UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 2005

[ ]      TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
         ACT OF 1934

               For the transition period from ________ to ________

                         Commission file number 0-02768

                                Genio Group, Inc.
                                -----------------
                 (Name of small business issuer in its charter)

               Delaware                                22-3360133
    -------------------------------                    ----------
    (State or other jurisdiction of       (I.R.S. Employer Identification No.)
     incorporation or organization)

    4020 South 57 Avenue, Suite 204
          Lake Worth, Florida                              33463
          -------------------                              -----
(Address of principal executive offices)                (Zip Code)

Issuer's telephone number 561-434-4011

Securities registered under Section 12(b) of the Exchange Act:

         Title of each class           Name of each exchange on which registered

               None                                  not applicable
        ---------------------                        --------------
        (Title of each class)

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

                    common stock, par value $0.001 per share
                    ----------------------------------------
                                (Title of class)

Check whether the issuer is not required to file reports pursuant to Section 13
or (15(d) of the Exchange Act [ ]

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]


<PAGE>

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes [X] No [ ]

State issuer's revenues for its most recent fiscal year. $ 320,330 for the
fiscal year ended September 30, 2005.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days. The aggregate market value of the common
equity held by non-affiliates computed at the closing price of the registrant's
common stock on January 11, 2005 is approximately $461,908

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date. 55,681,787 shares of common stock are
issued and outstanding at January 11, 2005.

                       DOCUMENTS INCORPORATED BY REFERENCE

If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b)or (c) of the Securities Act of 1933 ("Securities Act"). Not
Applicable.

         Transitional Small Business Disclosure Form (check one): Yes [ ] No [X]

         When used in this annual report, the terms the "Company," "Genio" "we,"
"our," and "us" refers to Genio Group, Inc., a Delaware corporation, and our
subsidiaries.

         CERTAIN CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

         Certain statements in this annual report contain or may contain
forward-looking statements that are subject to known and unknown risks,
uncertainties and other factors which may cause actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking statements. These
factors include, but are not limited to, our ability to identify and consummate
a business combination with an operating entity, economic, political and market
conditions and fluctuations, government and industry regulation, U.S. and global
competition, and other factors. Most of these factors are difficult to predict
accurately and are generally beyond our control.

         You should consider the areas of risk described in connection with any
forward-looking statements that may be made in this annual report. Readers are
cautioned not to place undue reliance on these forward-looking statements and
readers should carefully review this prospectus in its entirety, including the
risks described in "Risk Factors." Except for our ongoing obligations to
disclose material information under the Federal securities laws, we undertake no
obligation to release publicly any revisions to any forward-looking statements,
to report events or to report the occurrence of unanticipated events. For any
forward-looking statements contained in any document, we claim the protection of
the safe harbor for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995. These forward-looking statements speak
only as of the date of this annual report, and you should not rely on these
statements without also considering the risks and uncertainties associated with
these statements and our business.

                                        2
<PAGE>
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

         From 1993 until the fiscal quarter ended December 31, 2004 we were a
developer and marketer of entertainment and leisure products. We held a
worldwide license with Marvel Enterprises, Inc. to manufacture and sell specific
categories of products built around the globally recognized Marvel Super
Heroes(TM), including Spider-Man(TM), The Incredible Hulk(TM), X-Men(TM),
Elektra(TM), Daredevil(TM) and the Fantastic Four(TM). The Genio Card
collection, which consisted of 360 illustrated cards that take children on a
journey through 30 subject categories, from the history of dinosaurs and
attributes of reptiles to facts about motor sports and manmade landmarks, was
available at select national retailers in the United States. During the quarter
ended December 31, 2004, primarily due to the lack of financing, we closed all
operations and terminated all but one of our employees. One of the directors
resigned as the chairman of the audit committee and was appointed as the acting
Chief Executive Officer and the Chief Financial Officer in order to orchestrate
an orderly liquidation of our assets and seek settlement agreements with the
creditors. The wind down of operations has continued through fiscal 2005.

         As a result of the wind down of our operations we intend to seek to
acquire assets or shares of an entity actively engaged in business which
generates revenues, in exchange for our securities. Our purpose is to seek,
investigate and, if such investigation warrants, acquire an interest in business
opportunities presented to it by persons or firms who or which desire to seek
the perceived advantages our company may offer. We will not restrict our search
to any specific business, industry, or geographical location and we may
participate in a business venture of virtually any kind or nature. This
discussion of the proposed business is purposefully general and is not meant to
be restrictive of our virtually unlimited discretion to search for and enter
into potential business opportunities. Management anticipates that it may be
able to participate in only one potential business venture because we have
nominal assets and limited financial resources. This lack of diversification
should be considered a substantial risk to our stockholders because it will not
permit us to offset potential losses from one venture against gains from
another.

         We may seek a business opportunity with entities which have recently
commenced operations, or which wish to utilize the public marketplace in order
to raise additional capital in order to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. We may
acquire assets and establish wholly-owned subsidiaries in various businesses or
acquire existing businesses as subsidiaries. We anticipate that the selection of
a business opportunity in which to participate will be complex and extremely
risky. Due to general economic conditions, rapid technological advances being
made in some industries and shortages of available capital, management believes
that there are numerous firms seeking the perceived benefits of a publicly
registered corporation. These perceived benefits may include facilitating or
improving the terms on which additional equity financing may be sought,
providing liquidity for incentive stock options or similar benefits to key
employees, providing liquidity (subject to restrictions of applicable statutes),
for all stockholders and other factors. Potentially, available business
opportunities may occur in many different industries and at various stages of
development, all of which will make the task of comparative investigation and
analysis of such business opportunities extremely difficult and complex.

         The analysis of new business opportunities will be undertaken by, or
under the supervision of, Mr. Matthew Cohen, our CEO, who may not be considered
a professional business analyst. Mr. Cohen will be the key person in the search,
review and negotiation with potential acquisition or merger candidates. We
intend to concentrate on identifying preliminary prospective business
opportunities which may be brought to our attention through present associations
of our officers and directors, or by our stockholders. In analyzing prospective
business opportunities, we will consider such matters as the available
technical, financial and managerial resources; working capital and other
financial requirements; history of operations, if any; prospects for the future;

                                        3
<PAGE>

nature of present and expected competition; the quality and experience of
management services which may be available and the depth of that management; the
potential for further research, development, or exploration; specific risk
factors not now foreseeable but which then may be anticipated to impact our
proposed activities; the potential for growth or expansion; the potential for
profit; the perceived public recognition of acceptance of products, services, or
trades; name identification; and other relevant factors. We will not acquire or
merge with any company for which audited financial statements cannot be obtained
within the time period prescribed by applicable rules of the Securities and
Exchange Commission which is presently four business days from the closing date
of the transaction. This requirement for readily available audited financial
statement may require us to preclude a transaction with a potential candidate
which might otherwise be beneficial to our stockholders.

         We will not restrict our search for any specific kind of company, but
may acquire a venture which is in its preliminary or development stage, which is
already in operation, or in essentially any stage of its corporate life. It is
impossible to predict at this time the status of any business in which we may
become engaged, in that such business may need to seek additional capital, may
desire to have its shares publicly traded, or may seek other perceived
advantages which we may offer. However, we do not intend to obtain funds in one
or more private placements to finance the operation of any acquired business
opportunity until such time as we have successfully consummated such a merger or
acquisition.

         We anticipate that we will incur nominal expenses in the implementation
of our business plan described herein. Because we have no capital with which to
pay these anticipated expenses, these expenses will be paid by Mr. Cohen with
his personal funds as interest-free loans. However, the only opportunity to have
these loans repaid will be from a prospective merger or acquisition candidate.
Repayment of any loans made on our behalf will not impede, or be made
conditional in any manner, to consummation of a proposed transaction.

         In implementing a structure for a particular business acquisition, we
may become a party to a merger, consolidation, reorganization, joint venture, or
licensing agreement with another corporation or entity. We may also acquire
stock or assets of an existing business. On the consummation of a transaction,
it is probable that our present management and stockholders will no longer be in
control of our company. In addition, our directors may, as part of the terms of
the acquisition transaction, resign and be replaced by new directors without a
vote of our stockholders or may sell their stock. Any terms of sale of the
shares presently held by officers and/or directors will be also afforded to all
other stockholders on similar terms and conditions. Any and all such sales will
only be made in compliance with federal and applicable state securities laws.

         We anticipate that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of a transaction, we may agree to register all or a part of
such securities immediately after the transaction is consummated or at specified
times thereafter. If such registration occurs, of which there can be no
assurance, it will be undertaken by the surviving entity after we have
successfully consummated a merger or acquisition and we are no longer considered
a "shell" company. Until such time as this occurs, we will not attempt to
register any additional securities. The issuance of substantial additional
securities and their potential sale into any trading market which may develop in
our securities may have a depressive effect on the value of our securities in
the future, if such a market develops, of which there is no assurance.

INTELLECTUAL PROPERTY

         Our Genio Cards(TM) embodied trademarks, trade names and copyrights
licensed to us by a third party, Marvel, which entitled us to use in the Genio
Cards(TM) globally recognized Marvel Super Heroes(TM) including Spider-Man(TM),
the Incredible Hulk(TM), X-Men(TM), Elektra(TM), Daredevil(TM) and the Fantastic
Four(TM). The Marvel license agreement relating to these rights expired in June
30, 2005.

                                        4
<PAGE>

         Our Mighty Beanz(TM) cards embodied artwork, logos and other
distinctive creative elements licensed to us by Spin Master, which entitles us
to manufacture and sell the Mighty Beanz(TM) cards within the United States and
Canada and by Moose Enterprises for the rest of the world. The Spin master
license agreement relating to these rights extends through April 30, 2006 and
the Moose Enterprises license agreement relating to these rights extends through
January 31, 2007. This license agreement relating to these rights have been
terminated..

         The Stargate SG-1(TM) and Stargate: Atlantis(TM) cards will embody
artwork, logos and other distinctive creative elements licensed to us by MGM
Consumer Products, a division of Metro-Goldwyn-Mayer, which entitles us to
manufacture and sell the Stargate(TM) cards throughout the world excluding
Japan, China and Hong Kong. The MGM license agreement relating to these rights
extends through August 18, 2006. This agreement is terminable upon the
occurrence of a number of events. The license agreement relating to these rights
have been terminated.

         The TOMY UK products licensed under the agreement will embody artwork,
designs, concepts, logos and other distinctive creative elements licensed to us
by TOMY UK Ltd., which Entitles us to sell its "Baby" and "Nursery" line
throughout the United States and Canada. The TOMY license agreement relating to
these rights extends through December 31, 2008, and shall extend for an
additional two years upon achievement of certain sales goals. This agreement is
terminable upon the occurrence of certain events, which may be curable under
remedies outlined in the contract. The license agreement relating to these
rights have been terminated.

EMPLOYEES

         We currently have_one_ employee. None of our employees is represented
by a union and we believe our relationship with our employees is good.

OUR HISTORY

         We were originally organized under Delaware law in December 1969 as
Tyconda Minerals Corp. In 1983 we changed our name to Hy-Poll Technology, Inc.,
in 1995 we changed our name to Universal Turf, Inc., in 1999 we changed our name
to Universal Media Holdings,Inc. and, in October of 2002, we changed our name to
National Management Consulting, Inc.

         On July 21, 2003, we acquired Genio Inc. (formerly Tele-V, Inc.) and
its subsidiaries through the issuance of an aggregate of 15,484,448 shares of
common stock, reflecting 65% of the 23,822,228 shares of our common stock of
outstanding after the closing. We have accounted for this transaction as a
reverse acquisition. Our capital structure has been recapitalized to account for
the equity structure subsequent to the acquisition as if Genio Inc. (our
subsidiary) had been the issuer of the common stock for all periods presented.
The financial statements presented primarily represent the operations of Genio
Inc. (formerly Tele-V, Inc.) from its inception date, May 14, 2003 to September
30, 2003 and from October 1, 2003 to September 30, 2004. Our subsidiaries are
Genio, Inc. (formerly Tele-V, Inc.), Genio Cards, LLC, Tele-V, LLC and Tele-V
Media, LLC. Tele-V, LLC was initially formed as a distribution company for a
physical fitness and vitamin line. Tele-V Media, LLC was initially formed for
certain media-related business. This company has never conducted any business
operations. We amended the certificate of incorporation of our company to change
the name from National Management Consulting, Inc. to Genio Group, Inc. on
September 15, 2003, following the acquisition of Genio Inc. and its
subsidiaries.

                                        5
<PAGE>

RISK FACTORS

         Before you invest in our securities, you should be aware that there are
various risks. Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely affect our
business. You should consider carefully these risk factors, together with all of
the other information included in this annual report before you decide to
purchase our securities. If any of the following risks and uncertainties develop
into actual events, our business, financial condition or results of operations
could be materially adversely affected and you could lose your entire investment
in our company.

