended July 31, 2008
 Radio
                
                
                Recorded
      Music
                
                
                Corporate
                
                
                Metro
                
                
                Other
                
                
                TotalRevenue
                
                $
                339,951
                
                
                $
                3,213
                
                
                $
                24,701
                
                
                $
                0
                
                
                $
                0
                
                
                $
                367,865Direct operating
      expenses
                
                
                710,614
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                710,614Selling, general and
      administrative expenses
                
                
                410,623
                
                
                
                0
                
                
                
                302,584
                
                
                
                0
                
                
                
                0
                
                
                
                713,207Depreciation and
      amortization
                
                
                16,079
                
                
                
                2,930
                
                
                
                25,863
                
                
                
                6,667
                
                
                
                91
                
                
                
                51,090Loss on sale of
      intangible assets
                
                
                0
                
                
                
                0
                
                
                
                0
                
                
                
                40,168
                
                
                
                0
                
                
                
                40,168Interest
      expenses
                
                
                19,961
                
                
                
                0
                
                
                
                167,101
                
                
                
                0
                
                
                
                0
                
                
                
                187,062Operating income
      (loss)
                
                $
                (817,326
                )
                
                $
                823
                
                
                $
                (470,847
                )
                
                $
                (46,835
                )
                
                $
                (91
                )
                
                $
                (1,334,276
                )
 NOTE 17 –
SUBSEQUENT EVENTS
 
 On August
6, 2008, the Company issued to Jaworek Capital LLC 3,241,099 shares in exchange
for satisfaction of the Loan Agreement dated July 1, 2008, for the principal of
$100,000 and accrued interest of $863.01, at conversion price 0.0311 per
share.
 
 On August
8, 2008, the Company issued to Jaworek Capital LLC 3,138,239 shares in exchange
for satisfaction of the Loan Agreement dated July 31, 2008, for the principal of
$100,000 and accrued interest of $172.60, at conversion price 0.0319 per
share.
 
 On August
20, 2008, the Company entered into a $50,000 9% Promisory Note Agreement with
Eugene Khavinson (the “Lender”). Loan matures on October 20, 2008. In addition,
Lender agrees to extend the loan dated May 12, 2008 in the amount of $75,000.00
at the rate of 9% per annum upon the same. Therefore, a total loan of $125,000
to be rapid in full by October 20, 2008. On May 12, 2008, the Company granted to
the Lender the right to purchase 500,000 of the Company's common shares at $0.11
per share (the "Option") for a period of 12 months. In further consideration of
the extension of such loan and the additional loan made by the Lender, the
option price has been reduced to $0.05 per share and the Option shall expire on
August 19, 2009.
 
 On August
29, 2008, the Company entered into a $110,000 9% convertible promissory note
(individually, the "Note") with Steven Fruman (the "Holder"). Pursuant to the
terms of the Note, the Holder shall have the right from time to time, and at any
time on or prior to maturity to convert all or any part of the outstanding and
unpaid principal amount of this Note into fully paid and non-assessable shares
of Common Stock, $.001 par value per share. The number of shares of Common Stock
to be issued upon each conversion of this Note shall be determined by dividing
the amount of principal and accrued interest to be converted ("Conversion
Amount") by the applicable Conversion Price then in effect on the date specified
in the notice of conversion, in the form attached hereto as Exhibit A (the
"Notice of Conversion"). The Conversion Price shall be equal to the average
closing bid price of the Common Stock (as reported by Bloomberg L.P.) on the OTC
Bulletin Board for the ten (10) trading days prior to the date of the Conversion
Notice (the "Conversion Date") multiplied by .80 provided that the Notice of
Conversion is submitted by to our company before 6:00 p.m., New York, New York
time on such Conversion Date. Further,
the Company grants the Holder the right to purchase 1,000,000 of our common
shares at $0.05 per share (the "Option") on or before September 1, 2009. The
common stock underlying the Option shall have no registration rights, and no
"piggy back" registration rights.
 
 On
February 28, 2008, the Company entered into a $100,000 9% convertible promissory
note with FD Import Export Corp. On August 29, 2008, the Company issued to FD
Import Export Corp for an aggregate of 3,519,308 common stocks underlying such
convertible promissory notes at conversion price $0.02032.
   17
   Further,
the Company grants the Holder the right to purchase 85,000 of our common shares
at $0.05 per share on or before September 1, 2009. The common stock underlying
the Option shall have no registration rights, and no "piggy back" registration
rights.
 On
September 3, 2008, we were served with a Notice of Motion for Summary Judgment
in Lieu of Complaint filed by David Kokakis.  In this Motion, filed in
Supreme Court of the State of New York on September 3, 2008, David Kokakis
alleged that the Company has filed to make payments due on a series of notes
issued by the Company, and filed to make payments of interest due on these
notes.  David Kokakis asked the court to enter judgment in his favor
in the total amount of $329,500 allegedly due under the notes, plus accrued
interest.
 
 The
motion will be held on October 15, 2008.  We believe that we have
meritorious defenses and counterclaims to the claims asserted by David Kokakis,
and we will defend our company to full efforts.
 
