**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

 

**FORM10-KSB**

 

**(Mark One)**

 

**ý****ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**For the fiscal year ended December 31, 2005**

 

**OR**

 

**o****TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**Commission File Number 000-28883**

 

**VUBOTICS,INC.**

(Name of small business issuer in itscharter)

 

| **Nevada**                                                      | ** ** | **58-2212465**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer Identification  No.) |

 

**5555 Glenridge Connector, Atlanta, GA  30342**

(Address of Principal Executive Offices) (ZipCode)

 

**(404) 459-5850**

(Registrant’s telephone number, includingarea code)

 

Securities registered under Section 12(b) ofthe Exchange Act: **None**

 

Securities registered under Section 12(g) ofthe Exchange Act:

 

**Common Stock, $0.001 par value**

(Title of class)

 

Check whether the issuer is not required to file reports pursuant toSection 13 or 15(d) of the Exchange Act. o

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act during the past 12 months (or for suchshorter 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  ý    No  o

 

Check if there is no disclosure of delinquent filers in response toItem 405 of Regulation S-B contained in this form, and no disclosure will becontained, to the best of registrant’s knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-KSB or anyamendment to this Form 10-KSB o.

 

Indicate by check mark whether the registrant is a shell company (asdefined in rule 12b-2 of the Exchange Act). Yes  o    No  ý

 

Registrant’s revenues for the twelve month period ended December 31,2005: $2,672.

 

The aggregate market value of the voting and non-voting common equitystock held by non-affiliates of the Company computed by reference to the priceat which the stock was sold, or the average bid and asked prices of such commonequity, as of March 29, 2006 was $5,598,623 based on 27,993,116 shares at $0.20per share.

 

As of March 9, 2006, the Registrant had outstanding 37,305,608 sharesof Common Stock, $0.001 par value.

 

Documents incorporated by reference: **None**.

 

Transitional Small Business Disclosure Format. Yes  o    No  ý

 

 

 

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**EXPLANATORYNOTE.**

 

In November,2004, Halifax International, Inc. changed its name to Vubotics, Inc.

 

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**VUBOTICS, INC.**

 

**Index to Annual Report on Form 10-KSB**

 
| **PART I**    |                                                                                                              |   |
|---------------|-------------------------------------------------------------------------------------------------------------------|--------|
|          |                                                                                                              |   |
| Item 1.       | Description  of Business                                                                                          |   |
| Item 2.       | Description  of Property                                                                                          |   |
| Item 3.       | Legal  Proceedings                                                                                                |   |
| Item 4.       | Submission  of Matters to a Vote of Security Holders                                                              |   |
|          |                                                                                                              |   |
| **PART  II**  |                                                                                                              |   |
|          |                                                                                                              |   |
| Item 5.       | Market  for Common Equity, Related Stockholders Matters and Small Business Issuer  Purchases of Equity Securities |   |
| Item 6.       | Management’s  Discussion and Analysis or Plan of Operation                                                   |   |
| Item 7.       | Financial  Statements                                                                                             |   |
| Item 8.       | Changes  in and Disagreements with Accountants on Accounting And Financial Disclosures                            |   |
| Item 8A.      | Controls  and Procedures                                                                                          |   |
| Item 8B.      | Other  Information                                                                                                |   |
|          |                                                                                                              |   |
| **PART  III** |                                                                                                              |   |
|          |                                                                                                              |   |
| Item 9.       | Directors,  Executive Officers, Promoters and Control Person; Compliance with Section  16(a) of the Exchange Act  |   |
| Item 10.      | Executive  Compensation                                                                                           |   |
| Item 11.      | Security  Owners of Certain Beneficial Owners and Management and Related Stockholders  Matters                    |   |
| Item 12.      | Certain  Relationships and Related Transactions                                                                   |   |
| Item 13.      | Exhibits                                                                                                          |   |
| Item 14.      | Principal  Accountant Fees and Services                                                                           |   |
|          |                                                                                                              |   |
|          | Signatures                                                                                                        |   |
|          | Exhibit Index                                                                                                     |   |

 

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**PART I**

 

**ITEM 1. DESCRIPTION OF BUSINESS.**

 

**Forward Looking Statements**

 

This annual report on Form 10-KSB contains forward looking statementswithin the meaning of Section 27A of the Securities Act of 1933, as amended,and Section 21E of the Securities Exchange Act of 1934, as amended, that arenot historical, but are forward-looking in nature, including statementsregarding the expectations, beliefs, intentions or strategies regarding thefuture. In particular, the discussion contained in this report under theheading “Management’s Discussion and Analysis or Plan of Operation” includedforward-looking statements that reflect our current views with respect tofuture events and financial performance. We use words such as we “expect,” “anticipate,”“believe,” and “intend” and similar expressions to identify forward-lookingstatements. A number of important factors could individually or in theaggregate, cause actual results to differ materially from those expressed orimplied in any forward-looking statements. Such factors include, but are notlimited to, our ability to develop successfully our products, to successfullycommercialize them, our ability to obtain additional financing,  our ability to develop and maintain vendorrelationships, and our ability to protect our proprietary technology. Otherrisks that may impact forward-looking statement contained in this annual reporton 10-KSB are described under the heading “Risk Factors”.

 

All statements other than statements of historical fact included inthis report are forward looking statements. In the normal course of itsbusiness, the Company, in an effort to help keep its shareholders and thepublic informed about the Company’s operations, may from time-to-time issuecertain statements, either in writing or orally, that contain or may containforward looking statements. Although the Company believes that the expectationsreflected in such forward looking statements are reasonable, it can give noassurance that such expectations will prove to have been correct. Generally,these statements relate to business plans or strategies, projected oranticipated benefits or other consequences of such plans or strategies, pastand possible future, of acquisitions and projected or anticipated benefits fromacquisitions made by or to be made by the Company, or projections involvinganticipated revenues, earnings, levels of capital expenditures or other aspectsof operating results. All phases of the Company operations are subject to anumber of uncertainties, risks and other influences, many of which are outsidethe control of the Company and any one of which, or a combination of which,could materially affect the results of the Company’s proposed operations andwhether forward looking statements made by the Company ultimately prove to beaccurate.

 

**General Background**

 

The Companywas originally incorporated on February 27, 1996 in the state of Nevada asSilver Strike Mining Company, Inc. On February 12, 1999, Silver Strike changedits name to Halifax International, Inc. On February 26, 1999, Halifax acquiredChristopher Partners, Inc., a Georgia corporation, as a wholly-owned subsidiary(“Christopher”). At the time of acquisition, Christopher Partners had a whollyowned subsidiary, Palau Engineering & Construction Co., Ltd., a Bermudacorporation (“Palau”). In November 2000 the Company discontinued the businessoperations of both Christopher and Palau. On June 14, 2000, Halifax formed awholly-owned subsidiary, Truscom, Inc., a Japanese corporation (“Truscom”). TheCompany discontinued the business operations of Truscom in 2002. On June 20,2001, Halifax incorporated a wholly owned subsidiary, Annapolis ValleyVentures, Inc. in the state of Delaware (“Annapolis”). The Company discontinuedthe business operations of Annapolis in 2002. On December 13, 2002, Halifaxformed a wholly owned subsidiary, X-VU, LLC, a limited liability company underthe laws of the state of Georgia (“X-VU”). The Company has phased out thebusiness operations of X-VU.

 

Thesesubsidiaries have no assets or operations. In January 2006, the Company soldChristopher and Annapolis to a related party for nominal consideration in orderto simplify the Company’s corporate structure.

 

In November, 2004, the Company acquired QuantumReader, Inc. (“QR”). TheCompany acquired all of the issued and outstanding stock of QR in a stock forstock transaction. The transaction was valued at $102,574 with $2,574 beingallocated for liabilities assumed and 1,000,000 shares of the Company’s commonstock issued for the technology of QR. The Company intends to fund a minimum of$500,000 during the twelve month period following the acquisition of QR forcontinued development, marketing of the QR technology and other corporate uses.In addition, there are certain compensatory obligations that the Company hasentered into with the former president of QR (see Note 7 of the Company’sfinancial statements “Commitments and Contingencies”). As part of the acquisition,all intellectual property rights held by the developers of the QR technologywere assigned to QR. The Quantum-Reader and its related technologies wereinitially created by Craig Larson. The product QuantumReader is referred to as “QuantumReader”and by its trade name “VuIT tm”.

 

The Companyintends to concentrate its efforts on the development, marketing anddistribution of its QuantumReader products, primarily through its QRsubsidiary.

 

**Business Operations**

 

The Company isa holding company with one operating subsidiary, QR, and one non-operatingsubsidiary, Truscom.

 

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***Products and Technology***

 

Vubotics, through QR, is developing a new type of software productcalled QuantumReader (“QuantumReader”). The Company has developed a softwareapplication called VuITtm based on the QuantumReader technology. QuantumReaderis a hardware independent software system which changes the way in which textis displayed on electronic displays. Rather than treat the display like astatic piece of paper, Quantum Reader dynamically delivers text to the viewingsurface. The Company believes this automated presentation has the potential todecrease eye strain, increase reading rate, and improve comprehension. This isdone by analyzing the content and tagging each individual word forcomprehension and recognition characteristics. The words are then displayed oneat a time, as large as desired, and at a rate of speed optimized for the reader.The system also improves comprehension by integrating graphics and sound intothe text in locations where they are most effective. The Company has completedthe beta test stage in the development of the VuITTM applications and iscurrently selling the product. There can be no assurances that the projectedpotential applications of the QuantumReader will function in a way that willmeet the Company’s product objectives or be accepted by the marketplace. See “RiskFactors.”

 

Certain Patent applications have been made in connection with the QuantumReadertechnology and the related methods of analysis, abstraction and delivery ofelectronic information. There can be no assurances that these patents will begranted. See “Risk Factors”.

 

***Marketing***

 

The Company intends to market the initial software application ofQuantumReader, under the trade name VuITTM, to the mobile communications usermarket.