WE CURRENTLY DO NOT HAVE AN OPERATING BUSINESS, BUT ALSO DO NOT INTEND TO PURSUE
A COURSE OF COMPLETE LIQUIDATION AND DISSOLUTION, AND ACCORDINGLY, THE VALUE OF
YOUR SHARES MAY DECREASE

         We currently do not have any operating business. We continue to incur
operating expenses while we consider alternative operating plans. These plans
may include business combinations with or investments in other operating
companies, or entering into a completely new line of business. We have not yet
identified any such opportunities, and thus, you will not be able to evaluate
the impact of such a business strategy on the value of your stock. In addition,
we cannot assure you that we will be able to identify any appropriate business
opportunities. Even if we are able to identify business opportunities that our
Board deems appropriate, we cannot assure you that such a strategy will provide
you with a positive return on your investment, and it may in fact result in a
substantial decrease in the value of your stock. These factors will
substantially increase the uncertainty, and thus the risk, of investing in our
shares.

WE MAY NOT BE ABLE TO IDENTIFY OR FULLY CAPITALIZE ON ANY APPROPRIATE BUSINESS
OPPORTUNITIES

         We have not yet identified any appropriate business opportunities, and,
due to a variety of factors outside of our control, we may not be able to
identify or fully capitalize on any such opportunities. These factors include:

         o        competition from other potential acquirors and partners of and
investors in potential acquisitions, many of whom may have greater financial
resources than we do;

         o        in specific cases, failure to agree on the terms of a
potential acquisition, such as the amount or price of our acquired interest, or
incompatibility between us and management of the company we wish to acquire; and

         o        the possibility that we may lack sufficient capital and/or
expertise to develop promising opportunities.

         Even if we are able to identify business opportunities that our Board
deems appropriate, we cannot assure you that such a strategy will provide you
with a positive return on your investment, and may in fact result in a
substantial decrease in the value of your stock. In addition, if we enter into a
combination with a business that has operating income, we cannot assure you that
we will be able to utilize all or even a portion of our existing net operating
loss carryover for federal or state tax purposes following such a business
combination. If we are unable to make use of our existing net operating loss
carryover, the tax advantages of such a combination may be limited, which could
negatively impact the price of our stock and the value of your investment. These
factors will substantially increase the uncertainty, and thus the risk, of
investing in our shares.

                                        6
<PAGE>

ITEM 2.  DESCRIPTION OF PROPERTY

         We currently leases our primary office space on a month to month lease.
Rent expense for the year ended September 30, 2005 was $107,800.

ITEM 3.  LEGAL PROCEEDINGS

         We are not a party to any pending or threatened legal proceedings.

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

         None.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Our common stock is quoted on the OTCBB under the symbol "GNOI." The
reported high and low bid prices for the common stock as reported on the OTCBB
are shown below for the periods indicated. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not represent
actual transactions.

                                                              High     Low
                                                             ------   ------
Fiscal 2004

First quarter ended December 31, 2003 ....................   $ 6.10   $ 1.30
Second quarter ended March 31, 2004 ......................   $ 2.10   $ 0.87
Third quarter ended June 30, 2004 ........................   $ 1.20   $ 0.46
Fourth quarter ended September 30, 2004 ..................   $ 0.92   $ 0.29

Fiscal 2005

First quarter ended December 31, 2004 ....................   $  .11   $  .09
Second quarter ended March 31, 2005 ......................   $  .03   $  .03
Third quarter ended June 30, 2005 ........................   $  .02   $  .02
Fourth quarter ended September 30, 2005 ..................   $   02   $  .02

         On January 11, 2006, the last sale price of our common stock as
reported on the OTCBB was $0.016 As of December 31, 2005, there were
approximately 888 record owners of our common stock.

         DIVIDEND POLICY

         We have never paid cash dividends on our common stock. Under Delaware
law, we may declare and pay dividends on our capital stock either out of our
surplus, as defined in the relevant Delaware statutes, or if there is no such
surplus, out of our net profits for the fiscal year in which the dividend is
declared and/or the preceding fiscal year. If, however, the capital of our
company, computed in accordance with the relevant Delaware statutes, has been
diminished by depreciation in the value of our property, or by losses, or
otherwise, to an amount less than the aggregate amount of the capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets, we are prohibited from declaring and
paying out of such net profits any dividends upon any shares of our capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets shall have been repaired.

                                        7
<PAGE>

         RECENT SALES OF UNREGISTERED SECURITIES

During the year ended September 30, 2005, the Company was in active negotiations
with its creditors to settle the outstanding payables at a significant discount,
through the issuance of stock at $0.01 to $0.03 a share for full satisfaction
and settlement of such liabilities or obligations to pay cash. The Company has
settled approximately $445,000 of such payables for the issuance of 27,838,199
shares of common stock.

         SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

         The following table sets forth securities authorized for issuance under
our stock option and equity compensation plans as of September 30, 2005.

<TABLE>
<CAPTION>
                                                                 Weighted
                                              Number of           average              Number of
                                           securities to be      exercise        securities remaining
                                             issued upon         price of        available for future
                                             exercise of       outstanding       issuance under equity
                                           of outstanding        options,         compensation plans
                                          options, warrants      warrants       (excluding securities
                                            and rights (a)    and rights (b)   reflected in column (a))
                                          -----------------   --------------   ------------------------
<S>                                       <C>                 <C>              <C>
Plan category

Equity compensation plans
  approved by stockholder .............           0                $   0                   0

Equity compensation plans
  not approved by stockholders ........           0                $   0                   0
</TABLE>

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

OVERVIEW

         We were a start-up developer and marketer of entertainment and leisure
products. Since our inception, most of our revenues have been derived from our
card business. During the month of January 2005 our Board of Directors
determined to wind down the Company's operations as conducted to date due to the
lack of sufficient funding. The Company released all its employees other than
its CEO and one employee. The Company is currently evaluating several options
regarding its future financing of the registrant and its future operations. The
Company's auditors as part of their review continue to raise substantial doubt
about the Company's ability to continue as a going concern.

                                        8
<PAGE>

RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2005 AND THE YEAR ENDED
SEPTEMBER 30, 2004.

         The following table sets forth our income statement data ($ in
thousands) for the periods indicated below.

                                                    Year Ended      Year Ended
                                                  September 30,   September 30,
                                                       2005            2004
                                                  -------------   -------------

Net sales .....................................    $    320,330    $  3,999,735
Cost of sales .................................         188,272       2,957,073
                                                  -------------   -------------

      Gross profit ............................         132,058       1,042,662

Selling expenses ..............................         374,436       2,772,775
General and administrative expenses ...........       1,034,647       3,891,146
Equity based compensation .....................       1,800,738       1,612,757
Depreciation and amortization .................           3,249          13,232
                                                  -------------   -------------

      Loss from operations ....................      (3,081,012)     (7,247,248)

Other income and (expense)
   Interest expense ...........................        (333,966)     (1,685,375)
   Penalties ..................................        (107,894)     (1,012,002)
   Loss on disposal of assets .................          (4,583)
   Miscellaneous ..............................         391,053         (52,310)
                                                  -------------   -------------

Loss before provision for income taxes ........      (3,136,402)     (9,996,935)
Provision for income taxes ....................               0               0
                                                  -------------   -------------

NET LOSS ......................................   ($  3,136,402)  ($  9,996,935)
                                                  =============   =============

Basic and diluted earnings (loss) per share ...   ($       0.09)  ($       0.38)
                                                  =============   =============

Weighted-average shares outstanding-
   basic and diluted ..........................      33,105,905      26,482,419
                                                  =============   =============

         Net sales decreased to $320,330 for the year ended September 30, 2005
from $3,999,735 the year ended September 30, 2004. The decrease in sales
consisted primarily of only a revenues of Genio cards and Mighty Beanz card
products for a short period of time as the Company commenced to wind down of
operations in the third quarter of fiscal year 2005.

         Cost of sales decreased to $188,272 for the year ended September 30,
2005 from $2,957,073 for the year ended September 30, 2004. Cost of sales
consists of those expenses directly related to the production of Genio Cards and
Mighty Beanz card products and associated costs including direct card production
costs.

                                        9
<PAGE>

         Gross profit for the year ended September 30, 2005 was $132,058
compared to $1,042,662 for the year ended September 30, 2004, primarily due to
the wind down of operations.

         Selling expenses were $374,436 for the year ended September 30, 2005
compared to $2,772,775 for the year ended September 30, 2004. Selling expenses
consisted of shipping expenses and marketing. Genio incurred selling expenses in
the 2004 period to promote and launch Genio Cards and Mighty Beanz card products
through various marketing mediums.

         General and administrative decreased to $1,034,647 for the year ended
September 30, 2005 compared to $3,891,146 for the year ended September 30, 2004.
General and administrative expenses consist of payroll and payroll taxes,
professional fees, rent, bad debts and travel. The decrease is primarily related
to the wind down of operations.

         Equity based compensation was $1,800,738 for the year ended September
30, 2005 consisted of stock options previously issued by and for consultants who
were paid for their services in our common stock.

         The Company reported a net loss of $3,136,402, or $(0.09) per share for
the year ended September 30, 2005 and a net loss of $9,996,935, or ($0.38) per
share for the year ended September 30, 2004.

LIQUIDITY AND CAPITAL RESOURCES

         As of September 30, 2005, we had $4,413 in cash and cash equivalents.
Net cash used in operations for the year ended September 30, 2005 was $916,302
consisting of a net loss of approximately $3,136,402 partially offset by
non-cash adjustments of $1,800,740 in equity-based compensation, as well as a
decrease in accounts receivable of $184,771 and decrease in inventories of
$168,577. Total cash provided by financing activities of $506,745 was primarily
the result of the proceeds from convertible debentures.

         At September 30, 2005 we had an accumulated deficit of $18,627,499 and
the report from our independent registered public accounting firm on our audited
financial statements at September 30, 2005 contains an explanatory paragraph
regarding doubt as to our ability to continue as a going concern as a result of
our significant recurring losses from operations since inception. As discussed
earlier in this report, in fiscal 2005 we are winding down our operations and
are now seeking to acquire assets or shares of an entity actively engaged in
business which generates revenues, in exchange for our securities. We cannot
predict when, if ever, we will be successful in this venture and, accordingly,
we may be required to cease operations at any time. We do not have sufficient
working capital to pay our operating costs for the next 12 months. We will
require additional funds to pay our legal, accounting and other fees associated
with our company and its filing obligations under federal securities laws, as
well as to pay our other accounts payable generated in the ordinary course of
our business. We will also need funds to satisfy the approximate $3.3 million of
obligations on our balance sheet at September 30, 2005. We have no commitments
from any party to provide such funds to us. If are unable to obtain additional
capital as necessary until such time as we are able to conclude a business
combination, we will be unable to satisfy our obligations and otherwise continue
to meet our reporting obligations under federal securities laws. In that event,
our stock would no longer be quoted on the OTC Bulletin Board and our ability to
consummate a business combination with upon terms and conditions which would be
beneficial to our existing stockholders would be adversely affected.

                                       10
<PAGE>

IIG LOAN

         On May 4, 2004 the Company entered into a Loan and Security Agreement
with IIG Capital, LLC, as agent for IIG Trade Opportunities Fund N.V., as
lender. Pursuant to the loan agreement, IIG granted the Company a credit line of
up to $3,000,000 based on a percentage of certain receivables. This agreement
provides for interest, collateral management and account management fees. In the
event that such fees were less than $20,000 for the month, then the minimum
monthly fee of $20,000 was due. The Company defaulted on the terms of this
credit line. The interest rate on such line of credit is the greater of prime
rate plus 4.25 per annum or 8.75%. The default in interest rate shall be prime
rate plus 10% per annum. The Company is in dispute with the lender as to the
terms of the loan agreement and amounts due. The Company is attempting to settle
the debt with the lender for approximately $75,000.

CRESTVIEW, OCEAN DRIVE CAPITAL AND TURQUOISE PARTNERS

         On November 1, 2004, we entered into an agreement with one of our
existing investors, Crestview Master, LLC, pursuant to which Crestview invested
in us an additional amount of $300,000 in the form of a convertible debenture.
The debenture bears interest at 8% per annum with a maturity date of December
31, 2005. The debenture is convertible into shares of our common stock at a
conversion price of $0.20 per share, subject to certain adjustments and
anti-dilution provisions. In addition, we issued to Crestview a warrant to
purchase up to 750,000 shares of our common stock at an exercise price of $0.40
per share. Contemporaneously with such investment, we amended the convertible
debentures and warrants previously issued to Crestview, Ocean Drive Equities and
Turquoise Partners. The maturity of the convertible debentures in the aggregate
amount of $1,500,000, previously issued to Crestview, Ocean Drive Equities and
Turquoise Partners, was extended until December 31, 2005 and their conversion
price has been reduced to $0.25 per share. The exercise price of the warrants
previously issued to Crestview, Ocean Drive Equities and Turquoise Partners has
been reduced to $0.60 per share.