 
 18






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




Forward-Looking
Statements




The
discussion in this section contains certain statements of a forward-looking
nature relating to future events or our future performance. Words such as
“anticipates,” “believes,” “expects,” “intends,” “future,” “may” and similar
expressions or variations of such words are intended to identify forward-looking
statements, but are not the only means of identifying forward-looking
statements. Such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, you should
specifically consider various factors identified in this report, including the
matters set forth under the caption “business risks,” which could cause actual
results to differ materially from those indicated by such forward-looking
statements.





The
following discussion is provided to afford the reader an understanding of the
material matters of the Company's financial condition, results of operation,
capital resources and liquidity. It should be read in conjunction with the
financial statements and notes thereto and other information appearing elsewhere
in this report.





Background





On June
20, 2007, Mega Media Group, Inc., a Nevada corporation, (formerly named Family
Healthcare Solutions, Inc.) (“the Company”), entered into a Stock Purchase and
Share Exchange Agreement (the “Exchange Agreement”) pursuant to which the
Company acquired 100% of the issued and outstanding capital stock of Mega
Media Group, Inc., a New York corporation ("MMG-NY"), and its wholly owned
subsidiaries, making MMG-NY a wholly owned subsidiary of the Company, and
converted into equity $877,000 in convertible debentures from the MMG-NY Note
Holders, in exchange for the issuance by the company to the MMG-NY Shareholders
and MMG-NY Group Note Holders of 49,990,406 shares of MMDA common stock, par
value $0.001 per share, which constituted 68.50% of the Company’s issued and
outstanding fully diluted common stock after the transaction closed. As
additional consideration, the Company’s Shareholders agreed to cancel 13,161,033
shares of common stock.  The Company’s stockholders immediately prior
to the Closing Date owned 28.50% of the issued and outstanding fully diluted
common stock of MMDA after the transaction closed.  After the closing
of the Share Exchange Agreement, the Company succeeded to the business of MMG-NY
and MMG-NY's wholly-owned subsidiaries as its sole business. The transaction was
accounted for as a reverse acquisition.





Results of
Operations




Results
of operations for the Six Months Ended July 31, 2008 Compared with the Six
Months Ended July 31, 2007





Revenue





We derive
revenue from sales of advertisements and program sponsorships to local
advertisers, independent promotion agreements, ticket and other revenue related
to special events we sponsor throughout the year and management fees from our
subsidiaries. Advertising revenue is affected primarily by the advertising rates
our radio stations and magazine are able to charge as well as the overall demand
for radio advertising time in a market. For the six months ended July 31, 2008
our revenue decreased by $631,571 to $367,865 as compared to $999,436 for the
six months ended July 31, 2007. The decrease results primarily from programming
format change.





Operating
Expenses





Our
significant operating expenses are broadcast expenses, consisting of (i)
employee salaries and commissions, (ii) programming expenses, (iii) advertising
and promotion expenses, (iv) rental of premises for studios, (v) rental of
transmission tower space and (vi) freelance consultants. We strive to control
these expenses by centralizing certain functions such as finance, accounting,
legal, human resources and management information systems and the overall
programming management function. For the six months ended July 31, 2008
operating expenses decreased by $82,213 to $710,614 as compared to $792,827 for
the six months ended July 31, 2007. The increase is principally attributable to
increased broadcasting expenses.





Selling,
General and Administrative Expenses




Selling,
General and Administrative expenses decreased by $84,352 to $713,207 for the six
months ended July 31, 2008 from $797,559 in 2007. The decrease is attributable
to lower corporate expenses, as well as decrease in compensation of officers.
Selling expenses are a significant part of our expenditures and relate directly
to the marketing and development of products. We anticipate similar expenditures
for the foreseeable future.




Depreciation
and Amortization Expenses




Depreciation
and Amortization expenses decreased by $192,981 to $51,090 for the six months
ended July 31, 2008 from $244,071 in 2007 due to the acquisition of various
fixed and intangible assets.






19







Interest
Expense




Interest
expense increased by $172,619 to $187,062 for the six months ended July 31, 2008
from $14,983 in 2007 due to the provisions for the beneficial conversion option
of certain convertible debentures.





Net
Loss




We have a
net loss of $1,334,276 for six months ended July 31, 2008 as compared to a net
loss of $1,150,004 for the six months ended July 31, 2007. The increase in net
loss is primarily attributable to the decrease of our revenues and increase in
interest expense.





Liquidity
and Capital Resources





As of
July 31, 2008, our Working Capital deficiency is $6,400,278.




Cash used
in operating activities was $1,109,180 for the six months ended July 31, 2008 as
compared to $767,859 during the six months ended July 31, 2007. The increase in
the cash used by operating activities was primarily the result of company
expansion.





Cash
used in investing activities was $10,646
for the six months period ended July 31, 2008 as compared to $11,985
cash provided by investing activities for the six months period ended July 31,
2007. The increase in cash used by investing activities is primarily due to
fixed assets acquisitions.





Cash
provided by financing activities was $1,127,135
for the six months period ended July 31, 2008 as compared to $829,352
for the six months ended July 30, 2007. The increase in cash provided by
financing activities is primarily due to the additional borrowings.