 

The Company intends to introduce its VuITTM application by puttingproducts into the marketplace sequentially based on the maturity of the VuITTM  platform, the technical capabilities of thedevice, and the user commitment to the device. As the technical capabilities ofVuITTM are increased and optimized, the product will be introduced laterallyinto the space occupied by devices capable of fully utilizing the more advancedapplication. The Company has identified the following potential markets forQuantumReader software technology:

 

•      Consumer

•      Books

•      News

•      E-mail

•      Messaging

 

•      Professional

•      Medical documents

•      Legal briefs

•      Continuing educations documents

•      White papers

 

•      Academic

•      Early education

•      Higher education

•      On-line training/learning

 

•      Disabled/handicapped

•      Vision impairment

•      Dyslexia

•      ADD

•      Macular degeneration

 

•      Internet

•      Embedded within web portals

 

•      Broadcasting/Advertising

•      Delivery enhancement

 

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There can be no guarantee the Company will either successfully developor adapt the QuantumReader software technology for these markets or if theCompany is successful in doing so that these markets or any other markets willaccept the product.

 

***Competition***

 

The Company believes that competitors will emerge with a product thatattempts to emulate VuITTM. Currently, there are no known competitors in themarket with a product using the technologies, trade secrets and patent pendingtechniques employed by the Company. However, the academic community hasconducted research on similar technologies. The competitors that are expectedto emerge could have greater resources than the Company and the Company may notbe able to successfully compete against them.

 

The Company has applied for patents on its technologies and techniques.

 

Patents, trade marks and trade secrets could limit potential competitor’sability to create a product that would have the capabilities of VuITTM.

 

**Risk Factors**

 

***An investment in our commonstock is very risky. In addition to the other information in this annual reporton Form 10-KSB, you should consider carefully the following risk factors inevaluating us and our business. If any of the events described in the followingrisk factors were to occur, our business, financial condition or result of ouroperations would suffer and, in that event, the trading price of the commonstock could decline. Therefore, we urge you to carefully review this entire10-KSB and consider the following risk factors:***

 

**Material Risks Related To The Company’sBusiness**

 

***The Company hasincurred significant operating losses since inception and the Company cannotassure you that the Company will ever achieve profitability.***

 

Since the Company’s inception, the Company has incurred losses everyquarter. The extent of the Company’s future operating losses and the timing ofprofitability are highly uncertain, and the Company may never achieve orsustain profitability. The Company has incurred significant net losses sinceinception, including net losses of approximately $2,038,096 in 2005, $741,014in 2004, $391,309 in 2003 and $1,518,486 in 2002. At December 31, 2005,the Company had an accumulated deficit of $11,511,392. The Company anticipatesthat the Company will continue to incur operating losses for the foreseeablefuture and it is possible that the Company will never generate substantialrevenues from product sales.

 

***The Company is adevelopment stage company with a limited operating history that makes itimpossible to reliably predict future growth and operating results.***

 

The Company has not demonstrated that the Company can:

 

•      Establishmany of the business functions necessary to operate, including sales,marketing, administrative and financial functions, and establish appropriatefinancial controls;

 

•      Make,use, and sell future products without infringing upon third party intellectualproperty rights; or

 

•      Respondeffectively to competitive pressures.

 

***If the Company failsto develop products, the Company will not achieve significant revenues and theCompany would be unlikely to be able to continue its current level ofoperations and would be unable to meet its long-term growth plans.***

 

The Company’s future business and financial success will depend on itsability to introduce new products and upgrade existing products into themarketplace. Developing new products and upgrades to existing and futureproducts imposes burdens on the Company’s management. This process is costly,and the Company cannot assure any investor that the Company will be able tosuccessfully develop any products or enhance any future products. If theCompany’s product development efforts are unsuccessful, the Company will haveincurred significant costs without recognizing the expected benefits andbusiness prospects will suffer.

 

***The Company may notbe able to expand market acceptance of the use of products, which wouldseverely harm the Company’s ability to achieve significant revenues.***

 

The Company cannot assure any investor that the Company’s proposedproducts will achieve market acceptance. Failure of the Company’s proposedproducts to gain market acceptance would severely harm the Company’s business,financial condition and results of operations.

 

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***The Company’s futurecapital needs are uncertain. The Company will need to raise additional funds inthe future and these funds may not be available on acceptable terms or at all.***

 

The Company believes that the Company’s current cash and cashequivalents are not sufficient to meet projected operating requirements throughDecember 2006. Therefore, the Company may seek additional funds frompublic and private stock or debt offerings, borrowings or other sources priorto such time. The Company’s capital requirements will depend on many factors,including:

 

•      Therevenues generated by sales of products that the Company develops;

 

•      Thecosts required to develop new products;

 

•      Thecosts of obtaining and defending patents, trademarks and copyrights of theCompany’s products;

 

•      Thecosts associated with expanding the Company’s sales and marketing efforts;

 

•      Theexpenses the Company incurs in selling its products;

 

•      Thecosts associated with any expansion of operations;

 

•      Thecosts associated with capital expenditures; and

 

•      Thenumber and timing of any business acquisitions or other strategic transactions.

 

As a result of these factors, the Company will need to raise additionalfunds, and these funds may not be available on favorable terms, or at all.Furthermore, if the Company issues equity or debt securities to raiseadditional funds, the Company’s existing stockholders may experience dilution,and the new equity or debt securities may have rights, preferences andprivileges senior to those of the Company’s existing stockholders. In addition,if the Company raises additional funds through collaboration, licensing orother similar arrangements, it may be necessary to relinquish valuable rightsto the Company’s potential products or proprietary technologies, or grantlicenses on terms that are not favorable to the Company. If the Company cannotraise funds on acceptable terms, the Company may not be able to develop orenhance the Company’s products, execute the Company’s business plan, takeadvantage of future opportunities, or respond to competitive pressures orunanticipated customer requirements.

 

***The Company’ssuccess will depend on the Company’s ability to attract and retain keypersonnel, programming and engineering staff. If the Company fails to attractand retain key personnel and programming staff, the Company may be unable tosucceed in its market.***

 

The Company believes future success will depend on the Company’sability to manage its growth successfully, including attracting and retainingprogrammers, engineers and other highly skilled personnel. The Company’s keyemployees may terminate their employment with the Company at any time. Hiringqualified management and technical personnel is difficult due to the limitednumber of qualified professionals. If the Company fails to attract and retainpersonnel, particularly management and technical personnel, the Company may notbe able to succeed.

 

***If the Company failsto protect its intellectual property rights, others may take advantage of theCompany’s ideas and compete directly against the Company.***

 

The Company relies in part on patents, trade secrets and otherproprietary technologies to protect the Company’s products. The Company may notbe able to obtain or maintain adequate U.S. patent protection for newproducts or ideas, or prevent the unauthorized disclosure of the Company’stechnical knowledge or other trade secrets by the Company’s employees.Additionally, the laws of foreign countries may not protect the Company’sintellectual property rights to the same extent as the laws of theU.S. Even if the Company’s intellectual property rights are adequatelyprotected, litigation may be necessary to enforce them, which could result insubstantial costs to the Company and substantial diversion of the attention ofthe Company’s management and key technical employees. If the Company is unableto adequately protect the Company’s intellectual property, the Company’scompetitors could use the Company’s intellectual property to develop newproducts or enhance their existing products. This could harm the Company’scompetitive position, decrease its market share or otherwise harm its business.

 

**Risks Related To Capital Structure**

 

***There is noassurance of an established public trading market, which would adversely affectthe ability of investors in the Company to sell their securities in the publicmarkets.***

 

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As of March 6, 2006, the Company’s common stock was listed on the OTCBulletin Board as a result of the Company’s filing of Form 211 with the NASD.However, a regular trading market for the securities may not be sustained inthe future. The OTC Bulletin Board is an inter-dealer, over-the-counter marketthat provides significantly less liquidity than the NASD’s automated quotationsystem (the “NASDAQ Stock Market”). Quotes for stocks included on the OTCBulletin Board are not listed in the financial sections of newspapers asare those for the NASDAQ Stock Market. Therefore, prices for securities tradedsolely on the OTC Bulletin Board may be difficult to obtain and holders ofcommon stock may be unable to resell their securities at or near their originaloffering price or at any price. If listed on any exchange, the market price forthe Company’s common stock will be influenced by a number of factors,including:

 

•      The issuance of new equity securities in afuture offering;

 

•      Issued and outstanding shares of theCompany’s common stock becoming eligible for resale pursuant to contractualregistration requirements or pursuant to exemptions from registration becomingavailable following the passage of time;

 

•      Competitive developments, includingannouncements by competitors of new products or services or significantcontracts, acquisitions, strategic partnerships, joint ventures or capitalcommitments;

 

•      Variations in quarterly operating results;

 

•      Changes in financial estimates bysecurities analysts;

 

•      The depth and liquidity of the market forthe Company’s common stock;

 

•      General economic and other nationalconditions; and

 

•      Changesin interest rates.

 

***The limited prior public market and tradingmarket may cause volatility in the market price of the Company’s common stockin the event it becomes listed.***

 

As of December 31, 2005 the Company’s stock was not actively traded onany market. Subsequent to December 31, 2005, the Company’s stock becameeligible to trade on the OTC Bulletin Board. Currently, there is a very lowvolume of trading activity in the Company’s stock. In the absence of an activetrading market:

 

•      Investorsmay have difficulty buying and selling or obtaining market quotations;

 

•      Marketvisibility for the Company’s common stock may be limited; and

 

•      Alack of visibility for the Company’s common stock may have a depressive effecton the market for the Company’s common stock.