         On February 15, 2005, the securities purchase agreements with Crestview
were amended again, pursuant to the Second Amendment, Extension and Addition to
Securities Purchase Agreement dated July 15, 2004 (the "Second Amendment").
Crestview has agreed to purchase a $200,000 Prime Plus 2% Convertible Debenture
due April 30, 2005. The material terms of the Second Amendment are as follows:

         o        contemporaneous with such investment, the Company reduced the
conversion price of the Restated 8% Convertible Debenture in the principal
amount of $1,500,000 from $.25 to $.023,

         o        the exercise prices of the restated series A-1 warrants and
A-2 warrants, each to purchase 900,000 shares of common stock were reduced from
$.60 to $.05 per share,

         o        the conversion price of the 8% convertible debenture due
December 31, 2005 in the principal amount of $300,000 was reduced from $.20 to
$.023,

         o        the exercise price of the 750,000 warrants related the
$300,000 8% convertible debenture was reduced from $.40 to $.05 per share,

         o        Crestview has the right, but not the obligation, to appoint
such number of directors of the Company as shall constitute a majority of the
Board of Directors, until such time as the Crestview outstanding debentures have
been fully converted or paid in full, and

         o        upon execution of the amendment Crestview shall execute and
deliver a release to each of the three former independent directors.

         This financing was also conditioned upon a certain other shareholder
arranging for another $150,000 investment of principal in a debenture and Shai
Bar-Lavi, our former CEO, rendering for cancellation, without consideration, all
shares owned by him or members of his immediate family. During the quarter ended
March 31, 2005, proceeds of $50,000 were received from the aforementioned
shareholder.

                                       11
<PAGE>

         On May 11, 2005, the securities purchase agreements with Turquoise
Partners, LLC, ("TP") were amended, pursuant to the First Amendment, Extension
and Addition to Securities Purchase Agreement dated July 15, 2004 (the "First
Amendment"). Therein TP agreed to purchase a $100,000 Prime plus 2% convertible
debenture due December 31, 2006. Highlights of this First Amendment were as
follows:

         o        contemporaneous with such investment, the Company reduced the
conversion price of the restated 8% convertible debenture in the principal
amount of $150,000 from $.25 to $.023,

         o        the exercise prices of the restated series A-1 warrants and
A-2 warrants, each to purchase 90,000 shares of common stock, were reduced from
$.80 to $.05 per share,

         o        the maturity date of the $150,000 8% convertible debenture was
extended to be due December 31, 2006, and

         o        upon execution of the amendment TP shall execute and deliver a
release to each of the three former independent directors. The recent $100,000
from TP was received $50,000 in February 2005 and $50,000 in May 2005.

         These aforementioned debentures have been extended through to December
2006, and is currently being negotiated for a debt to equity conversion.

CRITICAL ACCOUNTING POLICIES

The discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires us to make
estimates and judgements that affect the reported amount of assets and
liabilities, revenues and expenses, and related disclosure on contingent assets
and liabilities at the date of our financial at the date of our financial
statements. Actual results may differ from these estimates under different
assumptions and conditions.

Critical accounting policies are defined as those that are reflective of
significant judgements and uncertainties, and potentially result in materially
different results under different assumptions and conditions. We believe that
our critical accounting policies are limited to those described below. For a
detailed discussion on the application of these and other accounting policies
see our note 2 to our consolidated financial statements.

Beneficial conversion features of debt issuances and equity issuances

The Company has issued convertible debt with conversion terms into common stock.
The conversion terms are subject to valuations pursuant to EITF 98-5 and EITF
00-27, whereby the intrinsic value of such conversion terms into common stock is
to be recorded as a form of interest expense over the term of the debt, while
considering the conversion terms themselves or presented as a deemed dividend on
the statement of operations for preferred equity conversion features. The
calculated intrinsic value of the conversion terms are limited to the total
proceeds obtained in the financing.

Accounting for Income Taxes

As part of the process of preparing our consolidated financial statements we are
required to estimate our income taxes. Management judgment is required in
determining our provision of our deferred tax asset. We recorded a valuation for
the full deferred tax asset from our net operating losses carried forward due to
the Company not demonstrating any consistent profitable operations. In the event
that the actual results differ from these estimates or we adjust these estimates
in future periods we may need to adjust such valuation recorded.

                                       12
<PAGE>

Going Concern

         The financial statements of the Company have been prepared assuming
that the Company will continue as a going concern. The Company has had negative
working capital at year end. The Company is in default of its line of credit.
Those conditions raise substantial doubt about the abilities to continue as a
going concern. The financial statements of the Company do not include any
adjustments that might be necessary should the Company be unable to continue as
a going concern.

New Accounting Pronouncements

FASB 123 (revised 2004) - Share-Based Payments

         In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supercedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.

         A public entity will initially measure the cost of employee services
received in exchange for an award of liability instruments based on its current
fair value; the fair value of that award will be re-measured subsequently at
each reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation cost over that
period. A nonpublic entity may elect to measure its liability awards at their
intrinsic value through the date of settlement.

         The grant-date fair value of employee share options and similar
instruments will be estimated using the option-pricing models adjusted for the
unique characteristics of those instruments (unless observable market prices for
the same or similar instruments are available).

         The notes to the financial statements of both public and nonpublic
entities will disclose information to assist users of financial information to
understand the nature of share-based payment transactions and the effects of
those transactions on the financial statements.

         The effective date for public entities that do not file as small
business issuers will be as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. For public entities that file
as small business issuers and nonpublic entities the effective date will be as
of the beginning of the first interim or annual reporting period that begins
after December 15, 2005. Management intends to comply with this Statement at the
scheduled effective date for the relevant financial statements of the Company.

Management believes the effects of adopting this revision to FASB 123, will
approximate recording those amounts currently reported as compensation herein on
a pro-forma basis as allowed under FASB 123.

                                       13
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

In March 2005, FASB Interpretation No.47 "FIN 47" was issued, which clarifies
certain terminology as used in FASB Statement No. 143, Accounting for Asset
Retirement Obligations. In addition it clarifies when an entity would have
sufficient information to reasonably estimate the fair value of an asset
retirement obligation. FIN 47 is effective no later than the end of fiscal years
ending after December 15, 2005. Early adoption of FIN 47 is encouraged.
Management believe the adoption of FIN 47 will have no impact on the financials
of the Company, once adopted.

ITEM 7.  FINANCIAL STATEMENTS

         Our financial statements are contained in pages F-1 through F-23, which
appear at the end of this annual report.

                                    CONTENTS
                                                                         Page
                                                                         ----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  - Sherb & Co., LLP ................................................        F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 - Radin, Glass & Co., LLP ..........................................        F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet ..........................................        F-3
Consolidated Statements of Operations ...............................        F-4
Consolidated Statements of Changes in Stockholders' Deficit .........        F-5
Consolidated Statements of Cash Flows ...............................        F-6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................  F-7 to 23

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE

         On July 12, 2005, the Company dismissed Radin, Glass & Co., LLP as its
independent registered public accounting firm. Radin, Glass & Co. LLP had been
the independent registered public accounting firm for and audited the
consolidated financial statements of Genio Group Inc. as of September 30, 2004,
and for the period from May 14, 2003 (inception) through September 30, 2003. The
reports of Radin, Glass & Co., LLP on the financial statements of the Company
for the past two fiscal years contained no adverse opinion or disclaimer of
opinion, and were not qualified or modified as to uncertainty, audit scope or
accounting principles.

         In connection with the audit for the period from May 14, 2003
(inception) through September 30, 2004 and in connection with Radin, Glass &
Co., LLP's review of the subsequent interim periods through March 31, 2005,
there were no disagreements between the Company and Radin, Glass & Co., LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which, if not resolved to the
satisfaction of Radin, Glass & Co., LLP, would have caused Radin, Glass & Co.,
LLP to make reference thereto in their report on our financial statements for
these fiscal years. During the period from May 14, 2003 (inception) through
September 30, 2004 or during the subsequent interim period through March 31,
2005, the Company had no reportable events (as defined in Item 304(a)(1) of
Regulation S-B).

         Radin, Glass & Co., LLP furnished the Company with a letter addressed
to the Securities and Exchange Commission stating that it agrees with the above
statements. A copy of this letter is included as an exhibit to this annual
report.

         On July 12, 2005, the Company engaged Sherb & Co., LLP as its
independent registered public accounting firm. The Company had not consulted
with Sherb & Co., LLP regarding the application of accounting principles to any
contemplated or completed transactions nor the type of audit opinion that might
be rendered on its financial statements, and neither written nor oral advice was
provided that would be an important factor considered by the Company in reaching
a decision as to an accounting, auditing or financial reporting issues. The
change was approved by our Board of Directors.

                                       14
<PAGE>

ITEM 8A. CONTROLS AND PROCEDURES

         The Company's sole officer and director has concluded, that the
Company's disclosure controls and procedures have functioned effectively so as
to provide the officer the information necessary whether:

         (a) The Company's sole officer and director carried out an evaluation,
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures. Our Chief Executive Officer who also serves as our
Chief Financial Officer and is the sole employee and director of the Company, is
responsible for establishing and maintaining disclosure controls and procedures
for us. Based upon such officer's valuation of these controls and procedures
covered by this annual report, and subject to the limitations noted hereinafter,
our sole officer and director concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
Company reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by SEC
rules and forms.

         (b) During the year ended September 30, 2004 and during the months
thereafter, the Company determined that the functioning of the disclosure
controls and procedures was inadequate and, accordingly, the Form 10-Q's for the
quarters ended March 31, 2004 and June 30, 2004 were restated and re-filed in
June 2005. As a result of the errors noted the Board of Directors performed an
investigation during the year ended September 30, 2005. Subsequent thereto, all
of the officers have been replaced. Prior to this replacement of management, the
Company believes that material weaknesses existed in both the controls over
financial reporting and controls over paperwork, especially including customer
contracts. A material weakness is defined as a reportable condition in which the
design or operation of one or more of the internal control components does not
reduce to a relatively low level the risk that misstatements caused by error or
fraud in amounts that would be material in relation to the financial statements
being audited may occur and not be detected within a timely period by employees
in the normal course of performing their assigned functions.

There have been no significant changes in the Company's internal controls or in
other factors since the date of the current sole officer and director's
evaluation that could significantly affect these internal controls, including
any corrective actions with regards to significant deficiencies and material
weaknesses. The sole officer and director has evaluated internal controls, as
they related to the Company as it is now being wound down. In view of the
winding down of operations, the Company does not believe that it is necessary to
remediate all of the material weakness that had been disclosed by the
investigation conducted by the Board of Directors.

The sole officer and director's evaluation has also concluded that there have
been no occurrences during the fiscal year covered by this annual report that
has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.

Our management does not expect that our disclosure controls or our internal
controls will prevent all error and fraud. A control system, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance
that the objectives of the control system are met. In addition, the design of a
control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within a company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or more
people or by management override of the control. The design of any systems of
controls also is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
control may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because of these
inherent limitations in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

                                       15
<PAGE>

ITEM 8B. OTHER INFORMATION

         None.


                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

EXECUTIVE OFFICERS AND DIRECTORS

      Name         Age                         Positions
      ----         ---                         ---------

Matthew J. Cohen   47    Director, Chief Executive Officer and Chief Financial
                         Officer

         Mr. Cohen has served as our Chief Executive Officer and Chief Financial
Officer since January 17, 2005, and has been a member of our Board of Directors
since August 1, 2004. Since October 2005 Mr. Cohen has also served as Chief
Executive Officer and Chairman of the Board of Cirilium Holdings Inc. (Pink
Sheets: CRLPU). In addition, Cohen serves as the Chief Financial Officer of
Royal Palm Capital Group, Inc. a Florida based Investment portfolio company. Mr.
Cohen has also been the Chief Financial Officer of Sea Aerosupport, Inc. since
May 2004. Mr. Cohen has been the chief financial officer of Mark Fore & Strike
Holdings, Inc., an apparel retailer, since February 2003. From July 2002 until
February 2003, Mr. Cohen served as chief financial officer for Life Imaging
Corporation, a provider of diagnostic services. From September 1999 until June
2002, Mr. Cohen was chief financial officer for Interactive Technologies.com,
Inc., a benefit and services company. ,. Mr. Cohen specializes in the
development of financial and operational infrastructure, and corporate recovery
work. Some of his responsibilities include the implementation and interfacing of
information systems indigenous to the service business. He also manages all
treasury functions, human resource management, payroll and management reporting.
Mr. Cohen also serves on the Board of Directors of Interactive Technologies.com
Ltd. Mr. Cohen has a B.B.A. degree in Accounting from New Paltz State
University.

