**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

 

**Washington, D. C. 20549**

 

**FORM 10-KSB**

 

**(Mark One)**

 

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

 

**For the fiscal year ended December 31, 2004**

 

**OR**

 

**o****TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934**

 

**Commission File Number 000-28883**

 

**VUBOTICS,INC.**

(Name of small business issuer in its charter)

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

 

**1108 Oglethorpe Drive, Atlanta, GA 30319**

(Address of Principal Executive Offices) (Zip Code)

 

**(404) 816-6100**

(Registrant’s telephone number, including area code)

 

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

 

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

 

**Common Stock, $0.001 par value**

(Title of class)

 

Check whether the issuer (1)filed all reports required to be filed by Section 13 or 15(d) of the ExchangeAct during the past 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes oNo ý

 

Check if there is no disclosureof delinquent filers in response to Item 405 of Regulation S-B contained inthis form, and no disclosure will be contained, to the best of registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB o.

 

Indicate by check mark whetherthe registrant is a shell company (as defined in rule 12b-2 of the ExchangeAct).    Yes o  No ý

 

Registrant’s revenues for thetwelve month period ended December 31, 2004: $5,635.

 

The shares of Common Stock of Vubotics,Inc. (formerly known as Halifax International, Inc.) (“the Company”) or (“Registrant”)are not actively traded; therefore the shares held by non-affiliates of theRegistrant, as of October 12, 2005 have no discernable market value.

 

As of September 27, 2005 the Registranthad outstanding 33,437,274 shares of Common Stock, $0.001 par value.

 

Transitional Small BusinessDisclosure Format.     Yes o   No ý

 

 

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**EXPLANATORY NOTE.**

 

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

 

This form 10-KSB is being filed contemporaneouslywith the following current reports:

 

Form 10-KSB for the fiscal year endedDecember 31, 2002;

Form 10-KSB for the fiscal year endedDecember 31, 2003;

Form 10-QSB for the quarter ended March 31,2003;

Form 10-QSB for the quarter ended June 30,2003;

Form 10-QSB for the quarter ended September30, 2003;

Form 10-QSB for the quarter ended March 31,2004;

Form 10-QSB for the quarter ended June 30,2004;

Form 10-QSB for the quarter ended September30, 2004:

Form 10-QSB for the quarter ended March 31,2005: And

Form 10-QSB for the quarter ended June 30,2005.

 

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**PART I**

 

**ITEM 1.DESCRIPTION OF BUSINESS.**

 

**Forward LookingStatements **

 

This annual report on Form10-KSB includes forward looking statements within the meaning of Section 27A ofthe Securities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended (“Forward Looking Statements”). All statementsother than statements of historical fact included in this report are ForwardLooking Statements. In the normal course of its business, the Company, in aneffort to help keep its shareholders and the public informed about the Company’soperations, may from time-to-time issue certain statements, either in writingor orally, that contain or may contain Forward Looking Statements. Although theCompany believes that the expectations reflected in such Forward LookingStatements are reasonable, it can give no assurance that such expectations willprove to have been correct. Generally, these statements relate to businessplans or strategies, projected or anticipated benefits or other consequences ofsuch plans or strategies, past and possible future, of acquisitions andprojected or anticipated benefits from acquisitions made by or to be made bythe Company, or projections involving anticipated revenues, earnings, levels ofcapital expenditures or other aspects of operating results. All phases of theCompany operations are subject to a number of uncertainties, risks and otherinfluences, many of which are outside the control of the Company and any one ofwhich, or a combination of which, could materially affect the results of theCompany’s proposed operations and whether Forward Looking Statements made bythe Company ultimately prove to be accurate. Such important factors (“ImportantFactors”) and other factors could cause actual results to differ materiallyfrom the Company’s expectations as disclosed in this report. All prior andsubsequent written and oral Forward Looking Statements attributable to theCompany or persons acting on its behalf are expressly qualified in theirentirety by the Important Factors described below that could cause actualresults to differ materially from the Company’s expectations as set forth inany Forward Looking Statement made by or on behalf of the Company.