 

***The Company’s common stock maybe considered a “penny stock” and may be difficult to sell.***

 

To be considered to be a “penny stock,” securities must meet one ormore of the definitions in Rules 15g-2 through 15g-6 promulgated underSection 15(g) of the Securities Exchange Act of 1934, as amended. Theseinclude but are not limited to the following: (i) the stock trades at aprice less than $5.00 per share; (ii) it is NOT traded on a “recognized”national exchange; (iii) it is NOT quoted on the NASDAQ Stock Market, oreven if so, has a price less than $5.00 per share; or (iv) is issuedby a company with net tangible assets less than $2.0 million, if inbusiness more than a continuous three years, or with average revenues of lessthan $6.0 million for the past three years. The principal result or effectof being designated a “penny stock” is that securities broker-dealers cannotrecommend the stock but must trade in it on an unsolicited basis.Section 15(g) of the Securities Exchange Act of 1934, as amended, andRule 15g-2 promulgated thereunder by the SEC require broker-dealersdealing in penny stocks to provide potential investors with a documentdisclosing the risks of penny stocks and to obtain a manually signed and datedwritten receipt of the document before effecting any transaction in a pennystock for the investor’s account.

 

Potential investors in the Company’s common stock are urged to obtainand read such disclosure carefully before purchasing any shares that are deemedto be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in pennystocks to approve the account of any investor for transactions in such stocksbefore selling any penny stock to that investor. This procedure requires thebroker-dealer to (i) obtain from the investor information concerning hisor her financial situation, investment experience and investment objectives;(ii) reasonably determine, based on that information, that transactions inpenny stocks are suitable for the investor and that the investor has sufficientknowledge and experience as to be reasonably capable of evaluating the risks ofpenny stock transactions; (iii) provide

 

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the investor with a written statement setting forth the basis on whichthe broker-dealer made the determination in (ii) above; and(iv) receive a signed and dated copy of such statement from the investor,confirming that it accurately reflects the investor’s financial situation,investment experience and investment objectives. Compliance with theserequirements may make it more difficult for holders of the Company’s commonstock to resell their shares to third parties or to otherwise dispose of themin the market or otherwise.

 

***Upon such time as******the Company’s stock is actively traded, shares eligible forfuture sale may adversely affect the market price of the Company’s common stock, asthe future sale of a substantial amount of the Company’s stock in the publicmarketplace could reduce the price of the Company’s common stock.***

 

From time to time, certain of the Company’s stockholders may beeligible to sell all or some of their shares of common stock by means ofordinary brokerage transactions in the open market pursuant to Rule 144,promulgated under the Securities Act (“Rule 144”), subject to certainlimitations. In general, pursuant to Rule 144, a stockholder (orstockholders whose shares are aggregated) who has satisfied a one-year holdingperiod may, under certain circumstances, sell within any three-month period anumber of securities which does not exceed the greater of 1% of the thenoutstanding shares of common stock or the average weekly trading volume of theclass during the four calendar weeks prior to such sale. Rule 144 alsopermits, under certain circumstances, the sale of securities, without anylimitations, by a non-affiliate of the Company that has satisfied a two-yearholding period.

 

***Upon such time as******the Company’s stock is actively traded, if the Company failsto maintain effective internal controls over financial reporting, the price ofthe Company’s******common stock may be adversely affected.***

 

The Company’s internal controls over financial reporting may haveweaknesses and conditions that need to be addressed, the disclosure of whichmay have an adverse impact on the price of the Company’s common stock. TheCompany is required to establish and maintain appropriate internal controlsover financial reporting. Failure to establish those controls, or any failureof those controls once established, could adversely impact the Company’s publicdisclosures regarding the Company’s business, financial condition or results ofoperations. In addition, management’s assessment of internal controls overfinancial reporting may identify weaknesses and conditions that need to beaddressed in the Company’s internal controls over financial reporting or othermatters that may raise concerns for investors. Any actual or perceivedweaknesses and conditions that need to be addressed in the Company’s internalcontrols over financial reporting, disclosure of management’s assessment of theCompany’s internal controls over financial reporting or disclosure of theCompany’s public accounting firm’s attestation to or report on management’sassessment of the Company’s internal controls over financial reporting may havean adverse impact on the price of the Company’s common stock.

 

***Upon such time asthe Company’s stock is actively traded, standards for compliance withSection 404 of the Sarbanes-Oxley Act of 2002 are uncertain, and if theCompany fails to comply in a timely manner, the Company’s business could beharmed and the Company’s stock price could decline.***

 

Rules adopted by the Securities and Exchange Commission pursuant toSection 404 of the Sarbanes-Oxley Act of 2002 require annual assessment ofthe Company’s internal control over financial reporting, and attestation of theassessment by the Company’s independent registered public accountants. Thisrequirement will first apply to the Company’s annual report for fiscal 2006.The standards that must be met for management to assess the internal controlover financial reporting as effective are new and complex, and requiresignificant documentation, testing and possible remediation to meet the detailedstandards. The Company may encounter problems or delays in completingactivities necessary to make an assessment of the Company’s internal controlover financial reporting. In addition, the attestation process by the Company’sindependent registered public accountants is new and the Company may encounterproblems or delays in completing the implementation of any requestedimprovements and receiving an attestation of the assessment by the Company’sindependent registered public accountants. If the Company cannot assess theCompany’s internal control over financial reporting as effective, or theCompany’s independent registered public accountants are unable to provide anunqualified attestation report on such assessment, investor confidence andshare value may be negatively impacted.

 

***The Company does notforesee paying cash dividends in the foreseeable future.***

 

The Company has not paid cash dividends on its stock and it does notplan to pay cash dividends on its stock in the foreseeable future.

 

**ITEM 2. DESCRIPTION OF PROPERTY.**

 

The Company requires minimal space. The Company leases office space ata monthly rate of $1,850.

 

**ITEM 3.LEGAL PROCEEDINGS.**

 

On July 16,2002, Larry Rodammer (“Rodammer”) filed a complaint against the Company, Mr.Phillip Lundquist and Christopher, in the Circuit Court of the 15th JudicialCircuit, Broward County, Florida seeking damages in excess of $210,000 andother unspecified relief. The litigation arose out of the alleged failure topay two promissory notes made by Christopher to Rodammer and one promissorynote made by the Company to Rodammer and includes claims against Mr. Lundquistfor alleged misrepresentations made

 

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to Rodammer.On September 10, 2002, the Defendants filed an answer seeking dismissal of thiscase. Defendants intend to vigorously defend against the claims in thecomplaint.

 

On March 14,2002, Cellcards of Illinois, L.L.C. (“Cellcards”) filed a complaint againstAnnapolis in the State of Illinois seeking actual damages of approximately$100,000, and other unspecified relief. The litigation arose out of ordersplaced by Annapolis with Cellcards for prepaid cellular products. In July 2002,judgment was entered against Annapolis. The Company discontinued the operationsof Annapolis in 2002. Annapolis has no assets.

 

In November2001, Cellmart Wireless, Inc. (“Cellmart”) filed a complaint against theCompany, Annapolis and Messrs. Lundquist and Brisker in the State of Texasseeking actual damages of approximately $40,000 and unspecified exemplarydamages. The litigation arose out of a Non-Exclusive Distributor Agreementdated July 6, 2001 by and between Cellmart and the Company, and the conduct ofthe parties thereunder. On August 13, 2002, judgment was entered in favor ofthe plaintiff against the defendants. The Company discontinued the operationsof Annapolis in 2002. Annapolis has no assets.

 

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

 

The Companyhas not submitted a matter to a vote of its shareholders during the fourthquarter of 2005.

 

**PART II**

 

**ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, ANDSMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.**

 

On March 6,2006, the Company’s common stock was listed on the OTC Bulletin Board as aresult of filing Form 211 with the NASD.

 

The Companyhas approximately 526 holders of record as of March 9, 2006.

 

The Company has not declared dividends on its common stock and does notanticipate paying dividends on its common stock in the foreseeable future.

 

The followingshares were sold without registration by the Company during the fiscal yearending December 31, 2005:

 

The Companysold 2,533,333 shares of its common stock for prices ranging from ten cents pershare to twenty-five cents per share in reliance on the exemption fromregistration provided by Section 4(2) of the Securities Act of 1933, asamended, and applicable state laws.

 

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

 

**Business Overview**

 

The Company isa holding company with one operating subsidiary, QR.

 

Vubotics, through QR, is developing a new type of software productcalled QuantumReader (“QuantumReader”). The Company has developed a softwareapplication called VuITtm based on the QuantumReader technology. QuantumReaderis a hardware independent software system which changes the way in which textis displayed on electronic displays. Rather than treat the display like astatic piece of paper, Quantum Reader dynamically delivers text to the viewingsurface. The Company believes this automated presentation has the potential todecrease eye strain, increase reading rate, and improve comprehension. This isdone by analyzing the content and tagging each individual word forcomprehension and recognition characteristics. The words are then displayed oneat a time, as large as desired, and at a rate of speed optimized for the reader.The system also improves comprehension by integrating graphics and sound intothe text in locations where they are most effective. The Company has completedthe beta test stage in the development of the VuITTM applications and iscurrently selling the product. There can be no assurances that the projectedpotential applications of the QuantumReader will function in a way that willmeet the Company’s product objectives or be accepted by the marketplace. See “RiskFactors.”

 

Certain Patent applications have been made in connection with theQuantumReader technology and the related methods of analysis, abstraction anddelivery of electronic information. There can be no assurances that thesepatents will be granted. See “Risk Factors”.

 

**Summary of Critical Accounting Policies**

 

The Company has nominal operating revenue as it is in the developmentprocess of its product. At such time as the Company has revenue, the Companyintends to adopt such policies as revenue recognition and stock compensation.

 

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**Results of Operations**

 

General.The following discussion and analysis explains trends in the Company’sfinancial condition and results of operations for the years ended December 31,2005 and 2004. The consolidated financial statements and notes thereto includedas part of the financial statements should be read in conjunction with thesediscussions.

 

The Companyincurred a net loss for the twelve months ended December 31, 2005 of$2,038,096. This compares to a loss of $741,014 for the same period in 2004, anincrease of $1,297,082, or 175%

 

The Companyrecorded revenues of $2,672 for the year ended December 31, 2005 compared to$5,635 for the year ended December 31, 2004. These revenues were derived fromthe sale of virtual reality headsets.