         Directors are elected at our annual meeting of stockholders and hold
office for one year or until his or her successor is elected and qualified.

CODE OF ETHICS

         We have adopted a Code of Ethics and Business Conduct for Officers and
Directors (which applies to all our principal officers, including our CEO, CFO,
COO and principal accounting officer) and a Code of Ethics for Financial
Executives that applies to all of our executive officers, directors and
financial executives. Copies of these codes are filed as exhibits to the this
annual report.

COMMITTEES OF THE BOARD OF DIRECTORS

         On September 22, 2004, our Board of Directors formed an Audit
Committee, Compensation Committee and Nominating/Corporate Governance Committee,
all of which were comprised of our three independent directors. The Board of
Directors has also adopted charters for each of the committees. As a result of
the resignation of three of our directors on January 17, 2005, we no longer have
active Audit, Compensation and Nominating/Corporate Governance Committees.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

         Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to us under Rule 16a-3(d) of the Securities Exchange Act of 1934, as
amended, during the fiscal year ended September 30, 2005 and Forms 5 and
amendments thereto furnished to us with respect to the fiscal year ended
September 30, 2005, as well as any written representation from a reporting
person that no Form 5 is required, we are not aware of any person that failed to
file on a timely basis, as disclosed in the aforementioned Forms, reports
required by Section 16(a) of the Securities Exchange Act of 1934 during the
fiscal year ended September 30, 2005.

                                       16
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

Cash Compensation

         The following table summarizes all compensation recorded by us in each
of the last three fiscal years for our Chief Executive Officer and each other
executive officers serving as such whose annual compensation exceeded $100,000
(the "Named Executive Officers").

<TABLE>
<CAPTION>
                                                                                 Long-Term
                                    Annual Compensation                         Compensation
-------------------------------------------------------------------------------------------------------
                                                       Restricted             Securities
Name and                                              Other Annual    Stock   Underlying
Principal                Fiscal     Salary    Bonus   Compensation   Awards     Options     All Other
Position                  Year       ($)       ($)        ($)         ($)       SAR (#)    Compensation
-------------------------------------------------------------------------------------------------------
<S>                      <C>      <C>           <C>     <C>            <C>     <C>              <C>
Matthew J. Cohen(1) ...   2005    $  85,000     0               0      0               0        0

Shai Bar-Lavi (2) .....   2005    $       0     0               0      0               0        0
                          2004    $ 175,576     0               0      0               0        0
                          2003    $  76,154     0       $ 150,000      0               0        0

Susan Eisner(3) .......   2004    $ 160,334     0               0      0       $ 282,000        0

Andrew J. Schenker (4)    2004    $ 122,067     0               0      0       $ 141,000        0

Yaron Ben-Horin(5) ....   2004    $ 136,923     0               0      0       $ 200,045        0
                          2003            0     0               0      0       $ 100,222        0

Bruce Holland (6) .....   2004    $ 120,923     0               0      0               0        0

Steven Lux (7) ........   2004    $  30,230     0               0      0               0        0
                          2005    $   8,500     0               0      0               0        0
</TABLE>

(1)      Mr. Cohen has served as our Chief Executive Office since January 2005.

(2)      Mr. Bar-Lavi served as our Chief Executive Officer from July 2003 until
November 2004. The compensation paid to Mr. Bar-Lavi in fiscal 2003 represents
salary paid by us pursuant to his employment agreement with us and in connection
with his employment by Genio, Inc. and its subsidiary prior to the merger with
our company. Other Annual Compensation in fiscal 2003 represents payments for
services provided by, and reimbursement of expenses of, Mr. Bar-Lavi and certain
entities under his control.

(3)      Ms. Eisner served as our President from November 2003 until November
2004.

(4)      Mr. Schenker served as our Chief Financial Officer from October 2002
until November 2004.

(5)      Mr. Ben-Horin served as our Chief Operating Officer from July 2003
until January 2005.

(6)      Mr. Holland served as our Senior Vice President - Product Development
from July 2003 until December 2004.

(7)      Mr. Lux served as our Chief Executive Officer from September 2004
         until January 2005.

STOCK OPTION INFORMATION

         The following table sets forth certain information with respect to
stock options granted in fiscal 2005 to the Named Executive Officers.

                                       17
<PAGE>
<TABLE>
                        OPTION GRANTS IN YEAR ENDED SEPTEMBER 30, 2005
                                     (INDIVIDUAL GRANTS)
<CAPTION>
                         NO. OF SECURITIES   % OF TOTAL OPTIONS/SARs
                        UNDERLYING OPTIONS    GRANTED TO EMPLOYEES      EXERCISE   EXPIRATION
      NAME                 SARs GRANTED           IN FISCAL YEAR         PRICE        DATE
---------------------   ------------------   -----------------------    --------   ----------
<S>                              <C>                   <C>                 <C>        <C>
Matthew J. Cohen ....            0                     0%                  $0         0
Shai Bar-Lavi .......            0                     0%                  $0         0
</TABLE>

         The following table sets forth certain information regarding stock
options held as of September 30, 2005 by the Named Executive Officers.

<TABLE>
                 AGGREGATE OPTION EXERCISES IN YEAR ENDED SEPTEMBER 30, 2005
                                  AND YEAR-END OPTION VALUES
<CAPTION>
                                          NO. OF SECURITIES
                                        UNDERLYING UNEXERCISED        VALUE OF UNEXERCISED
                 SHARES                       OPTIONS AT             IN-THE-MONEY OPTIONS AT
                ACQUIRED     VALUE        SEPTEMBER 30, 2005          SEPTEMBER 30, 2005(1)
                   ON      REALIZED   --------------------------   --------------------------
    NAME        EXERCISE      $       EXERCISABLE  UNEXERCISABLE   EXERCISABLE  UNEXERCISABLE
-------------   --------   --------   -----------  -------------   -----------  -------------
<S>             <C>        <C>        <C>          <C>             <C>          <C>
Matthew Cohen
ShaiBar-Lavi
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

         At December 31, 2005, there were 55,681,787 shares of our common stock
issued and outstanding. The following table sets forth, as of December 31, 2005,
information known to us relating to the beneficial ownership of these shares by:

         o        each person who is the beneficial owner of more than 5% of the
                  outstanding shares of common stock;

         o        each director;

         o        each executive officer; and

         o        all executive officers and directors as a group.

         Unless otherwise indicated, the address of each beneficial owner in the
table set forth below is care of 4020 South 57 Avenue, Suite 204, Lake Worth,
Florida 33463.

         We believe that all persons named in the table have sole voting and
investment power with respect to all shares of beneficially owned by them. Under
securities laws, a person is considered to be the beneficial owner of securities
he owns and that can be acquired by him within 60 days from December 31, 2005
upon the exercise of options, warrants, convertible securities or other
understandings. We determine a beneficial owner's percentage ownership by
assuming that options, warrants or convertible securities that are held by him,
but not those held by any other person and which are exercisable within 60 days
of December 31, 2005, have been exercised or converted. Unless otherwise noted,
the address of each of these principal stockholders is our principal executive
offices.

                                       18
<PAGE>

Name of                          Amount and Nature of            Percentage
Beneficial Owner                 Beneficial Ownership             of Class
----------------                 --------------------            ----------
Matthew J. Cohen .............             0                         0%

All executive officers and
  as a group (one person) ....             0                         0%

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRNSACTIONS

         On September 7, 2004, the Company wired $150,000 to Tactica
("Tactica"), a subsidiary of IGIA, Inc., a publicly traded company. IGIA was an
affiliate of Mr. Bar-LavI, our former CEO. This amount was an investment
pursuant to a "Distribution Agreement" dated September 7, 2004, which expired on
October 31, 2004. The funds were invoiced at $68,354 for the purchase of 3,386
vacuum cleaners and $81,646 for "media advertising", per invoice from Tactica.
The total disbursements related to this Distribution Agreement amounted to
$343,896, through October 20, 2004. On October 21, 2004, Tactica filed for
bankruptcy. As of September 30, 2004, there were vacuum cleaners held in
inventory by the Company in the amount of $43,577, which were sold after year
end. The total loss incurred during the Distribution Agreement period from
September 7, 2004 through October 31, 2004 was approximately $69,000, of which
an approximate $80,000 net loss related to the quarter ended December 31, 2004.


                                     PART IV

ITEM 13. EXHIBITS

3.1      Bylaws (1)
3.2      Certificate of Incorporation (2)
3.3      Certificate of Amendment (2)
3.4      Certificate of Amendment (2)
3.5      Certificate of Amendment (3)
3.6      Certificate of Amendment (4)
3.7      Certificate of Amendment (5)
4.2      Form of Warrant dated July 2003 with an exercise price of $1.50 (6)
4.3      Form of (A) Warrant dated November 2003 with an exercise price of
         $2.92 (6)
4.4      Form of (B) Warrant dated November 2003 with an exercise price of
         $2.10 (6)
4.5      Warrant issued to IIG Capital, LLC (6)
4.6      Form of Series A-1 Warrant issued to Crestview Master, LLC, Ocean Drive
         Capital, LLC and Turquoise Partners, LLC (7)
4.7      Form of Series A-6 Warrant issued to Crestview Master, LLC, Ocean Drive
         Capital, LLC and Turquoise Partners, LLC (7)
4.8      Form of Convertible Debenture dated July 13, 2004 issued to Crestview
         Master, LLC, Ocean Drive Capital, LLC and Turquoise Partners, LLC (7)
4.9      Prime Plus 2% Convertible Debentures Due April 10, 2005 issued to
         Crestview Master, LLC, Ocean Drive Capital, LLC and Turquoise Partners,
         LLC (8)
10.1     Form of Registration Rights Agreement dated November 2003 (6)
10.2     Form of Registration Rights Agreement dated July 2003 (6)
10.3     Loan and Security Agreement dated May 4, 2004 with IIG Capital, LLC (1)
10.4     Second Amendment, Extension and Addition to Securities Purchase
         Agreement dated July 15, 2004 (8)
14.1     Code of Ethics (9)
31.1     Section 302 Certificate of Chief Executive Officer *
31.2     Section 302 Certificate of principal financial and accounting officer *
32.1     Section 906 Certificate of Chief Executive Officer and principal
         financial and accounting officer *

                                       19
<PAGE>

*        filed herewith
(1)      Incorporated by reference to the Form 10-QSB filed with on May 17, 2004
(2)      Incorporated by reference to the Report on Form 8-K as filed on April
         14, 2000.
(3)      Incorporated by reference to the Report on Form 8-K/A as filed on June
         30, 2000.
(4)      Incorporated by reference to the Report on Form 8-K as filed on October
         30, 2002.
(5)      Incorporated by reference to the Form 10-QSB as filed on August 20,
         2003.
(6)      Incorporated by reference to the Form 10-KSB as filed on January 13,
         2004.
(7)      Incorporated by reference to the registration statement on Form SB-2 as
         filed on July 30, 2004.
(8)      Incorporated by reference to the Form 10-KSB as filed on February 17,
         2005.
(9)      Incorporated by reference to the Form 10-KSB as filed on January 13,
         2004

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         Sherb & Co., LLP served as our independent registered public accounting
firm for fiscal 2005 and Radin, Glass & Co., LLP served as our independent
registered public accounting firm for 2004. The following table shows the fees
that were billed for the audit and other services provided by each of these
firms for the 2004 and 2005 fiscal years.

                                    Fiscal 2005                Fiscal 2004
                                    -----------                -----------

Audit Fees ..................       $    15,500                $    42,000
Audit-Related Fees ..........                --                     24,044
Tax Fees ....................                --                          0
All Other Fees ..............                --                          0
         Total ..............       $    15,500                $    66,044
                                    ===========                ===========

         Audit Fees -- This category includes the audit of our annual financial
statements, review of financial statements included in our Form 10-QSB Quarterly
Reports and services that are normally provided by the independent auditors in
connection with engagements for those fiscal years. This category also includes
advice on audit and accounting matters that arose during, or as a result of, the
audit or the review of interim financial statements.

         Audit-Related Fees -- This category consists of assurance and related
services by the independent auditors that are reasonably related to the
performance of the audit or review of our financial statements and are not
reported above under "Audit Fees." The services for the fees disclosed under
this category include consultation regarding our correspondence with the SEC and
other accounting consulting.

         Tax Fees -- This category consists of professional services rendered by
our independent auditors for tax compliance and tax advice. The services for the
fees disclosed under this category include tax return preparation and technical
tax advice.

         All Other Fees -- This category consists of fees for other
miscellaneous items.

         Our Board of Directors has adopted a procedure for pre-approval of all
fees charged by the our independent auditors. Under the procedure, the Board
approves the engagement letter with respect to audit, tax and review services.
Other fees are subject to pre-approval by the Board, or, in the period between
meetings, by a designated member of Board. Any such approval by the designated
member is disclosed to the entire Board at the next meeting. The audit and tax
fees paid to the auditors with respect to fiscal year 2005 were pre-approved by
the Board of Directors.