Going
Concern





As
reflected in the Company’s Financial Statements which accompany this report, our
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and liabilities and commitments in
the normal course of business. In the near term, we expect operating costs to
continue to exceed funds generated from operations. As a result, we expect to
continue to incur operating losses and we may not have sufficient funds to grow
our business in the future. We can give no assurance that we will achieve
profitability or be capable of sustaining profitable operations. As a result,
operations in the near future are expected to continue to use working
capital.





To
successfully grow the individual segments of the business, we must decrease our
cash burn rate, improve our cash position and the revenue base of each segment,
and succeed in our ability to raise additional capital through a combination of
public or private debt and equity offerings or strategic alliances. We also
depend on certain third party contractors and our executives.




We
incurred net losses of $3,255,481 and $1,795,809 for the six months ended July
31, 2008 and 2007, respectively, and have an accumulated deficit of $6,400,278
at July 31, 2008. As of July 31, 2008, we had total current assets of $2,275,014
and total current liabilities of $4,877,911 creating a working capital
deficiency of $6,400,278.




Off-Balance
Sheet Arrangements





We do not
have off-balance sheet arrangements, financings, or other relationships with
unconsolidated entities or other persons, also known as “special purpose
entities” (SPEs).





Critical Accounting
Policies




Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use of estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.




Our
significant accounting policies are summarized in the summary “Background and
Significant Accounting Policies” accompanying our financial statements. While
all these significant accounting policies impact our financial condition and
results of operations, we view certain of these policies as critical. Policies
determined to be critical are those policies that have the most significant
impact on our financial statements and require management to use a greater
degree of judgment and estimates. Actual results may differ from those
estimates. Our management believes that given current facts and circumstances,
it is unlikely that applying any other reasonable judgments or estimate
methodologies would cause effect on our consolidated results of operations,
financial position or liquidity for the periods presented in this
report.






20







Item
3. Quantitative and
Qualitative Disclosures About Market Risk.




Our exposure
to market risk is principally confined to cash in bank which has short
maturities and therefore we believe to be minimal and immaterial market
risk.





Item
4T. Controls and
Procedures.




Evaluation of Disclosure
Controls and Procedures




Based on
their evaluation as of the end of the period covered by this Quarterly Report on
Form 10-QSB, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Exchange Act) are effective to ensure that
information required to be disclosed by us in reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commission's rules and
forms. Recent communications from the Securities and Exchange Commission brought
to current management’s attention that several required filings were delinquent
and current management recognized that Company’s prior management and executive
team did not have adequate controls in place to ensure that filings were made in
an accurate and timely manner.





Changes in Internal
Controls




There have been no changes in the Company's internal control over
financial reporting during the latest fiscal quarter that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.






21






PART
II - OTHER INFORMATION





Item 1.Legal
Proceedings.




Except as stated below, neither the Company nor any of its subsidiaries is a
party to any pending or threatened legal proceedings.




As
disclosed in our 8-K filing on June 26, 2007, we are subject to a debt
collection lawsuit in the Supreme Court of New York, Kings County, filed on May
14, 2007 by Harris Publications, Inc. for not paying for advertising services
rendered.  Plaintiff seeks judgment in the amount of $7,713.00 with
interest from March 1, 2005.  We are working to resolve this
matter.  In the opinion of our management, this matter is not
reasonably expected to have a material adverse effect on our business and
financial condition.  The resolution of this matter is still
pending.





As
disclosed in our 8-K filing dated September 12, 2008, on September 3, 2008, we
were served with a Notice of Motion for Summary Judgment in Lieu of Complaint
filed by David Kokakis.  In this Motion, filed in Supreme Court of the
State of New York on September 3, 2008, David Kokakis alleged that the Company
has filed to make payments due on a series of notes issued by the Company, and
filed to make payments of interest due on these notes.  David Kokakis
asked the court to enter judgment in his favor in the total amount of $329,500
allegedly due under the notes, plus accrued interest.





The
motion will be held on October 15, 2008.  We believe that we have
meritorious defenses and counterclaims to the claims asserted by David Kokakis,
and we will defend our company to full efforts.





Item
1A.                    Risk
Factors.





Not
Applicable.





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




The description of unregistered sales
of securities is incorporated in our Current Report Form 8-K.





Item
3.                       Defaults
Upon Senior Securities.




None.





Item
4.                      Submission of Matters to a Vote of
Security Holders.




None.





Item
5.                       Other
Information.





None.




Item
6.                       Exhibits.




Exhibit No.
            
            Title
      of Document
            
            Location31.1
            
            Certification
      of Chief Executive Officer Pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934
            
            Filed
      herewith31.2
            
            Certification
      of Chief Financial Officer Pursuant to Rule 13a-14(a) of the
      Securities Exchange Act of 1934
            
            Filed
      herewith32.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
      herewith32.2
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Filed
      herewith






22






SIGNATURES




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






MEGA
      MEDIA GROUP, INC.Date: 
      September  19, 2008
            By:
            /s/ Aleksandr
      ShvartsALEKSANDR
      SHVARTS