 

The increasein net loss is primarily the result of an increase in consulting fees of$1,050,302 incurred in an effort to reposition the Company for futureopportunities offset by the write-down of intangible assets of $102,529 in2004.

 

**Liquidity and Sources of Capital**

 

As of December31, 2005, the Company had a cash balance of $183, and $1480 in total assets.The Company’s current liabilities increased from $2,370,140 to $2,958,525. Netcash used in operating activities was $855,858 related to the costs and expenseof generating business, which primarily consisted of fees to consultants. Netcash provided by financing activities was $839,996 for the year ended December31, 2005 resulting from the sale of common stock and loans from a related party.Notes payable on demand of $935,000 bear an interest rate of 12% per annum withtwelve month maturity and notes payable on demand of $200,000 bear an interestrate of 13% per annum with twelve month maturity.

 

The Companyhas financed its operations primarily through the sale of its common stock.

 

The Companybelieves that its cash needs for the next twelve months will be met by debtfinancings, loans from its directors, officers and shareholders and privateplacements of Company securities. However, there can be no assurances that theCompany will be successful in obtaining sufficient funds needed for thedevelopment of its business. If the Company issues more shares of its commonstock its shareholders may experience dilution in the value per share of theircommon stock. See “Risk Factors.”

 

The Companycontinues to investigate the availability, source and terms for externalfinancing, but has not entered in to any agreements at this time for suchfinancing. The Company cannot assure that funds will be available from anysource, or, if available, that the Company will be able to obtain the funds onterms agreeable to it. Any additional debt the Company incurs could result in asubstantial portion of its cash flows from operating activities, if any, beingused for the payment of principal and interest on the indebtedness, and couldrender the Company more vulnerable to competitive challenges and economicdownturns.

 

**ITEM 7. FINANCIAL STATEMENTS.**

 

The financial statements required by Item 310(a) of Regulation S-B areattached hereto as Exhibit A.

 

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

 

None.

 

**ITEM 8A. CONTROLS AND PROCEDURES.**

 

Based on theirmost recent evaluation, which was completed in consultation with management inconnection with of the filing of this Form 10-KSB, the Company’s ChiefExecutive Officer and Chief Financial Officer believe the design and operationof the Company’s disclosure controls and procedures (as defined in Rules 13a-14and 15d-14 promulgated under the Securities Exchange Act of 1934, as amended(the “Exchange Act”)) were effective as of December 31, 2005 and as of the dateof such evaluation in timely alerting the Company’s management to materialinformation required to be included in this Form 10-KSB and other Exchange Actfilings. There were no changes (including corrective actions with regard to significantdeficiencies or material weaknesses) in the Company’s internal control thatcould materially affect or are reasonably likely to materially affect theCompany’s internal control over financial reporting.

 

**ITEM 8B.OTHER INFORMATION.**

 

None.

 

11

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**PART III**

 

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

 

The following table sets forth certain information concerningdirectors, executive officers and key employees of the Company:

 
| **Name**                | ** ** | **Age** | ** ** | **Position**                                               |
|-------------------------|------------|---------|------------|------------------------------------------------------------|
|                    |       |    |       |                                                       |
| Philip E.  Lundquist    |       | 70      |       | Chairman,  Secretary, Chief Financial Officer and Director |
| Richard L.  Teters, Jr. |       | 57      |       | President  and Chief Executive Officer                     |
| Ronan A.  Harris        |       | 34      |       | Director                                                   |
| Craig J.  Larson        |       | 55      |       | Director                                                   |
| Roy Dantzman            |       | 59      |       | Director                                                   |

 

 

The term of office of each director of the Company ends at the nextannual meeting of the Company’s stockholders or when such director’s successoris elected and qualifies. No date for the annual meeting of stockholders isspecified in the Company’s bylaws or has been fixed by the Board of Directors.Pursuant to the Company’s bylaws, the date of the annual meeting is to bedetermined by the current Board of Directors.

 

The following information sets forth the backgrounds and businessexperience of the directors, executive officers and key employees:

 

PHILIP E.LUNDQUIST - Mr. Lundquist has served as Secretary/Chief Financial Officer and aChairman of the Board for the Company since January, 1999. On May 1, 2003, Mr.Lundquist was elected President and Chief Executive Officer of the Company.From 1988 to the present he has served as President of Lundquist AdvisoryCompany, a company which provided corporate finance advisory services. He hasheld management positions at Reynolds Securities, Montgomery Securities, Inc.and Alex Brown & Sons in Miami, San Francisco and Baltimore. He wasDirector of Corporate Finance of Deloitte & Touche, Atlanta, Georgia. Mr.Lundquist graduated from Williams College with a bachelors degree in politicalscience and economics in 1957. During 1962 to 1964, he attended the Instituteof Investment Banking at the Wharton School of Business, University ofPennsylvania.

 

RICHARD L.TETERS, JR. – Founder of Knowledge Ventures, a company which commercializesscience and technology through alternative financing and intellectualcollaboration,  Mr. Teters is also theCo-Founder of Business Clubs International, a full service commercializationenterprise. He was the Sr. VP, COO, of Water Visions International, Inc., acompany specializing in microbiological fluid purification. Mr. Teters was anAdjunct Professor, Commercialization and Collaboration, The CorporateGovernance Center, Michael J. Coles College of Business, Kennesaw StateUniversity where Mr. Teters headed the development and implementation of fourcomplete, customer-focused finance and accounting systems. Each systemdelivered real time, accurate results. These systems remain industry standardstoday. He also lead the development of a managerial accounting system designedto streamline the budgeting and execution process, thus increasing the decisionpower of managers, while eliminating all intermediate accounting and budgetinglayers. He implemented a data/telecom infrastructure that provided securedsupport to over 20,000 international users. Mr. Teters supervised the operationof a 700 person headquarters with 16 direct reports with information systemoperating budgets exceeding $57 million annually. He also established thecenter for Industrial Collaboration and the Small Business Innovation ResearchResource Program at Kennesaw State University where he introduced the firstprogram of its kind in Georgia to partner university researchers with smallhigh technology based businesses. After thirty years in the Army he retired in1998 with the rank of Colonel in the Finance Corps. His last position held wasChief of Staff, U.S. Army Recruiting Command, a 13,000 person sales andmarketing organization, and a Major Army Command, reporting directly to thePentagon.

 

RONAN A.HARRIS - In January 1999, Mr. Harris founded Aubyn Management Ltd. whichspecializes in developing new markets and business opportunities in Japan. From1996 to January 1999 he was employed as a consultant for JJ International, afinancial consulting firm. From December, 1993 to February, 1996 he wasemployed as an engineer at Mitsubishi Corporation. He graduated with honorsfrom The University of Dublin with a degree in Electrical Engineering.Presently, Mr. Harris lives in Dublin, Ireland and is an executive with Google,Inc.

 

ROY DANTZMAN –Mr. Dantzman is an entrepreneur with broad business experience. For over thirtyyears, Mr. Dantzman has been involved in various business ventures. Mr.Dantzman owns and operates a successful design firm.

 

CRAIG J.LARSON – Mr. Larson has been active in the research, development, andmanagement of large industrial engineering projects for over 30 years. Heparticipated under a DOE “Q” security clearance at Sandia National Laboratorieson both the Particle Beam Fusion Accelerator and Simulation TechnologyLaboratory complexes. As Production Planner at Northrop, he authored softwareused on the Inertial Guidance System Project of the Peace-Keeper Missile. Heco-founded Power Enhancement Systems which made patent applications onisolation transformers, fuel cells, surge reduction switches and powerretention devices. Prior to merging QuantumReader with Vubotics in October2004, Mr. Larson was the Principal of Ekistics Research, LLC, which contractsindustrial design and engineering services to the Aerospace, Broadcast,Defense, Electronics, Pharmaceutical, PetroChem Pulp Paper,

 

12

----

 

and PowerGeneration industries. Prior to engineering, Mr. Larson worked as a prototypemachinist at MGM and 20th Century Fox creating props and specialeffects.

 

At this time, the board has no committees, including an audit,nominating or compensation committee.

 

There are no family relationships among any of the officers ordirectors of the Company.

 

**Compliance with Section 16**

 

Section 16(a)of the Securities Exchange Act of 1934 requires the Company directors,executive officers and persons who own more than ten percent of a registeredclass of the Company’s equity securities, to file with the Securities andExchange Commission (“SEC”) initial reports of ownership and reports of changesin ownership of common stock and the Company’s other equity securities.Officers, directors and greater than ten-percent beneficial owners are requiredby SEC regulations to furnish the Company with copies of all Section 16(a)reports they file. During the year ended December 31, 2005, Form 3s and Form 5sfor Messrs. Lundquist, Harris, Teters, Larson and Dantzman were not filed asrequired. The Company has been informed by each of these individuals that thesedelinquent forms are in the process of being filed.

 

**Code ofEthics**

 

The Companyhas adopted a code of ethics which is included in the exhibits.

 

**ITEM 10. EXECUTIVE COMPENSATION**

 

The following table sets forth the compensation earned by the Company’sexecutive officers during the last three fiscal years. None of the Company’sofficers received compensation in excess of $100,000 during any of the lastthree fiscal years.