                                       20
<PAGE>

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                   GENIO GROUP, INC.

January 17, 2006                   By: /s/ Matthew J. Cohen
                                       --------------------
                                   Matthew J. Cohen, CEO, CFO principal
                                   executive officer and principal financial and
                                   accounting officer

         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

      Signature                       Title                       Date
      ---------                       -----                       ----

/s/ Matthew J. Cohen         CEO, CFO and director         January 17, 2006
--------------------
Matthew J. Cohen

                                       21
<PAGE>

                       GENIO GROUP, INC. AND SUBSIDIARIES

                                    CONTENTS

                                                                            Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  - Sherb & Co., LLP ................................................        F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 - Radin, Glass & Co., LLP ..........................................        F-2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet ..........................................        F-3

Consolidated Statements of Operations ...............................        F-4

Consolidated Statements of Changes in Stockholders' Deficit .........        F-5

Consolidated Statements of Cash Flows ...............................        F-6

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ......................  F-7 to 23


<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Stockholders and Director
Genio Group, Inc. and subsidiaries
Lake Worth, Florida

We have audited the accompanying consolidated balance sheet of Genio Group, Inc.
as of September 30, 2005, and the related consolidated statements of operations,
stockholders' deficit and cash flows for the year then ended September 30, 2005.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Genio Group, Inc. as
of September 30, 2005, and the results of its operations and its cash flows for
the year then ended September 30, 2005, in conformity with accounting principles
generally accepted in the United States.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described more fully in Note 1 to
the financial statements, the Company has suffered recurring losses from
operations, including a net loss of approximately $3.1 million for the year
ended September 30, 2005, and has a substantial working capital deficiency as of
September 30, 2005. These factors raise substantial doubt the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

                                           /s/ Sherb & Co., LLP
                                               Sherb & Co., LLP
                                           Certified Public Accountants

          New York, New York
          January 13, 2006

                                       F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
Genio Group, Inc. and Subsidiaries

         We have audited the accompanying consolidated balance sheet of Genio
Group, Inc. and subsidiaries as of September 30, 2004, and the related
consolidated statements of operations, stockholder's deficit, and cash flows for
the year ended September 30, 2004. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

         We conducted our audit in accordance with the standards of the PCAOB
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

         In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of September 30, 2004, and the results of its operations and cash
flows for the year then ended September 30, 2004 in conformity with US generally
accepted accounting principles.

         The accompanying financial statements have been prepared assuming that
Genio Group, Inc. and subsidiaries will continue as a going concern. As more
fully described in Note 1, the Company has incurred recurring operating losses
and will have to obtain additional capital to sustain operations. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments to reflect
the possible effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result from the outcome of
this uncertainty.

                                        /s/ RADIN, GLASS & CO., LLP
                                            RADIN, GLASS & CO, LLP
                                        Certified Public Accountants

New York, New York
February 11, 2005

                                       F-2
<PAGE>

                       GENIO GROUP, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET

                                                             September 30, 2005
                                                             ------------------
                          ASSETS
CURRENT ASSETS
  Cash ....................................................  $            4,413

                                                             ------------------

                                                             $            4,413
                                                             ==================

           LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
  Accounts payable and accrued expense ....................  $          857,425
  Convertible debentures ..................................           2,300,000
  Advances from sharholder ................................              35,000
  Line of credit payable ..................................              78,187
                                                             ------------------
    Total current liabilities .............................           3,270,612

Long Term Debt ............................................             100,000

COMMITMENTS and CONTINGENCIES

STOCKHOLDERS' DEFICIT
  Common stock - par value $.0001, per share; authorized,
    200,000,000 shares; 55,681,787 shares issued and
    outstanding ...........................................               5,568
  Additional paid in capital ..............................          15,255,732
  Accumulated deficit .....................................         (18,627,499)

                                                             ------------------
                                                                     (3,366,199)
                                                             ------------------

                                                             $            4,413
                                                             ==================

         The accompanying notes are an integral part of this statement.

                                       F-3
<PAGE>

                        GENIO GROUP, INC AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                 Year Ended        Year Ended
                                                September 30,     September 30,
                                                    2005              2004
                                               --------------    --------------

Net sales ...................................   $     320,330     $   3,999,735
Cost of sales ...............................         188,272         2,957,073
                                               --------------    --------------

    Gross profit ............................         132,058         1,042,662

Selling expenses ............................         374,436         2,772,775
General and administrative expenses .........       1,034,647         3,891,146
Equity based compensation ...................       1,800,738         1,612,757
Depreciation and amortization ...............           3,249            13,232
                                               --------------    --------------

    Loss from operations ....................      (3,081,012)       (7,247,248)

Other income and (expense)
  Interest expense ..........................        (333,966)       (1,685,375)
  Penalties .................................        (107,894)       (1,012,002)
  Loss on disposal of assets ................          (4,583)
  Gain on settlement of payables ............         391,053           (52,310)
                                               --------------    --------------

Loss before provision for income taxes ......      (3,136,402)       (9,996,935)
Provision for income taxes ..................               0                 0
                                               --------------    --------------

NET LOSS                                       ($   3,136,402)   ($   9,996,935)
                                               ==============    ==============

Basic and diluted earnings (loss) per
  share .....................................  ($        0.09)   ($        0.38)
                                               ==============    ==============

Weighted-average shares outstanding-basic
  and diluted ...............................      33,105,905        26,482,419
                                               ==============    ==============

         The accompanying notes are an integral part of this statement.

                                       F-4
<PAGE>

                        GENIO GROUP, INC AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIT
<TABLE>
<CAPTION>
                                              Commn Stock                                             Unearned
                                       --------------------------                                    Consulting
                                           #              $              APIC           Deficit       Services        Total
                                       ----------------------------------------------------------------------------------------
<S>                                    <C>           <C>             <C>             <C>            <C>           <C>
Balance September 30, 2003 ..........  25,744,728    $      2,574    $  7,945,339    ($ 5,494,162)  ($   660,019)  $ 1,793,732

Common shares issued for services ...     909,000              91       1,354,516                       (243,000)    1,111,607

Common shares issued for regiatration
  penalties .........................   1,266,670             127         911,875                                      912,002

Amortization ........................                                                                  1,320,384     1,320,384

Common shares retired pursuant
  settlements .......................    (553,000)            (56)       (283,991)                                    (284,047)

Value of options and warrants issued                                    3,795,554                     (2,218,105)    1,577,449

Stock issued in private placement ...     476,190              48         941,452                                      941,500

Net loss ............................                                                  (9,996,935)                  (9,996,935)
                                       ----------------------------------------------------------------------------------------

Balance September 30, 2004 ..........  27,843,588           2,784      14,664,745     (15,491,097)    (1,800,740)   (2,624,308)

Beneficial conversion rights of
  convertible debt ..................                                      75,000                                       75,000

Warrants issued with debt ...........                                      73,063                                       73,063

Amortization of unearned compensation                                                                  1,800,740     1,800,740

Conversoin of liabilities into equity  27,838,199           2,784         442,924                                      445,708

Net loss ............................                                                  (3,136,402)                  (3,136,402)
                                       ----------------------------------------------------------------------------------------

Balance September 30, 2005 ..........  55,681,787    $      5,568    $ 15,255,732    ($18,627,499)   $         0  ($ 3,366,199)
                                       ========================================================================================
</TABLE>

         The accompanying notes are an integral part of this statement.

                                       F-5
<PAGE>
<TABLE>
                                   GENIO GROUP, INC AND SUBSIDIARIES
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
                                                                          Year Ended       Year Ended
                                                                        September 30,    September 30,
                                                                             2005             2004
                                                                        -------------    -------------
<S>                                                                     <C>              <C>
Cash flows from operating activities
  Net loss ..........................................................   ($  3,136,402)   ($  9,996,935)
  Adjustments to reconcile net loss to net cash used in operating
    activities
    Depreciation, amortization, intangible write down ...............          18,249           13,232
    Write down of inventory .........................................          95,371        1,495,438
    Reserve for returns and bad debts ...............................               -          836,148
      Common stock, stock options and warrants issued ...............       1,800,740        4,637,395
      Write off of assets sold in liquidation .......................          12,000                -
      Assets returned for release of accounts payable ...............           5,575                -
      Changes in assets and liabilities
        Accounts receivable .........................................         184,771           44,749
        Inventories .................................................          73,206         (566,613)
        Prepaid expenses and other current assets and intangibles ...           9,703          161,678
        Accounts payable and accrued expense ........................          20,485          797,498
        Deferred revenue ............................................                         (433,367)
                                                                        -------------    -------------
          Net cash used in operating activities .....................        (916,302)      (3,010,777)
                                                                        -------------    -------------

Cash flows from investing activities
    Purchase of furniture and equipment .............................          (5,000)         (31,748)
    Deferred financing costs ........................................               -          (20,000)
    Loss on disposal of equipment ...................................               -           19,411
                                                                        -------------    -------------
          Net cash used in investing activities .....................          (5,000)         (32,337)
                                                                        -------------    -------------

Cash flows from financing activities
    Common stock issued, net ........................................               -          941,500
    Proceeds from issuance of convertible debentures and advances ...         685,000        1,750,000
    Proceeds from line of credit ....................................        (178,255)         256,442
                                                                        -------------    -------------
          Net cash provided by financing activities .................         506,745        2,947,942
                                                                        -------------    -------------

          NET INCREASE (DECREASE) IN CASH ...........................        (414,557)         (95,172)
Cash at beginning of year ...........................................         418,970          514,142
                                                                        -------------    -------------

Cash at end of year .................................................    $      4,413     $    418,970
                                                                        =============    =============

Supplemental disclosures of cash flow information:
    Cash paid during the period for
      Interest ......................................................               -           65,563
      Taxes .........................................................               -           12,691
Noncash investing and financing transactions:
    Shares issued for penalties .....................................               -          912,002
    Equity issued for services and debt .............................               -        5,150,161
    Debt converted to equity ........................................         445,708                -

                     The accompanying notes are an integral part of this statement.

                                                  F-6
</TABLE>
<PAGE>
                       GENIO GROUP, INC. and subsidiaries
                   Notes to Consolidated Financial Statements
                 For the years ended September 30, 2005 and 2004

ORGANIZATION

Prior to year end, primarily due to the lack of financing, Genio Group, Inc.
(formerly National Management Consulting, Inc. and referred to herein as "Genio"
or the "Company") has closed all operations and terminated all but one of its
employees. One of the directors resigned as the chairman of the audit committee
and was appointed as the acting CEO and CFO of the Company in order to
orchestrate an orderly liquidation of the Company's assets and seek settlement
agreements with the creditors.

Genio was a developer and marketer of entertainment and leisure products. Genio
holds a worldwide license with Marvel Enterprises, Inc. to manufacture and sell
specific categories of products built around the globally recognizable Marvel
Super Heroes(TM), including Spider-Man(TM), The Incredible Hulk(TM), X-Men(TM),
Elektra(TM), Daredevil(TM) and the Fantastic Four(TM). The Genio Card collection
was available in select national retailers in the United States. Genio Cards
consist of 360 illustrated cards that take children on a journey through 30
subject categories: from the history of dinosaurs and attributes of reptiles to
facts about motor Sports and manmade landmarks.

On July 21, 2003, the Company acquired Genio Inc. (formerly Tele-V, Inc.)
through the issuance of an aggregate of 15,484,448 shares of common stock,
reflecting 65% of the 23,822,228 shares of common stock outstanding after the
closing. For accounting purposes, the transaction is reflected as if the Company
was acquired by Genio Inc. with the business of Genio Inc. being the successor
entity. The acquisition was accounted for as a reverse acquisition with the
management of Genio controlling and operating the Company after the acquisition
date.

In addition, the capital structure of Genio has been recapitalized to account
for the equity structure subsequent to the acquisition as if Genio had been the
issuer of the common stock for all periods presented.

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred net
losses of $3,136,402 and $9,996,935 for the years ended September 30, 2005 and
September 30, 2004, respectively. Additionally, the Company had a net working
capital deficiency and a shareholders' deficiency at September 30, 2005 and
negative cash flow from operations for the years ended September 30, 2005 and
2004. The Company is in default of its line of credit and substantially all of
its convertible debentures. These conditions raise substantial doubt about the
Company's ability to continue as a going concern.

Management expects to incur additional losses in the foreseeable future and
recognizes the need to raise capital to remain viable. The accompanying
consolidated financial statements do not include any adjustments that might be
necessary should the Company be unable to continue as a going concern

                                       F-7
<PAGE>

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of Genio Group, Inc.
and its subsidiaries ("the Company"). Intercompany accounts and transactions
have been eliminated in consolidation.