 

**Summary Compensation Table**

 
| ** **                                              |     |                     |            |                            |    |                                         |   | **Long  Term  Compensation** |   |
|---------------------------------------------------------|----------|--------------------------|-----------------|---------------------------------|---------|----------------------------------------------|--------|------------------------------|--------|
| **Name and Principal  Position**                        |     | **Annual  Compensation** |            | **Other  Annual  Compensation** |    | **Securities  Underlying  Options/SARs (#)** |   |
|                                                    | **Year** | ** **               | **Salary  ($)** |                            |    |                                         |
|                                                    |     |                     |            |                            |    |                                         |   |                         |   |
| Richard L. Teters, Jr.                                  |     | 2005                     |            | $                               | 30,650  |                                         | $      | -0-                          |   | - 0 - |   |
| President and CEO                                       |     | 2004                     |            | $                               | -0-     |                                         | $      | -0-                          |   | - 0 - |   |
|                                                    |     |                     |            |                            |    |                                         |   |                         |   |
| Craig J. Larson                                         |     | 2005                     |            | $                               | 107,850 |                                         | $      | -0-                          |   | - 0 - |   |
| Chief Scientist and Director                            |     | 2004                     |            | $                               | -0-     |                                         | $      | -0-                          |   | - 0 - |   |
|                                                    |     |                     |            |                            |    |                                         |   |                         |   |
| Philip E. Lundquist                                     |     | 2005                     |            | - 0 -                           |    | $                                            | -0-    |                         | - 0 -  |   |
| Chairman, Secretary, Director, Chief  Financial Officer |     | 2004                     |            | - 0 -                           |    | $                                            | -0-    |                         | - 0 -  |   |

 

**Compensation of Directors**

 

The Companyhas no standard arrangement for compensation of its directors for any servicesprovided as director, including services for committee participation or forspecial assignments.

 

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

 

The following table sets forth the beneficial ownership of the Company’soutstanding common stock of: (i) each of its executive officers, (ii) each ofits directors and (iii) all executive officers and directors as a group. Thereis not any other person or group known by the Company to own beneficially morethan 5% of the Company’s outstanding common stock. Beneficial ownership isdetermined in accordance with the rules of the SEC and includes voting orinvestment power with respect to securities. Except as indicated by footnote,the persons named in the table below have sole voting power and investmentpower with respect to all shares of common stock shown as beneficially owned bythem. The percentage of beneficial ownership is based on 37,305,608 shares ofcommon stock outstanding as of March 9, 2006.

 

13

----

 
| **Name and Address of  Beneficial Owner** | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percent of  Class** | ** ** |
|-------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|
|                                      |       |                                           |       |                  |       |
| Roy Dantzman                              |       | 1,205,750                                      |       | 3.2                   | %          |
| 238 Main  Street                          |       |                                           |       |                  |       |
| Montrose,  Colorado, 81401                |       |                                           |       |                  |       |
|                                      |       |                                           |       |                  |       |
| Philip E.  Lundquist                      |       | 6,652,419                                      |       | 17.8                  | %          |
| 1108  Oglethorpe Drive                    |       |                                           |       |                  |       |
| Atlanta, GA  30319                        |       |                                           |       |                  |       |
|                                      |       |                                           |       |                  |       |
| 98 The  Drive, Castleton                  |       |                                           |       |                  |       |
| Ronan A.  Harris                          |       | 489,323                                        |       | 1.3                   | %          |
| Celbridge  Co., Kildare, Ireland          |       |                                           |       |                  |       |
|                                      |       |                                           |       |                  |       |
| Craig J.  Larson                          |       | 775,000                                        |       | 2.1                   | %          |
| 1177 Turner  Road                         |       |                                           |       |                  |       |
| Jasper, GA  30143                         |       |                                           |       |                  |       |
|                                      |       |                                           |       |                  |       |
| Richard L.  Teters, Jr.                   |       | 190,000                                        |       | 0.5                   | %          |
| 9445  Clublands Drive                     |       |                                           |       |                  |       |
| Alpharetta,  GA 30022                     |       |                                           |       |                  |       |
|                                      |       |                                           |       |                  |       |
| All Officers  and Directors as a Group    |       | 9,312,492                                      |       | 24.9                  | %          |

 

**ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.**

 

The followinginformation summarizes certain transactions either engaged in the last two years or proposed to engage in by theCompany’s executive officers, directors, more than 5% stockholders, orimmediate family members of such persons.

 

During fiscalyear 2005, the Company paid Philip E. Lundquist $38,110 for expensereimbursement for business development.

 

**ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.**

 

Exhibits.

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                    |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                               |
| 2.1             |       | Agreement and Plan of Reorganization between Silver Strike Nevada and  Christopher Partners, Inc., dated January 29, 1999. (Incorporated by  reference to Exhibit No. 8.1, to Form 10-SB, filed January 13, 2000.) |
|            |       |                                                                                                                                                                                                               |
| 3.1             |       | Articles of Incorporation of Silver Strike Mining Company, Inc.  (Incorporated by reference to Exhibit No. 2.1, to Form 10-SB, filed January  13, 2000.)                                                           |
|            |       |                                                                                                                                                                                                               |
| 3.2             |       | Certificate of Amendment to the Articles of Incorporation filed July  8, 1996. (Incorporated by reference to Exhibit No. 2.2, to Form 10-SB, filed  January 13, 2000.)                                             |
|            |       |                                                                                                                                                                                                               |
| 3.3             |       | Articles of Merger filed July 18, 1996. (Incorporated by reference to  Exhibit No. 2.3, to Form 10-SB, filed January 13, 2000.)                                                                                    |
|            |       |                                                                                                                                                                                                               |
| 3.4             |       | Certificate of Amendment to Articles of Incorporation filed July 23,  1998. (Incorporated by reference to Exhibit No. 2.4, to Form 10-SB,  filed January 13, 2000.)                                           |
|            |       |                                                                                                                                                                                                               |
| 3.5             |       | Certificate of Amendment to Articles of Incorporation filed February  12, 1999. (Incorporated by reference to Exhibit No. 2.5, to Form 10-SB, filed  January 13, 2000.)                                            |
|            |       |                                                                                                                                                                                                               |
| 3.6             |       | Articles of Share Exchange filed February 26, 1999. (Incorporated by  reference to Exhibit No. 2.6, to Form 10-SB, filed January 13, 2000.)                                                                        |
|            |       |                                                                                                                                                                                                               |
| 3.7             |       | Amended and Restated Bylaws of Vubotics, Inc. (Incorporated by  reference to Exhibit No. 2.7, to Form 10-SB, filed January 13, 2000.)                                                                              |

 

14

----

 
| 4.1    |   | Preferred Stock Document. (Incorporated by reference to Exhibit No.  4.1 to Form 10-QSB, filed November 13, 2000.)                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                   |
| 10.1   |   | Exclusive Sales Representative Agreement between Truscom and XTec,  dated October 11, 2000. (Incorporated by reference to Exhibit No. 10.1 to the  Form 10-QSB, filed November 13, 2000.)                                                              |
|   |   |                                                                                                                                                                                                                                                   |
| 10.2   |   | Consultant Agreement between Halifax and Columbia Financial Group,  Inc., dated January 2, 2001. (Incorporated by reference to Exhibit 10.2 to  the Form 10-KSB, filed March 29, 2001).                                                                |
|   |   |                                                                                                                                                                                                                                                   |
| 10.3   |   | Employment Agreement between Stephen E. Brisker and Halifax  International, Inc., dated June 1, 2001. (Incorporated by reference to  Exhibit 10.3 to Form 10-KSB filed April 15, 2002)                                                                 |
|   |   |                                                                                                                                                                                                                                                   |
| 10.4   |   | Plan and Agreement of Reorganization By and Between QuantumReader,  Inc. and Vubotics, Inc. dated November 17, 2004 (incorporated by reference to  Exhibit 10.4 to Form 10-KSB for the fiscal year ended December 31, 2004 filed  on October 14, 2005) |
|   |   |                                                                                                                                                                                                                                                   |
| 14.0   |   | Code of Ethics.                                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                   |
| 23     |   | Consent of Independent Certified Public Accountant                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                   |
| 31     |   | Rule 13a – 14(a)/15d-14(a) Certification of  Chief Executive Officer.                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                   |
| 31.1   |   | Rule 13a – 14(a)/15d-14(a) Certification of  Chief Financial Officer.                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                   |
| 32     |   | Statement of Chief Executive Officer and Chief Financial Officer  pursuant to Section 1350 of Title 18 of the United States Code                                                                                                                       |

 

**ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.**

 

Audit fees

 

Audited-RelatedFees

 

Fees billedfor professional services rendered for the audit of the Company’s annual financialstatements for the fiscal year ended December 31, 2005 and the reviews of thefinancial statements included in Forms 10-QSB for fiscal 2005 are $12,250.

 

Tax Fees

 

None.

 

All Other Fees

 

None.

 

15

----

 

**SIGNATURES**

 

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

 
|                  | VUBOTICS, INC.                |
|-----------------------|-------------------------------|
|                  |                          |
| Dated: March 31, 2006 | /s/ Philip E. Lundquist       |   |
|                  |                          |
|                  | Philip E. Lundquist, Director |
|                  | and Chief Financial Officer   |

 

 

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

 

 
| Dated: March 31, 2006  | /s/ Richard L. Teters, Jr.        |   |
|------------------------|-----------------------------------|--------|
|                   |                              |
|                   | Richard L. Teters, Jr., President |
|                   | and Chief Executive Officer       |
|                   |                              |
|                   |                              |
| Dated: March 31, 2006  | /s/ Philip E. Lundquist           |   |
|                   |                              |
|                   | Philip E. Lundquist, Director     |
|                   | and Chief Financial Officer       |
|                   |                              |
|                   |                              |
| Dated: March, 31, 2006 | /s/ Ronan A. Harris               |   |
|                   |                              |
|                   | Ronan A. Harris, Director         |
|                   |                              |
|                   |                              |
| Dated: March, 31, 2006 | /s/ Roy Dantzman                  |   |
|                   |                              |
|                   | Roy Dantzman, Director            |
|                   |                              |
|                   |                              |
| Dated: March, 31, 2006 | /s/ Craig J. Larson               |   |
|                   |                              |
|                   | Craig J. Larson, Director         |
|                        |                                   |        |  |

 

16

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**VUBOTICS, INC. AND SUBSIDIARIES**

 

**(FKA Halifax International, Inc.)**

 

**CONSOLIDATED FINANCIAL STATEMENTS**

 

**DECEMBER 31, 2005**

 

17

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**TABLE OF CONTENTS**

 
| INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT |   |
|-------------------------------------------------------------|--------|
|                                                        |   |
| CONSOLIDATED  BALANCE SHEET                                 |   |
|                                                        |   |
| CONSOLIDATED STATEMENTS OF OPERATIONS                       |   |
|                                                        |   |
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT       |   |
|                                                        |   |
| CONSOLIDATED STATEMENTS OF CASH FLOWS                       |   |
|                                                        |   |
| NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                  |   |

 

18

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**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’SREPORT**

 

To the Boardof Directors and Shareholders Vubotics, Inc (FKA Halifax International, Inc.)

Atlanta,Georgia

 

Wehave audited the accompanying consolidated balance sheet of Vubotics, Inc. (aNevada corporation) and subsidiaries as of December 31, 2005, and the relatedconsolidated statements of operations, stockholders’ deficit and cash flows forthe year ended December 31, 2005. These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on these consolidated financial statements based on ouraudit. The financial statements of Vubotics Inc. as of December 31, 2004, wereaudited by other auditors whose report dated July 19, 2005 was qualified as tothe Company  being able to continue as agoing concern.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audits to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the consolidated financial statements. An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall consolidated financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Vubotics, Inc. andsubsidiaries as of December 31, 2005, and the results of its operations andcash flows for the year ended December 31, 2005, in conformity with U.S.generally accepted accounting principles.

 

Theaccompanying consolidated financial statements have been prepared assuming thatthe Company will continue as a going concern. As discussed in Note 8 to thefinancial statements, the Company has suffered recurring losses and has a netcapital deficiency. These conditions raise substantial doubt about its abilityto continue as a going concern. Management’s plans in regard to these mattersare also described in Note 8. The financial statements do not include anyadjustments relating to the recoverability and classification of asset carryingamounts or the amount and classification of liabilities that might resultshould the Company be unable to continue as a going concern.

 

 

E.Philip Bailey CPA PC

 

Atlanta,Georgia

 

March29, 2006

 

19

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**VUBOTICS, INC. AND SUBSIDIARIES**

**(FKA HALIFAX INTERNATIONAL, INC.)**

**CONSOLIDATED BALANCE SHEET**

**DECEMBER 31, 2005**

 
| **ASSETS**                                                                                              |   |        |      |
|---------------------------------------------------------------------------------------------------------|--------|-------------|-----------|
|                                                                                                    |   |        |      |
| **Current  Assets**                                                                                     |   |        |      |
| Cash                                                                                                    |   | $           | 183       |   |
| Deposits                                                                                                |   | 1,297       |      |
| **Total current assets**                                                                                |   | 1,480       |      |
|                                                                                                    |   |        |      |
| **Other  Assets**                                                                                       |   |        |      |
| Intangible asset                                                                                        |   | 102,529     |      |
| Impairment reserve                                                                                      |   | (102,529    | )         |
| Total other assets                                                                                      |   | —      |      |
|                                                                                                    |   |        |      |
| **Total Assets**                                                                                        |   | $           | 1,480     |   |
|                                                                                                    |   |        |      |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                         |   |        |      |
|                                                                                                    |   |        |      |
| **Current  Liabilities**                                                                                |   |        |      |
| Notes payable                                                                                           |   | $           | 1,135,000 |   |
| Accrued expenses                                                                                        |   | 328,229     |      |
| Accrued interest                                                                                        |   | 1,092,181   |      |
| Due to related party                                                                                    |   | 349,008     |      |
| Accounts payable                                                                                        |   | 54,107      |      |
| **Total current liabilities**                                                                           |   | 2,958,525   |      |
|                                                                                                    |   |        |      |
| **Commitments  and Contingencies – Note 7**                                                        |   |        |      |
|                                                                                                    |   |        |      |
| **Stockholders’  (Deficit)**                                                                       |   |        |      |
| Common stock, $0.001 par value, 50,000,000  shares authorized, 34,997,274 shares issued and outstanding |   | 34,997      |      |
| Additional paid-in capital                                                                              |   | 8,519,152   |      |
| Common stock to be issued                                                                               |   | 198         |      |
| Accumulated deficit                                                                                     |   | (11,511,392 | )         |
|                                                                                                    |   | (2,957,045  | )         |
|                                                                                                    |   |        |      |
| **Total Liabilities and Stockholders’ Deficit**                                                    |   | $           | 1,480     |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

20

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**VUBOTICS, INC. AND SUBSIDIARIES**

**(FKA HALIFAX INTERNATIONAL, INC.)**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31, 2005 AND2004**

 
| ** **                                            | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                               |       | $          | 2,672      |       | $          | 5,635 |   |
|                                                  |       |       |       |       |       |
| Cost of sales                                         |       | 2,675      |       | 572        |       |
|                                                  |       |       |       |       |       |
| Gross profit                                          |       | (3         | )          | 5,063      |       |
|                                                  |       |       |       |       |       |
| Consulting and professional fees                      |       | 1,502,522  |       | 452,220    |       |
| Selling, general and administrative expenses          |       | 413,938    |       | 53,138     |       |
| Impairment of intangible asset                        |       | —     |       | 102,529    |       |
|                                                  |       | 1,916,460  |       | 607,887    |       |
|                                                  |       |       |       |       |       |
| Loss from operations                                  |       | (1,916,463 | )          | (602,824   | )          |
|                                                  |       |       |       |       |       |
| Interest expense                                      |       | (146,633   | )          | (138,200   | )          |
| Other income                                          |       | 25,000     |       |       |       |
| Interest income                                       |       | —     |       | 10         |       |
|                                                  |       | (121,633   | )          | (138,190   | )          |
|                                                  |       |       |       |       |       |
| Net loss                                              |       | $          | (2,038,096 | )          | $          | (741,014 | ) |
|                                                  |       |       |       |       |       |
| Net loss per common share - basic and fully  diluted  |       | $          | (0.06      | )          | $          | (0.03 | ) |
|                                                  |       |       |       |       |       |
| Weighted average number of common shares  outstanding |       | 31,829,906 |       | 21,294,743 |       |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

21

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**VUBOTICS, INC. AND SUBSIDIARIES**

**(FKA HALIFAX INTERNATIONAL, INC.)**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’DEFICIT**

**FOR THE YEARS ENDED DECEMBER 31, 2005 AND2004**

 
| ** **                                                    | ** ** | **Common Stock** | ** ** | **Common  Stock to be  Issued** | ** ** | **Additional  Paid-In Capital** | ** ** | **Accumulated  Deficit** | ** ** | **Total  Stockholders’  Deficit** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|---------------------------------|------------|---------------------------------|------------|--------------------------|------------|----------------------------------------|------------|
| **Shares**                                                    | ** ** | **Amount**       |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Balance, December 31, 2003                                    |       | 18,972,486       |       | $                               | 18,972     |                            | $          | 1,777                    |       | $                                      | 6,578,602  |   | $ | (8,732,282 | ) | $ | (2,132,931 | ) |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Issuance of common stock for cash                             |       | 4,258,623        |       | 4,259                           |       | (1,091                          | )          | 272,582                  |       | —                                 |       | 275,750 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Issuance of common stock for services                         |       | 1,896,500        |       | 1,897                           |       | (686                            | )          | 132,889                  |       | —                                 |       | 134,100 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Issuance of common stock for acquisition of  intangible asset |       | 1,000,000        |       | 1,000                           |       | —                          |       | 99,000                   |       | —                                 |       | 100,000 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Common stock to be issued                                     |       | —           |       | —                          |       | 67                              |       | 9,933                    |       | —                                 |       | 10,000 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Net loss                                                      |       | —           |       | —                          |       | —                          |       | —                   |       | (741,014                               | )          | (741,014 | ) |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Balance, December 31, 2004                                    |       | 26,127,609       |       | $                               | 26,128     |                            | $          | 67                       |       | $                                      | 7,093,006  |   | $ | (9,473,296 | ) | $ | (2,354,095 | ) |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Issuance of common stock for cash                             |       | 2,533,333        |       | 2,533                           |       | (67                             | )          | 480,034                  |       | —                                 |       | 482,500 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Common stock to be issued                                     |       | 198,000          |       | —                          |       | 198                             |       | 20,802                   |       | —                                 |       | 21,000 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Issuance of common stock for services                         |       | 6,385,332        |       | 6,385                           |       | —                          |       | 932,511                  |       | —                                 |       | 938,896 |   |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Common stock redeemed                                         |       | (49,000          | )          | (49                             | )          | —                          |       | (7,201                   | )          | —                                 |       | (7,250 | ) |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Net loss                                                      |       | —           |       | —                          |       | —                          |       | —                   |       | (2,038,096                             | )          | (2,038,096 | ) |
|                                                          |       |             |       |                            |       |                            |       |                     |       |                                   |       |   |   |
| Balance, December 31, 2005                                    |       | 35,195,274       |       | $                               | 34,997     |                            | $          | 198                      |       | $                                      | 8,519,152  |   | $ | (11,511,392 | ) | $ | (2,957,045 | ) |

 

The accompanying notes are an integral partof these consolidated financial statements.