INVENTORIES

The Company's inventory consists entirely of finished goods. Inventories are
stated at lower of cost or market. Cost is determined on the first-in, first-out
basis. The Company fully reserved for the remaining inventory on hand of
$95,000, as its salability is questionable.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost. Depreciation is computed using the
straight-line method. Estimated useful lives used in computing depreciation
range from three to five years for equipment and furniture and the remaining
lease period for leasehold improvements. In accordance with SFAS 144, the
Company periodically evaluates the carrying value of its furniture and equipment
for circumstances which may indicate impairment. The Company has disposed of all
of its equipment as of September 30, 2005.

REVENUE RECOGNITION

Revenue related to sales of the Company's wholesale products was recognized when
products were shipped, the title and risk of loss has passed to the customer,
the sales price is fixed or determinable and collectibility is reasonably
assured. Sales made with a return privilege are accounted for pursuant to SFAS #
48 "Revenue Recognition When Right of Return Exists." The Company had only
commenced shipments as of September 30, 2003, the amount of future returns could
not be reasonably estimated at that time.

The Company also has sold a separate and unrelated product directly to the
consumer via an infomercial. These sales, which were not material, are recorded
upon notification of such merchandise being sold and the sales order being
filled by an independent fulfillment center.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
which affect the reporting of assets and liabilities as of the dates of the
financial statements and revenues and expenses during the reporting period.
These estimates primarily relate to the sales recognition, allowance for
doubtful accounts, inventory obsolescence and asset valuations. Actual results
could differ from these estimates.

INCOME TAXES

The Company provides for deferred income taxes resulting from temporary
differences between the valuation of assets and liabilities in the financial
statements and the carrying amounts for tax purposes. Such differences are
measured by applying statutory tax rates and laws in effect at the balance sheet
date to the differences among book and tax basis of the assets and liabilities.

                                       F-8
<PAGE>

STOCK OPTIONS

The Company accounts for stock-based compensation plans under Accounting
Principles Board Opinion 25, (APB 25) Accounting for Stock Issued to Employees
and the related interpretation, for which no compensation cost is recognized as
of the grant when the estimated fair value of stock options issued with an
exercise price equal to or greater than the fair value of the common stock on
the date of grant. The Company uses the "intrinsic" method for determining
compensation expense for new options whereby expense is recorded for the quoted
market price of the stock issued, or in the case of options, for the difference
between the stock's quoted market price on the date of the grant and the option
exercise price. When the market price at the date of the grant exceeds the
exercise price of the underlying shares, compensation expense is recorded.
Statement of Financial Accounting Standards No. 123 (SFAS 123) Accounting for
Stock-Based Compensation, as amended by Statement of Financial Accounting
Standards No. 148 (SFAS 148) Accounting for Stock-Based Compensation -
Transition and Disclosure, requires that companies, which do not elect to
account for stock-based compensation as prescribed by this statement, disclose
the pro-forma effects on earnings and earnings per share as if SFAS 123 has been
adopted.

If the recognition provisions of SFAS 123 using the Black-Scholes option pricing
model, the resulting pro-forma net income (loss) available to common
shareholders, and pro-forma net income (loss) available to common shareholders
per share would be as follows:

                                                    Year Ended       Year Ended
                                                     September        September
                                                     30, 2005         30, 2004
                                                   -----------------------------
Net loss available to common shareholders,
   as reported .................................   ($ 3,136,402)  ($  9,996,935)

Deduct: Stock based compensation, net of tax ...                        (37,202)
                                                   -----------------------------

Net loss available to common shareholders,
   pro forma ...................................   ($ 3,136,402)  ($ 10,034,137)
                                                   -----------------------------

Basic earnings per share:
   As reported .................................   ($      0.09)  ($       0.38)
                                                   =============================
   Proforma ....................................   ($      0.09)  ($       0.38)
                                                   =============================

The above stock-based employee compensation expense has been determined
utilizing a fair value method, the Black-Scholes option-pricing model. There
were 25,000 options vested during September 30, 2005, exercisable at $.60. The
pro-forma effects are less than $100, accordingly not presented above.

In accordance with SFAS 123, the fair value of each option grant has been
estimated as of the date of the grant using the Blach-Scholes option pricing
model with the following weighted average assumptions:

                                       F-9
<PAGE>

                                                  For Years Ended September 30,
                                                  -----------------------------
                                                     2005                2004
                                                  ---------           ---------
Risk free interest rate .......................     4.26%                4.0%
Expected life .................................     2 yrs             2-3 years
Dividend rate .................................     0.00%               0.00%
Expected volatility ...........................      50%                41.0%

CONCENTRATION OF CREDIT RISK

Periodically, the Company may hold cash in the bank in excess of $100,000, which
exceeds the FDIC insurance limits and is therefore uninsured.

NEW ACCOUNTING PRONOUNCEMENTS

FASB 151 -  Inventory Costs

In November 2004, the FASB issued FASB Statement No. 151, which revised ARB
No.43,relating to inventory costs. This revision is to clarify the accounting
for abnormal amounts of idle facility expense, freight, handling costs and
wasted material (spoilage). This Statement requires that these items be
recognized as a current period charge regardless of whether they meet the
criterion specified in ARB 43. In addition, this Statement requires the
allocation of fixed production overheads to the costs of conversion be based on
normal capacity of the production facilities. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after the date of this Statement is issued. Management believes this
Statement will have no impact on the financial statements of the Company once
adopted.

FASB 152 - Accounting for Real Estate Time-Sharing Transactions

In December 2004, the FASB issued FASB Statement No. 152, which amends FASB
Statement No. 66, Accounting for Sales of Real Estate, to reference the
financial accounting and reporting guidance for real estate time-sharing
transactions that is provided in AICPA Statement of Position (SOP) 04-2,
Accounting for Real Estate Time-Sharing Transactions. This Statement also amends
FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of
Real Estate Projects, to state that the guidance for (a) incidental operations
and (b) costs incurred to sell real estate projects does not apply to
real-estate time-sharing transactions. The accounting for those operations and
costs is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. Management
believes this Statement will have no impact on the financial statements of the
Company once adopted.

FASB 153 - Exchanges of Non-monetary Assets

In December 2004, the FASB issued FASB Statement No. 153. This Statement
addresses the measurement of exchanges of non-monetary assets. The guidance in
APB Opinion No. 29, Accounting for Non-monetary Transactions, is based on the
principle that exchanges of non-monetary assets should be measured based on the
fair value of the assets exchanged. The guidance in that Opinion, however,
included certain exceptions to that principle. This Statement amends Opinion 29
to eliminate the exception for non-monetary exchanges of similiar productive
assets and replaces it with a general exception for exchanges of non-monetary
assets that do not have commercial substance. A non-monetary exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. This Statement is effective
for financial statements for fiscal years beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges incurred during fiscal
years beginning after the date of this Statement is issued. Management believes
this Statement will have no impact on the financial statements of the Company
once adopted.

                                      F-10
<PAGE>

FASB 123 (revised 2004) - Share-Based Payments

In December 2004, the FASB issued a revision to FASB Statement No. 123,
Accounting for Stock Based Compensation. This Statement supersedes APB Opinion
No. 25, Accounting for Stock Issued to Employees, and its related implementation
guidance. This Statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods or
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods or services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. This Statement does not change the accounting guidance for
share-based payment transactions with parties other than employees provided in
Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for
Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services." This Statement does not address
the accounting for employee share ownership plans, which are subject to AICPA
Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership
Plans.

A nonpublic entity will measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of those instruments, except in certain circumstances.

A public entity will initially measure the cost of employee services received in
exchange for an award of liability instruments based on its current fair value;
the fair value of that award will be re-measured subsequently at each reporting
date through the settlement date. Changes in fair value during the requisite
service period will be recognized as compensation cost over that period. A
nonpublic entity may elect to measure its liability awards at their intrinsic
value through the date of settlement.

The grant-date fair value of employee share options and similar instruments will
be estimated using the option-pricing models adjusted for the unique
characteristics of those instruments (unless observable market prices for the
same or similar instruments are available).

Excess tax benefits, as defined by this Statement, will be recognized as an
addition to paid-in-capital. Cash retained as a result of those excess tax
benefits will be presented in the statement of cash flows as financing cash
inflows. The write-off of deferred tax assets relating to unrealized tax
benefits associated with recognized compensation cost will be recognized as
income tax expense unless there are excess tax benefits from previous awards
remaining in paid-in capital to which it can be offset.

The notes to the financial statements of both public and nonpublic entities will
disclose information to assist users of financial information to understand the
nature of share-based payment transactions and the effects of those transactions
on the financial statements.

                                      F-11
<PAGE>

The effective date for public entities that do not file as small business
issuers will be as of the beginning of the first annual reporting period that
begins after June 15, 2005. For public entities that file as small business
issuers and nonpublic entities the effective date will be as of the beginning of
the first annual reporting period that begins after December 15, 2005.
Management intends to comply with this Statement at the scheduled effective date
for the relevant financial statements of the Company. Management believes the
effects of adopting this revision to FASB 123, will approximate recording those
amounts currently reported as compensation herein on a pro-forma basis as
allowed under FASB 123.

FASB 154 - Accounting Changes and Error Corrections

In May 2005, the FASB issued FASB Statement No. 154, which replaces APB Opinion
No.20 and FASB No. 3. This Statement provides guidance on the reporting of
accounting changes and error corrections. It established, unless impracticable
retrospective application as the required method for reporting a change in
accounting principle in the absence of explicit transition requirements to a
newly adopted accounting principle. The Statement also provides guidance when
the retrospective application for reporting of a change in accounting principle
is impracticable. The reporting of a correction of an error by restating
previously issued financial statements is also addressed by this Statement. This
Statement is effective for financial statements for fiscal years beginning after
December 15, 2005. Earlier application is permitted for accounting changes and
corrections of errors made in fiscal years beginning after the date of this
Statement is issued. Management believes this Statement will have no impact on
the financial statements of the Company once adopted.

         In March 2005, the Financial Accounting Standards Board ("FASB") issued
interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations"
("FIN No. 47"). FIN No. 47 clarifies that the term conditional obligation as
used in FASB Statement No. 143, "Accounting for Assets Retirement
Obligations", refers to a legal obligation to perform an asset retirement
activity in which the timing and/or method of settlement are conditional on a
future event that may or may not be within the control of the entity. FIN No. 47
requires that the uncertainty about the timing and/or method of settlement of a
conditional asset retirement obligation be factored into the measurement of the
liability when sufficient information exists. FIN No. 47 also clarifies when an
entity would have sufficient information to reasonably estimate the fair value
of an asset retirement obligation. FIN No. 47 is effective for fiscal years
ending after December 15, 2005. The Company has not yet determined the impact,
if any, of the adoption of FIN No. 47 on its financial statements.

NOTE 2 - RESTATEMENT

         The Company restated its financial results for overstatement of
revenues relating to sales agreements which had a right of return. For the nine
months ended June 30, 2004, this overstatement primarily related to one large
sale agreement, which accounted for $682,085 of the reduction of the sales.

         For the three and nine months ended June 30, 2004 the adjustments were
as follows: reversal of sales of $57,224 and $739,309, respectively, and related
reduction to cost of sales of $22,832 and $294,984, respectively. As a result,
accounts receivable as of June 30, 2004 was reduced by $739,309 and inventory
held at customer increased by $294,984.

                                      F-12
<PAGE>

The Company has filed its amended quarterly reports on Form 10-QSB for the
fiscal quarters ended March 31, 2004 and June 30, 2004.

NOTE 3 - LOSS PER SHARE

Loss per share is computed in accordance with SFAS 128. Basic EPS is computed
using weighted average shares outstanding, while diluted EPS is computed using
weighted average shares outstanding plus shares representing stock distributable
under stock-based plans computed using the treasury stock method. The common
stock equivalents were not included in the effect of dilutive stock options
because they had an anti-dilutive effect.

NOTE 4 - INVENTORIES

Inventories at September 30, 2005, consisted entirely of finished products and
shipping supplies as follows:

          Gross inventory ............  $  95,371
          Allowance for salability ...    (95,371)
                                        ---------

          Inventory, net .............  $     -0-
                                        =========

Inventories are stated at lower of cost or market. Cost is determined on the
first-in, first-out basis.

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accrued expenses and other liabilities at September 30, 2005 consist of the
following:

          Accounts payable ..........   $ 309,518
          Accrued royalties .........      90,000
          Accrued penalties .........     200,000
          Accrued interest ..........     204,664
          Other .....................      53,243
                                        ---------

          Total .....................   $ 857,425
                                        =========

NOTE 6 - INCOME TAXES

At September 30, 2005, the Company had net operating loss carryforwards of
approximately $12,700,000 for book and tax purposes, expiring in year 2022
through 2025. These carryforwards are subject to possible limitation on annual
utilization if there are "equity structural shifts" or "owner shifts" involving
"5% shareholders" (as these terms are defined in Section 382 of the Internal
Revenue Code).