 

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**VUBOTICS, INC. AND SUBSIDIARIES**

**(FKA HALIFAX INTERNATIONAL, INC.)**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THEYEARS ENDED DECEMBER 31, 2005 AND 2004**

 
| ** **                                                                   | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash Flows From Operating Activities**                                     |       |       |       |       |       |
| Net loss                                                                     |       | $          | (2,038,096 | )          | $          | (741,014 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities: |       |       |       |       |       |
| Issuance of common stock for services                                        |       | 938,896    |       | 134,100    |       |
| Impairment of intangible asset                                               |       | —     |       | 102,529    |       |
| Deposits                                                                     |       | (1,297     | )          | —     |       |
| Increase (decrease) in operating  liabilities:                               |       |       |       |       |       |
| Accounts payable                                                             |       | 2,777      |       | 19,998     |       |
| Accrued expenses                                                             |       | 95,229     |       | 93,000     |       |
| Accrued interest                                                             |       | 146,633    |       | 138,200    |       |
| Net cash used in operating activities                                        |       | (855.858   | )          | (253,187   | )          |
|                                                                         |       |       |       |       |       |
| **Cash Flows From Financing Activities**                                     |       |       |       |       |       |
| Proceeds from issuance of common stock                                       |       | 482,500    |       | 275,750    |       |
| Redemption of common stock                                                   |       | (7,250     | )          | —     |       |
| Proceeds from common stock to be issued                                      |       | 21,000     |       | 10,000     |       |
| Loans from related party                                                     |       | 343,746    |       | (45,626    | )          |
| Net cash provided by financing activities                                    |       | 839,996    |       | 240,124    |       |
|                                                                         |       |       |       |       |       |
| Net increase (decrease) in cash                                              |       | (15,862    | )          | (13,063    | )          |
| Cash –  beginning of year                                               |       | 16,045     |       | 29,108     |       |
| Cash – end  of year                                                     |       | $          | 183        |       | $          | 16,045 |   |
|                                                                         |       |       |       |       |       |
| Supplemental disclosures of cash flow  information                           |       |       |       |       |       |
| Cash paid for interest                                                       |       | $          | —     |       | $          | — |   |
| Cash paid for income taxes                                                   |       | $          | —     |       | $          | — |   |
|                                                                         |       |       |       |       |       |
| SUPPLEMENTAL DISCLOSURES OF  NON-CASH INVESTING AND FINANCING ACTIVITIES:    |       |       |       |       |       |
|                                                                         |       |       |       |       |       |
| Issuance of 1,000,000 common shares for  acquisition of intangible asset     |       | $          | —     |       | $          | 100,000 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

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**VUBOTICS, INC. AND SUBSIDIARIES**

**(FKA HALIFAX INTERNATIONAL, INC.)**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2005 AND 2004**

 

**NOTE 1 - ORGANIZATION AND DESCRIPTION OFBUSINESS**

 

***Business Operations***

 

In 2004,Halifax International, Inc. changed its name to Vubotics, Inc. (the “Company”).

 

Vubotics, Inc.(a Nevada Corporation) is a holding company with five subsidiaries -QuantumReader, Inc. (“QR”), Truscom, Inc. (“Truscom”), Christopher Partners,Inc. (“CP”), Annapolis Valley Ventures, Inc. (“Annapolis”) and X-VU, LLC. (“X-VU”).CP, Truscom, Annapolis and X-VU, are non-operating subsidiaries with no assets.In January 2006 CP, Annapolis and X-VU were sold to a related party for nominalconsideration.

 

Vubotics, through one of its wholly-owned subsidiaries, QuantumReader,Inc. is developing a new type of software product called Quantum Reader. QuantumReader is a hardware independent software system which changes the way in whichtext is displayed on electronic displays, according to the Company.

 

**NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

***Principles ofConsolidation***

 

The consolidated financial statements include the books of Vubotics,Inc. (formerly Silver Strike Mining Company) and its wholly owned subsidiariesChristopher Partners, Inc., QuantumReader, Inc., Truscom Inc., Annapolis ValleyVentures, Inc. and X-VU, LLC. All inter-company transactions and accounts havebeen eliminated

 

***Revenue Recognition***

 

The Company recognizes revenue when persuasive evidence of anarrangement exists, fees are fixed or determinable, delivery has occurred andcollection is reasonably assured. Revenue is not recognized until title haspassed and risk of loss has transferred to the customer, which occurs at timeof shipment. Services to be performed and revenue thus recognized have occurredand acknowledged by the customer in a manner that readily suggests in form andin substance that resources have been consumed and utilized and have met thosecustomer expectations, terms and conditions of which are usually set incontractual format.

 

***Stock BasedCompensation***

 

The Company has issued and may issue stock in lieu of cash for certaintransactions. The fair value of the stock, which is based on comparable cashpurchases, third party quotations, or the value of services, whichever is morereadily determinable, is used to value the transaction

 

***Use of Estimates***

 

The preparation of financial statements in conformity with generallyaccepted accounting principles requires management to make estimates and assumptionsthat affect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenue and expenses during the reporting period.Actual results could differ from those estimates. It is possible that thesignificant estimates used will change within the next year.

 

***Impairment ofLong-Lived Assets***

 

The Company reviews long-lived assets for possible impairment wheneverevents or changes in circumstances indicate that the carrying amount of anasset may not be recoverable. If such assets are considered to be impaired, theimpairment to be recognized is measured by the amount by which the carryingvalue exceeds the fair value of the assets, as measured by discounted cashflows over the remaining life of the assets.

 

***Basic and DilutedPer Common Share***

 

Under Statement of Financial Accounting Standards (“SFAS”) No. 128, “EarningsPer Share,” basic  earnings  per common share is computed by dividing income available to common stockholders bythe weighted average number of common shares assumed to be outstanding duringthe period of computation. Diluted earnings per share is computed similar tobasic earnings per share except that the denominator is increased to includethe number of additional common shares that would have been outstanding if thepotential

 

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common shares had been issued and if the additional common shares weredilutive. Because the Company has incurred net losses, basic and diluted lossper share are the same since additional potential common shares would beanti-dilutive.

 

***Income Taxes***

 

Deferred income tax assets and liabilities are recognized for theestimated tax effects of temporary differences between the financial reportingand tax reporting bases of assets and liabilities and for loss carryforwardsbased on enacted tax laws and rates. A valuation allowance is used to eliminatedeferred income tax assets to the amount that is more likely than not to beutilized.

 

***Significant RecentAccounting Pronouncements***

 

In March 2004, the FASB ratified EITF Issue No. 03-1, “The Meaning ofOther-Than-Temporary Impairment and its Application to Certain Investments”(“EITF 03-1”), but delayed the recognition and measurement provisions of EITF03-1 in September 2004. For reporting periods beginning after June 14, 2004,only the disclosure requirements for available-for-sale securities and costmethod investments are required. The Company’s adoption of the requirements didnot have a significant impact on the Company’s disclosures.

 

In July 2004, the FASB issued EITF Issue No. 02-14, “Whether an Investor Should Apply the Equity Method of Accounting to Investments Other than Common Stock” (“EITF 02-14”). EITF 02-14 requires application of the equity method of accounting when an investor is able to exert significant influence over operating and financial policies of an investee through ownership of common stock or in-substance common stock. EITF 02-14 is effective for reporting periods beginning after September 15, 2004.

 

In November 2004, the FASB issued SFAS No.151, “Inventory Costs” (SFAS 151). This Statement amends the guidance in ARBNo. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormalamounts of idle facility expense, freight, handling costs, and wasted material(spoilage). SFAS 151 requires that those items be recognized as current-periodcharges. In addition, this Statement requires that allocation of fixedproduction overheads to the costs of conversion be based on the normal capacityof the production facilities. The provisions of SFAS No. 151 are effective forinventory costs incurred in fiscal years beginning after June 15, 2005.

 

In December 2004, the FASB issued SFAS No. 123(R), “Accounting forStock-Based Compensation”. SFAS No. 123(R) establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services. This Statement focuses primarily on accounting fortransactions in which an entity obtains employee services in share-basedpayment transactions. SFAS 123(R) requires that the fair value of such equityinstruments be recognized as expense in the historical financial statements asservices are performed. Prior to SFAS 123(R), only certain pro-formadisclosures of fair value were required. SFAS 123(R) shall be effective for theCompany as of the beginning of the first interim or annual reporting periodthat begins after December 15, 2005. The adoption of this new accountingpronouncement is expected to have a material impact on the financial statementsof the Company commencing with the third quarter of the year ending September30, 2006. Small business issuers need not comply with the new standard untilfiscal periods beginning after December 15, 2005. The Company already recordsthe expense of employee stock options for annual and quarterly periods on fairvalue calculation according to SFAS No.123.

 

In December 2004,  the Financial  Accounting  Standards  Board (“FASB”) issued   Statement  of  Financial   Accounting   Standards  No. 123  (Revised), “Share-Based  Payment”  (“SFAS  123(R)”). SFAS  123(R)  replaces  SFAS  123 and supersedes  APB 25. SFAS 123(R) is  effective  as of the  beginning of the first annual  reporting  period that  begins  after  December  15,  2005. SFAS 123(R) requires that the costs resulting from all share-based  payment  transactions be recognized  in the  financial  statements. SFAS  123(R)  applies  to all awards granted after the required  effective date and shall not apply to awards granted in periods before the required  effective date, except if prior awards vest, are modified,  repurchased or cancelled  after the effective  date. SFAS 123(R) also amends Statement of Financial  Accounting  Standards No. 95,  “Statement of Cash Flows”,  to require  that excess tax  benefits  be reported as a financing  cash inflow rather than as a reduction of taxes paid. The Company adopted SFAS 123(R) effective January 1, 2006.

 

In March 2005, the SEC issued Staff  Accounting  Bulletin No. 107 (“SAB 107”),  which  offers  guidance  on SFAS  123(R). SAB 107 was  issued to assist preparers by simplifying  some of the  implementation  challenges of SFAS 123(R) while  enhancing  the  information  that  investors  receive. SAB 107 creates a framework that is premised on two overarching themes: (a) considerable  judgment will  be  required  by  preparers  to   successfully   implem ent   SFAS  123(R), specifically   when  valuing   employee  stock   options;   and  (b)  reasonable individuals, acting in good faith, may conclude differently on the fair value of employee stock options.

 

In May 2005,  the FASB issued SFAS 154,  “Accounting  Changes and Error Corrections”. SFAS No. 154  establishes new standards on accounting for changes in accounting  principles. Pursuant to the new rules,  all such changes must be accounted for by retrospective  application to the financial statements of prior periods unless it is impracticable to do so. SFAS No. 154 supersedes  Accounting Principles  Bulletin  (APB) Opinion 2,  “Accounting  for Changes” and SFAS No. 3 “Reporting  Accounting  Changes  in  Interim  Financial  Statements”,  though it carries forward the guidance of those  pronouncements with respect to accounting for changes  in  estimates,   changes  in  the  reporting  entity,   and  error corrections. This  statement  is  effective  for  accounting  changes and error corrections made in years beginning after December 15, 2005, with early adoption permitted for changes and  corrections  made in years  beginning after May 2005. The Company does not expect  adoption of SFAS No. 154 to have a material  impact on the Company’s financial statements.

 

In June 2005, the Emerging Issues Task Force (“EITF”) reached consensus on Issue No. 05-6 (“Issue”),  “Determining the Amortization Period for Leasehold Improvements”. This Issue provides guidance on determination of the amortization period for leasehold improvements that are purchased subsequent to the inception of the lease. Such leasehold improvements should be amortized over the lesser of the useful life of the asset, or the lease term that includes reasonably assured lease renewals. This Issue is effective for leasehold  improvements acquired in the  periods  beginning  after July 1,  2005. The  Company  does not expect the adoption of EITF No. 05-6 to have a material effect on its financial statements.

 

 

25

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Key topics covered by SAB 107 include valuation models, expected  volatility and expected term. The Company will apply the principles of SAB 107 in conjunction with its adoption of SFAS 123(R).

 

The adoption of EITF 02-14 will not have a significant impact on theCompany’s financial statements.

 

**NOTE 3 - NOTES PAYABLE**

 

The Company’s notes payable at December 31, 2005 are summarized asfollows:

 
| 12% notes  payable to a related party. The note is unsecured. At the option of the  holder, the notes are convertible into common stock at $1 per share |   | $       | 725,000   |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------|-----------|--------|
|                                                                                                                                                    |   |    |      |
| 13% notes payable to a related party. The  note are unsecured.                                                                                          |   | 200,000 |      |
|                                                                                                                                                    |   |    |      |
| 12% notes  payable to a stockholder. The note are unsecured.                                                                                            |   | 210,000 |      |
|                                                                                                                                                    |   |    |      |
| Total notes payable                                                                                                                                     |   | $       | 1,135,000 |   |

 

The aggregate principal amounts of the notes payable maturing insubsequent years as of December 31, 2005 are as follows:

 
| Amount  currently outstanding: |   | $ | 1,135,000 |   |
|--------------------------------|--------|---|-----------|--------|
| Currently  Due:                |   | $ | 1,135,000 |   |

 

**NOTE 4 – PURCHASE OF QUANTUM READER, INC. ANDRELATED IMPAIRMENT**

 

The Company purchased the entire stock of QuantumReader, Inc. (“QR”) ina stock for stock transaction. The purchase price was valued at $102,529 with$2,529 being allocated for liabilities assumed and 1,000,000 shares of stockissued by the Company for the technology of the acquired company. As part ofthe acquisition, the Company is obligated to fund a minimum of $250,000 duringthe first six months from the closing and another $250,000 during the secondsix months for continued development, marketing and other corporate uses. Asmentioned in note 8, there exist significant concerns as to the Company’sviability as a going concern. Therefore in light of such concerns and for otherreasons set forth below, the Company has reserved for the entire amount ofthose intangible assets purchased. In addition, there are certain compensatoryobligations that the Company has entered into with the former president ofQuantum Enterprises Inc; see Note 7-Commitments and Contingencies.

 

The Company currently does not present anyindefinite-lived intangible assets in its balance sheet. For the year endedDecember 31, 2004 and in accordance with SFAS No. 142, the Company performedits annual impairment test of its intangible asset and concluded thatan impairment existed at that date. The factors considered led to a substantialdoubt of the Company to recover its investment due to a lack of certainty infuture cash flows calculated on an undiscounted basis. In addition, based onits fair market value estimate the related write down was required to recordthe intangible asset on its fair market value. As a result, the Companyrecorded an impairment charge in the amount of $102,529 for the full carryingvalue of the intangible asset during the year ended December 31,2004.

 

26

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**NOTE 5 - INCOME TAXES**

 

The effective tax rate varies from the maximum federal statutory rateas a result of the following items for the twelve months ended December 31,2005 and 2004:

 
| ** **                                                  | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
|                                                        |       |                   |       |                   |       |
| Tax benefit computed at the maximum federal  statutory rate |       | (34.0                  | )%         | (34.0                  | )%         |
|                                                        |       |                   |       |                   |       |
| State tax rate, net of federal tax benefit                  |       | (4.5                   | )          | (4.5                   | )          |
|                                                        |       |                   |       |                   |       |
| Increase in valuation allowance                             |       | 38.5                   |       | 38.5                   |       |
|                                                        |       |                   |       |                   |       |
| Effective income tax rate                                   |       | 0.0                    | %          | 0.0                    | %          |

 

Deferred income tax assets and the related valuation allowances resultprincipally from the potential tax benefits of net operating losscarryforwards.

 

The Company has recorded a valuation allowance to reflect theuncertainty of the ultimate utilization of the deferred tax assets as follows:

 
| ** **                | ** ** | **December 31,  2005** | ** ** | **December 31,  2004** | ** ** |
|---------------------------|------------|------------------------|------------|------------------------|------------|
|                      |       |                   |       |                   |       |
| Deferred tax  assets      |       | $                      | 4,432,000  |                   | $          | 3,591,000 |   |
|                      |       |                   |       |                   |       |
| Less  valuation allowance |       | (4,432,000             | )          | (3,591,000             | )          |
|                      |       |                   |       |                   |       |
| Net deferred  tax assets  |       | $                      | —     |                   | $          | — |   |

 

For financial statement purposes, no tax benefit has been reported asthe Company has had significant losses in recent years and realization of thetax benefits is uncertain. Accordingly, a valuation allowance has beenestablished in the full amount of the deferred tax asset.

 

At December 31, 2005, the Company had net operating loss carryforwardsof approximately $11,511,000 which will be available to offset future taxableincome. These net operating loss carryforwards expire at various through 2025.The utilization of the net operating loss carryforwards is dependent upon theCompany’s ability to generate sufficient taxable income during the carryforwardperiod.

 

**NOTE 6 - RELATED PARTY TRANSACTIONS**

 

Loanrepayments of $38,110 were paid to Philip E. Lundquist, an officer andshareholder, during the year ended December 31, 2005.

 

**NOTE 7 - COMMITMENTS AND CONTINGENCIES**

 

***Litigation***

 

On July 16, 2002, Larry Rodammer (“Rodammer”) filed a complaint againstthe Company, Mr. Philip Lundquist and Christopher Partners, Inc., a whollyowned subsidiary of the Company, in the Circuit Court of the 15th JudicialCircuit In and For Broward County, Florida seeking damages in excess of$210,000 and other unspecified relief. The litigation arose out of failure topay two promissory notes made by Christopher Partners, Inc. to Rodammer and onepromissory note made by the Company to Rodammer and includes claims against Mr.Lundquist for alleged misrepresentations made to Rodammer. On September 10,2002, the Defendants filed an answer seeking dismissal of this case. Defendantsintend to vigorously defend against the claims in the complaint.

 

On March 14,2002, Cellcards of Illinois, L.L.C. (“Cellcards”) filed a complaint againstAnnapolis Valley Ventures, Inc., a wholly owned subsidiary of the Company (“Annapolis”)in the State of Illinois seeking actual damages of approximately $100,000, andother unspecified relief. The litigation arose out of orders placed byAnnapolis with Cellcards for prepaid cellular products. In July 2002, judgmentwas entered against Annapolis. This amount is included in accrued expenses inthe accompanying balance sheet at December 31, 2004.

 

In November2001, Cellmart Wireless, Inc. (“Cellmart”) filed a complaint against theCompany, Annapolis Valley Ventures, Inc. and Messrs. Lundquist and Brisker in theState of Texas seeking actual damages of approximately $40,000 and unspecifiedexemplary

 

27

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damages. Thelitigation arose out of a Non-Exclusive Distributor Agreement dated July 6,2001 by and between Cellmart and the Company, and the conduct of the partiesthereunder. On August 13, 2002, judgment was entered in favor of the plaintiffagainst the defendants. This amount is included in accrued expenses in theaccompanying balance sheet at December 31, 2004.

 

As part of thepurchase of the subsidiary QR, the Company entered into an agreement with anentity controlled by QR’s former president obligating the Company to pay him $135,900in 2005. In addition, the president has agreed to enter into certain non-competecovenants.

 

**NOTE 8 – GOING CONCERN**

 

These consolidated financial statements have been prepared inaccordance with generally accepted accounting principles applicable to a goingconcern, which contemplates the realization of assets and the satisfaction ofliabilities and commitments in the normal course of business. However, theCompany has incurred net losses of $2,038,096 and $741,014 for the twelvemonths ended December 31, 2005 and 2004, respectively. The Company also had aworking capital deficiency of $2,957,045 and an equity deficiency of $2,957,045at December 31, 2005 and has significant currently maturing debt and relatedaccrued interest thereto. The Company has raised capital to fund the operatingactivities primarily through private equity infusions from stockholders, loansthrough stockholders and other demand loans. The Company intends on financingits future development activities and its working capital needs largely fromthe sale of public equity securities with some additional funding from othertraditional financing sources, including term notes, until such time that fundsprovided by operations are sufficient to fund working capital requirements.

 

 These factors, among others,raise substantial doubt about the Company’s ability to continue as a goingconcern for a reasonable period of time.

 

The consolidated financial statements do not include any adjustmentsrelating to the recoverability and classification of recorded asset amountsother than what is described in Note 4 below.

 

**NOTE 9 – SUBSEQUENT EVENT –**(**Unaudited**)

 

The Company has reached an oral agreement in principle with LarryRodammer in satisfaction of the final judgment in the lawsuit entitled *Larry Rodammer v. Philip Lundquist, Christopher Partners, Inc. andHalifax International, Inc.*, Circuit Court of the 17thJudicial Circuit of Broward County, Florida Case No. 02-013765 (12). TheCompany has agreed to pay the principal of $360,658.72 plus interest at tenpercent (10%) per year on the unpaid principal amount. It is anticipated thatthe principal amount will be paid in installments with a final balloon paymentin December of 2008. It is anticipated that the written Agreement will beexecuted shortly. 

 

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