At this time, the Company does not believe it can reliably predict future
taxable profits. Accordingly, the increase in deferred tax assets to
approximately $4,300,000 has been reduced fully by the valuation allowance.

                                      F-13
<PAGE>

Reconciliation of income taxes shown in the financial statements and amounts
computed by applying the Federal income tax rate of 34% for the year ended
September 30, 2005 is as follows:

          Loss before income taxes .............................   $ (3,136,402)
          Computed expected tax credit at 34% ..................      1,038,000

          Permanent timing difference - equity compensation ....       (700,000)
          Increase in NOL valuation allowance ..................       (338,000)

          Provision of income taxes ............................   $         --

NOTE 7 - LINE OF CREDIT

On May 4, 2004 the Company entered into a Loan and Security Agreement with IIG
Capital, LLC, as agent for IIG Trade Opportunities Fund N.V., as lender.
Pursuant to the loan agreement, IIG granted the Company a credit line of up to
$3,000,000 based on a percentage of certain receivables. This agreement provides
for interest, collateral management and account management fees. In the event
that such fees were less than $20,000 for the month, then the minimum monthly
fee of $20,000 was due. As of September 30, 2005, $78,187 was owed on such
credit line. In connection with the loan agreement we granted IIG a warrant to
purchase 250,000 shares of our common stock at an exercise price of $1.0625 per
share. Such warrants were valued at $212,491 and expensed in the year ended
September 30, 2004. The Company defaulted on the terms of this credit line. The
interest rate on such line of credit is the greater of prime rate plus 4.25 per
annum or 8.75%. The default in interest rate shall be prime rate plus 10% per
annum. The Company is in dispute with the lender as to the terms of the loan
agreement and amounts due. The Company is attempting to settle the debt with the
lender.

Prime rate at September 30, 2005 was 6.75%.

NOTE 8 - CONVERTIBLE DEBENTURES and OTHER - SUBSTANTIALLY ALL SUCH DEBT IS IN
DEFAULT AS OF JANUARY 1, 2006.

$1,500,000 CONVERTIBLE DEBENTURE

On July 15, 2004, the Company issued a convertible debenture to Crestview
Master, LLC. in the principal amount of $1,500,000 pursuant to a private
placement transaction with Crestview. The convertible debenture matures on July
14, 2005 and bears interest at the rate of eight percent (8%) per annum.
Interest is payable quarterly at the Company's option in cash or shares common
stock. The note is convertible into shares of common stock at a fixed conversion
price of $0.50 per share. In connection with the issuance of the debenture, the
Company entered into a registration rights agreement with Crestview, the terms
of which require that the Company file a registration statement with the
Commission covering the shares of common stock underlying the debenture.

The Company may, at its sole option, require the conversion of the debentures
if, after the 180th day anniversary of the date on which this registration
statement is declared effective by the Commission (A) the volume weighted
average price for each of any 20 consecutive Trading Days, which 20 consecutive
Trading Day period shall have commenced only after the Effective Date, exceeds
$2.00, adjusted for any stock splits, reverse splits and the like occurring
after the original issue date of the debenture, or (B) at any time, the Company
completes a public offering of its common stock with (1) aggregate proceeds
equal to or greater than $20,000,000 and (2) a price per share of its common
stock equal to or greater than $2.00, adjusted for any stock splits, reverse
splits and the like occurring after the original issue date of the debenture.

                                      F-14
<PAGE>

The terms of the convertible note prohibit conversion of the note to the extent
that conversion of the note would result in the holder, together with its
affiliates, beneficially owning in excess of 9.99% of outstanding shares of
common stock. A holder may waive the 9.99% limitation upon 61 days' prior
written notice to the Company.

In connection with the foregoing, we issued warrants to Crestview Master, LLC to
purchase up to 1,800,000 shares of our common stock pursuant to a private
placement transaction with Crestview. Crestview may exercise the warrant through
July 14, 2009. The exercise prices under the warrant are $0.80 per share with
respect to 900,000 shares and $1.00 per share with respect to 900,000 shares
acquired upon exercise of the warrant. The terms of the warrant prohibit
exercise of the warrant to the extent that exercise of the warrant would result
in the holder, together with its affiliates, beneficially owning in excess of
9.99% of outstanding shares of common stock. A holder may waive the 9.99%
limitation upon 61 days' prior written notice to us. See subsequent events
footnote for amendment to the terms of this convertible debenture.

On July 22, 2004 we entered into an agreement Ocean Drive Capital pursuant to
which Ocean Drive Capital invested $100,000 on terms that are substantially
identical to those of the Crestview investment. The Company granted Ocean Drive
Capital a warrant to purchase up to 60,000 shares of common stock at an exercise
price of $0.80 per share and a warrant to purchase up to 60,000 shares of common
stock at an exercise price of $1.00 per share.

On July 30, 2004 we entered into an agreement with Turquoise Partners, LLC
pursuant to which Turquoise invested $150,000 on terms that are substantially
identical to those of the Crestview investment. The Company granted Turquoise a
warrant to purchase up to 90,000 shares of common stock at an exercise price of
$0.80 per share and a warrant to purchase up to 90,000 shares of common stock at
an exercise price of $1.00 per share.

$500,000 CONVERTIBLE DEBENTURE

         On November 1, 2004, the registrant entered into an agreement with one
of its existing investors, Crestview Master, LLC ("Crestview"), pursuant to
which Crestview invested $500,000 in the form of a convertible debenture. The
debenture bears interest at 8% per annum with a maturity date of December 31,
2005. The note is convertible into shares of common stock at a conversion price
of $0.20 per share, subject to certain adjustments and anti-dilution provisions.
In addition, the registrant issued to Crestview a warrant to purchase up to
750,000 shares of its common stock at an exercise price of $0.40 per share. Only
$300,000 of such debenture was received. The warrants were valued at $73,063 and
the beneficial conversion feature of such debt was valued at $75,000. The
warrants and beneficial conversion feature were both expensed as interest
expense in the quarter ended December 31, 2004.

                                      F-15
<PAGE>

         Contemporaneously with such investment, the registrant amended the
convertible debentures and warrants previously issued to Crestview, Ocean Drive
Equities and Turquoise Partners. The maturity of the convertible debentures in
the aggregate amount of $1,500,000, previously issued to Crestview and its
affiliates, has been extended until December 31, 2005 and the conversion price
has been reduced to $0.25 per share. The exercise price of the warrants
previously issued to Crestview and its affiliates has been reduced to $0.60 per
share. The repriced warrants were repriced to the market price at the date of
such repricing, therefore there is no additional expense to record for such
repricing. Due to the repricing of these warrants, the valuation of such
warrants is to be determined under variable accounting, hence fluctuations in
the market price of the Company's common stock will require an adjustment to the
valuation of such warrants quarterly, if such stock price in the market exceeds
the reduced conversion price at the end of a reporting period.

$200,000 CONVERTIBLE DEBENTURE

         On February 15, 2005, the securities purchase agreements with
Crestview, were amended again, pursuant to the Second Amendment, Extension and
Addition to Securities Purchase Agreement dated July 15, 2004 (the "Second
Amendment"). Therein Crestview agreed to purchase a $200,000 prime plus 2%
convertible debenture due April 30, 2005. Highlights of this Second Amendment
are as follows: (a) contemporaneous with such investment, the Company reduced
the conversion price of the restated 8% convertible debenture in the principal
amount of $1,500,000 from $.25 to $.023, (b) the exercise prices of the restated
series A-1 warrants and A-2 warrants, each to purchase 900,000 shares of common
stock, were reduced from $.60 to $.05 per share, (c) the conversion price of the
8% convertible debenture due December 31, 2005 in the principal amount of
$300,000 was reduced from $.20 to $.023, (d) the exercise price of the 750,000
warrants related the $300,000 8% convertible debenture was reduced from $.40 to
$.05 per share, (e) Crestview has the right, but not the obligation, to appoint
such number of directors of the Company as will constitute a majority of the
Board of Directors, until such time as the Crestview outstanding debentures have
been fully converted or paid in full, and (f) upon execution of the amendment
Crestview executed and delivered a release to each of the three former
independent directors.

         This financing was also conditioned upon a certain other shareholder
arranging for another $150,000 investment of principal in a debenture and Shai
Bar-Lavi, our former CEO, rendering for cancellation, without consideration, all
shares owned by him or members of his immediate family. During the quarter ended
March 31, 2005, proceeds of $50,000 were received from the aforementioned
shareholder. The Company continues to pursue the cancellation of Shai Bar-Lavi's
common shareholding.

         Conversion of the debentures or exercise of the aforementioned warrants
is at the option of the holder. Hence, the beneficial conversion feature and
repriced warrants will be expensed upon valuation of such equity rights, but
will be limited to the principal amount of such debentures. These debentures
also carry a prepayment penalty in the amount of 120% of principal.

                                      F-16
<PAGE>

$100,000 CONVERTIBLE DEBENTURE

         On May 11, 2005, the securities purchase agreements with Turquoise
Partners, LLC, ("TP") were amended, pursuant to the First Amendment, Extension
and Addition to Securities Purchase Agreement dated July 15, 2004 (the "First
Amendment"). Therein TP agreed to purchase a $100,000 Prime plus 2% convertible
debenture due December 31, 2006. Highlights of this First Amendment are as
follows: (a) contemporaneous with such investment, the Company reduced the
conversion price of the restated 8% convertible debenture in the principal
amount of $150,000 from $.25 to $.023, (b) the exercise prices of the restated
series A-1 warrants and A-2 warrants, each to purchase 90,000 shares of common
stock, were reduced from $.80 to $.05 per share, (c) the maturity date of the
$150,000 8% convertible debenture was extended to be due December 31, 2006, and
(d) upon execution of the amendment TP shall execute and deliver a release to
each of the three former independent directors. The recent $100,000 from TP was
received $50,000 in February 2005 and $50,000 in May 2005.

In late fiscal 2005, an additional $35,000 was advanced by the aforementioned
creditor for the settlement of an outstanding payable. Such debt is due on
demand and does not bear interest.

         If all of such debentures were converted there would be approximately
an additional 100,000,000 shares issued, resulting in an increase of greater
than 50% of the shares outstanding, after the conversion.

NOTE 9 - STOCK OPTIONS and WARRANTS

A. Warrants

Warrant activity is summarized as follows:

                                                        Weighted Average
                                                  ----------------------------
                                                   Warrants     Exercise Price
                                                  ----------    --------------
  Outstanding at September 30, 2003
      Issued ...............................       3,000,000    $         1.50
      Expired or cancelled .................       3,384,285    $    .80- 2.92
      Exercised ............................              --                --
                                                  ----------    --------------
  Outstanding at September 30, 2004 ........       6,384,285    $         1.37
      Issued ...............................         750,000              0.05
      Expired or cancelled .................      (3,238,095)             1.60
      Exercised ............................              --                --
                                                  ----------    --------------
  Outstanding at September 30, 2005 ........       3,896,190    $         0.47
                                                  ==========    ==============

The 750,000 of warrants were issued with an exercise price at the then market
price.

                                      F-17
<PAGE>

The following table summarizes information about warrants outstanding and
exercisable at September 30, 2005:

                                                   Weighted       Weighted
                                                    Average       Average
                                                   Remaining      Exercise
                                    Shares       Life in Years     Price
                                   ---------     -------------    --------
Range of exercise prices
$0.05 - $1.00 ..................   2,850,000              3.38    $   0.06
$1.01 - $1.50 ..................     570,000              1.65    $   1.20
$2.10 ..........................     476,190              0.29    $   2.10
                                   ---------     -------------    --------
                                   3,896,190              2.47    $   0.47
                                   =========     =============    ========

All of the above warrants are exercisable.

B. Stock Option Plans

The Company accounts for its stock option issued under APB Opinion No. 25,
"Accounting for Stock Issued to Employees," under which no compensation expense
is recognized, provided such stock options were issued at market price. The
Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation' for
disclosure purposes; accordingly, no compensation expense is recognized in the
results of operations for options granted at fair market value as required by
APB Opinion No. 25.

Stock option activity for both qualified and unqualified options is summarized
as follows:

                                                            Weighted
                                                        Average Exercise
                                                      --------------------
                                                        Shares      Price
      Outstanding at September 30, 2003 .........      1,696,000    $ 1.50
             Granted ............................      1,500,000    $ 2.53
             Expired or cancelled ...............        (71,000)   $ 1.50
                                                      ----------    ------
      Outstanding at September 30, 2004 .........      3,125,000    $ 2.00
             Granted ............................             --        --
             Expired or cancelled ...............     (2,675,000)   $ 2.12
                                                      ----------    ------
      Outstanding at September 30, 2005 .........        450,000    $ 1.40
                                                      ==========    ======

                                      F-18
<PAGE>

The following table summarizes information about options outstanding and
exercisable at September 30, 2005:

<TABLE>
<CAPTION>
                                                   Weighted         Weighted
                                                    Average         Average
                                 Number            Remaining        Exercise       Number
                               Outstanding       Life in Years       Price       Exercisable
                               -----------       -------------      --------     -----------
<S>                            <C>               <C>                <C>          <C>
Range of exercise prices
$0.60 .....................         50,000                 0.8         $ .60          25,000
$1.50 .....................        400,000                 0.8         $1.50         400,000
                               -----------                                       -----------
                                   450,000                                           425,000
                               ===========                                       ===========
</TABLE>

The compensation expense attributed to the issuance of the stock options will be
recognized as they are earned. These stock options are exercisable for three
years from the grant.

NOTE 10 - CAPITAL STOCK

On July 21, 2003, the Company acquired Genio Inc. through the issuance by the
Company of an aggregate of 15,484,448 shares of common stock, reflecting 65% of
the 23,822,228 shares of common stock in total outstanding post-closing with the
management of Genio Inc. controlling and operating the Company. This transaction
has been accounted for as a reverse acquisition by Genio Inc. The capital
structure of the Company has been recapitalized to account for the equity
structure subsequent to the acquisition as if Genio Inc. had been the issuer of
the common stock for all periods presented.

In July 2003 the Company, through a private placement of its equity securities
to accredited investors raised an aggregate total of $3 million in proceeds in
such private placement by issuing 3 million shares of restricted common stock
and warrants to acquire 3 million shares of common stock at an exercise price of
$1.50 per share, exercisable for an eighteen month period. The proceeds of such
private offering were utilized by the Company for development and inventory
purchases for its Genio Card.

In connection with the private placement of common stock, the Company agreed to
file a registration statement for the resale of the common stock and shares of
common stock underlying the warrants by October 21, 2003. The Company has not
filed said registration statement and is required to pay penalties at the rate
of $30,000 for each 30 days the filing is late. The registration statement was
not effective by January 21, 2004, the Company was required to pay monthly
penalties at the rate of 1% of the market value of the securities.

During the period ended September 30, 2003, the Company issued 1,752,500 shares
at various prices in lieu of cash for services provided by consultants and other
professionals. The Company valued these shares using the closing price per share
of the Company's common stock on the date the underlying shares were granted.
The Company valued these services $3,309,625, which $3,167,276 was expensed.
Another $2,608,999 was recorded for options issued, which $2,091,505 was
expensed. The portion of the aforementioned equity rights not expensed were
recorded as unearned compensation at September 30, 2003.

                                      F-19
<PAGE>

In November 2003, the Company, based upon review of financial statements and
other information, entered into a rescission agreement with certain individuals
who had sold their membership and or stock interests in certain companies to
Tele-V prior to the TV Acquisition. In connection with this rescission
agreement, the applicable purchase agreements for acquisition of membership
interests and capital stock were transferred back to the original owners and
three hundred fifty eight thousand (358,000) shares of restricted Company common
stock were returned to the Company for cancellation and forfeiture. Further a
loan from the Company to one of the company's in the amount of $75,000 was
forgiven. In conjunction with this transaction, the Company mutually terminated
an employment contract by paying severance of $30,000 and by allowing the
terminated employee to retain two hundred thousand (200,000) options to acquire
Company common stock. Further, the terminated employee will be entitled to
delivery of 71,000 shares of restricted common stock of the Company that the
terminated employee would have received had he remained employed by the Company
through January 17, 2004.

On December 8, 2003 the Company received subscription agreements for a $1.0
million private placement of 476,190 shares of its common stock at the price of
$2.10 per share. Investors received Class A warrants to acquire 238,095 shares
of common stock at $2.92 per share, exercisable for five years, and warrants
Class B which permit the investors to purchase an additional 476,190 shares for
$2.10 during the period ending the earlier of 13 months following the closing or
30 trading days after the effective date of a registration statement covering
the shares.

In the third quarter ended June 30, 2004, the Company entered into two licensing
agreements for the Company to distribute certain branded products of other
manufacturers. The Company issued 50,000 shares of its common stock and warrants
to purchase another 320,000 shares of common stock at $1.08. These payments for
the licensing agreements were valued at $353,606 and recorded to unearned
compensation to be amortized over the term of such agreements.

In July 2004, the Company agreed to issue 1,266,670 shares of common stock in
lieu of penalties attributed to the failure to file a timely registration and
obtain an effective registration on selected shares related to the
aforementioned private placements. These shares have been valued at $912,002 or
$.72 a share. These penalties satisfied with common stock have been recorded as
an expense in fiscal 2004. The Company had not settled with other shareholders
also entitled to penalties for the failure to obtain an effective registration,
as a consequence the Company is accruing penalties at $10,000 a month. As of
September 30, 2005, there was $200,000 accrued for such penalties.

In the third and fourth quarters of fiscal 2004, the Company issued 167,500
shares for settlements on terminated service agreements for which an $116,626
was recorded as an expense, another 95,000 shares were returned to treasury for
settlements on terminated service agreements for which a $74,037 reduction to
consulting fees was recorded.

During the year ended September 30, 2004, the Company issued 520,500 shares of
common stock at various prices in lieu of cash for services provided by
consultants and other professionals. The Company valued these shares using the
closing price per share of the Company's common stock on the date the underlying
shares were granted, which amounted to $988,971. Approximately, $745,971 of such
amount was expensed in fiscal 2004,while the balance was recorded as unearned
compensation. There were also stock options granted at exercise prices ranging
from $1.50 to $2.74, valued at $3,795,554, which $1,577,449 has been expensed
this fiscal year. The Company also issued 150,000 stock options to three of its
directors, which vest over 24 months at an exercise price of $.60 per share. Two
of these directors have resigned from the Company, hence such options were
cancelled.

                                      F-20
<PAGE>

During the year ended September 30, 2005, the Company was in active negotiations
with its creditors to settle the outstanding payables at a significant discount,
through the issuance of stock at $0.01 to $0.03 a share for full satisfaction
and settlement of such liabilities or obligations to pay cash. The Company has
settled approximately $445,000 of such payables for the issuance of 27,838,199
shares of common stock.

NOTE 11 - SEGMENT AND GEOGRAPHIC INFORMATION

In December 2004, primarily due to the lack of financing, the Company has closed
all operations and terminated substantially all of its employees. Accordingly,
at September 30, 2005, the Company did not have any reportable segments or
geographic concentration.

For the year ended September 30, 2004, the Company had two reportable business
segments: a worldwide license to manufacture and sell specific categories of
products based upon globally recognized entertainment characters and the other
was a retail sales endeavor for a few unrelated consumer products, which was not
a significant segment. The consumer product segment for the sale of these
consumer products can be summarized as follows, while the balance of the assets,
liabilities and operations are attributed to the sales of entertainment
characters represents the remainder of the Company's reported balance sheet and
operations as of ands for the year ended September 30, 2004, not presented.

                                Consumer Products
                                -----------------

Identifiable Assets
  All Inventory ............        $  43,577

Identifiable Liabilities:
  Accounts payable and
    Accrued expenses .......        $  43,765

Sales ......................        $ 196,741
Cost of sales ..............           78,770
General & admin & other ....          203,860
Net (loss) income ..........        $ (86,678)

NOTE 12 - ACQUISITION OF TELE-V (Genio Cards)

On July 9, 2003, the Company entered into a definitive acquisition agreement
with Tele-V, Inc., a New York corporation ("TV"), its principal shareholder and
all of its subsidiaries and affiliates (collectively, "TV"), to acquire all of
the capital stock of TV (the "Acquisition"). TV is a direct response and
marketing firm which also holds a worldwide license to manufacture and sell
specific categories of products based upon certain entertainment characters. The
definitive acquisition agreement (the "TV Agreement") provided that the Company
acquire all of the outstanding capital stock of TV in exchange for the issuance
of a majority of the issued and outstanding common stock of National. On July
21, 2003, the Company completed the TV Acquisition and TV became a wholly-owned
subsidiary of the Company. At the closing, the shareholders of TV were to be
issued an aggregate of 15,484,448 shares of the Company's common stock,
reflecting 65% of the 23,822,228 shares of common stock in total outstanding
post-closing. The Company also provided a total of $2,000,000 in funding to TV
for working capital and product development. The Company secured the capital for
TV through a private placement of its equity securities to accredited investors.

                                      F-21
<PAGE>

The terms of the acquisition were negotiated between the officers of the Company
and Shai Bar-Lavi. At the time of the negotiations, there was no material
relationship between the Company or any of its directors, officers or affiliates
and TV or its management

Effective upon the closing of the TV Acquisition Shai Bar-Lavi (Bar-Lavi) who
was the Chairman and Chief Executive Officer of TV, joined the Company as
Chairman of the Board of Directors and as CEO. On July 21, 2003, the Company and
Bar-Lavi entered into an two year employment agreement. Pursuant to this
agreement, Mr. Bar-Lavi shall be entitled to a base salary of $180,000 per annum
and participation in Company benefit programs. Mr. Bar-Lavi resigned in February
2005 from the Company.

Effective July 21, 2003, the Company and Yaron Ben-Horin entered into an two
year employment agreement. Pursuant to this agreement, Mr. Ben-Horin became
Chief Operating Officer of the Company and shall be entitled to a base salary of
$100,000 per annum and participation in Company benefit programs as well as
incentive compensation based upon certain established parameters. Mr. Ben-Horin
was terminated in December 2004.

The Company has entered into a Licensing Agreement with Marvel Characters, Inc.
and Marvel Enterprises, Inc., under which the Company has agreed to pay a
licensing fee and royalty in exchange for the use of a worldwide license with
Marvel Enterprises, Inc. to manufacture and sell specific categories of
productsbuilt around the globally recognizable Marvel Super Heroes(R).

NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying value of cash, accounts receivable approximates fair value due to
their short-term nature. In view of the financial position of the Company, it is
not practical to estimate the fair value of the liabilities.

NOTE 14 - COMMITMENTS AND CONTINGENCIES

Lease commitments

The Company currently leases its primary office space on a month to month lease.
Rent expense for the years ended September 30, 2005 and 2004 was $107,800 and
$156,870, respectively.

Royalty / License Agreements

The Company has a license from Marvel Characters, Inc. and Marvel Enterprises,
Inc. for the worldwide rights to use the Marvel universe of characters in the
sale and promotion of the Company's product. The Company has two separate
merchandising agreements, whereby the Company licensed certain proprietary
subject matter to be used in the sale and promotion of the Company's product.

                                      F-22
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Advertising and marketing expenses (which encompass media spending and consumer
promotions costs) included in selling, general and administrative expenses
amounted to approximately $374,000 and $1,128,000 for the years ended September
30, 2005 and 2004, respectively.

Consulting Agreements

The Company has a revenue share agreement with an unrelated entity that provides
for 5% of net sales on Genio products up to an aggregate of $20,000,000 in Genio
product sales. The Company paid $0 and $118,907 respectively, for the years
ended September 30, 2005 and 2004, respectively, under the terms of this
agreement.

Litigation

Certain shareholders and creditors of the Company threatened to bring claims
against the Company in connection with the actions described in the Current
Reports on Form 8-K filed by the Company on November 24, 2004 and December 1,
2004.

NOTE 15 - MAJOR CUSTOMERS/SUPPLIER

In December 2004, primarily due to the lack of financing, the Company has closed
all operations and terminated substantially all of its employees. Accordingly,
at September 30, 2005, the Company did not have any major suppliers or
customers.

For the year ended September 30, 2004, the Company had sales to three major US
retailers which individually represented greater then 10% of total sales. These
three major customers represented 44% of the total accounts receivable at
September 30, 2004. For the year ended September 30, 2004, the Company had one
major supplier, that was a related entity.

NOTE 16 - RELATED PARTY TRANSACTIONS

TACTICA

On September 7, 2004, the Company wired $150,000 to a subsidiary of IGIA, Inc.
("Tactica"), a public company. IGIA was an affiliate of the then Chief Executive
Officer. These monies were an investment pursuant to a "Distribution Agreement"
dated September 7, 2004, which expired on October 31, 2004. The funds were
invoiced at $68,354 for the purchase of 3,386 vacuum cleaners and $81,646 for
"media advertising", per invoice from Tactica. The total disbursements related
to this Distribution

Agreement amounted to $343,896, through October 20, 2004. On October 21, 2004,
Tactica filed for bankruptcy. As of September 30, 2004, there were vacuum
cleaners held in inventory by the Company in the amount of $43,577, which were
sold after year end. The total loss incurred during the Distribution Agreement
period from September 7, 2004 through October 31, 2004 was approximately
$69,000, of which an approximate $80,000 net loss related to the quarter ended
December 31, 2004.

NOTE 17 - FOURTH QUARTER ADJUSTMENTS - UNAUDITED

The Company recorded reserves to inventory in the amount of $95,000 in the
fourth quarter.

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