 

**GeneralBackground**

 

The Company was originally incorporated onFebruary 27, 1996 in the state of Nevada as Silver Strike Mining Company, Inc.On February 12, 1999, Silver Strike changed its name to Halifax International,Inc. On February 26, 1999, Halifax acquired Christopher Partners, Inc., aGeorgia corporation, as a wholly-owned subsidiary (“Christopher”).  At the time of acquisition, ChristopherPartners had a wholly owned subsidiary, Palau Engineering & ConstructionCo., Ltd., a Bermuda corporation (“Palau”). In November 2000 the Company discontinued the business operations of bothChristopher and Palau.  On June 14, 2000,Halifax formed a wholly-owned subsidiary, Truscom, Inc., a Japanese corporation(“Truscom”).  The Company discontinuedthe business operations of Truscom in 2002. On June 20, 2001, Halifaxincorporated a wholly owned subsidiary, Annapolis Valley Ventures, Inc. in thestate of Delaware (“Annapolis”). The Company discontinued the businessoperations of Annapolis in 2002. On December 13, 2002, Halifax formed a whollyowned subsidiary, X-VU, LLC, a limited

 

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liability company under the laws of the stateof Georgia (“X-VU”). The Company has phased out the business operations of X-VU.

 

In November, 2004, the Companyacquired QuantumReader, Inc. (“QR”).  TheCompany acquired all of the issued and outstanding stock of QR in a stock forstock transaction.  The transaction wasvalued at $102,574 with $2,574 being allocated for liabilities assumed and1,000,000 shares of the Company’s common stock issued for the technology of QR.  The Company intends to fund a minimum of $500,000during the twelve month period following the acquisition of QR for continueddevelopment, marketing of the QR technology and other corporate uses.  In addition, there are certain compensatoryobligations that the Company has entered into with the former president of QR (seeNote 7 of the Company’s financial statements “Commitments and Contingencies”).  As part of the acquisition, all intellectualproperty rights held by the developers of the QR technology were assigned to QR. The QuantumReader and its relatedtechnologies were initially created by Craig Larson.  The product QuantumReader is referred to as “QuantumReader”and by its trade name “VuIT tm”.

 

The Company intends to concentrate itsefforts on the development, marketing and distribution of its QuantumReaderproducts, primarily through its QR subsidiary.

 

**BusinessOperations**

 

The Company is a holding company with oneoperating subsidiary, QR.

 

***Products and Technology***

 

Vubotics, through QR, isdeveloping a new type of software product called QuantumReader (“QuantumReader”).The Company has developed a software application called VuITtm basedon the QuantumReader technology. QuantumReader is a hardware independent software system which changesthe way in which text is displayed on electronic displays.  Rather than treat the display like a staticpiece of paper, Quantum Reader dynamically delivers text to the viewing surface.  The Company believes this automatedpresentation has the potential to decrease eye strain, increase reading rate,and improve comprehension.  This is done byanalyzing the content and tagging each individual word for comprehension andrecognition characteristics.  The wordsare then displayed one at a time, as large as desired, and at a rate of speedoptimized for the reader.  The systemalso improves comprehension by integrating graphics and sound into the text inlocations where they are most effective. The Company is currently in the beta test stage in the development ofthe VuITTM applications.  There can be noassurances that the projected potential applications of the QuantumReader willfunction in a way that will meet the Company’s product objectives or beaccepted by the marketplace.  See “RiskFactors.”

 

Certain Patent applicationshave been made in connection with the QuantumReader technology and the relatedmethods of analysis, abstraction and delivery of electronic information.  There can be no assurances that these patentswill be granted.  See “Risk Factors”.

 

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***Marketing***

 

The Company intends to market theinitial software application of QuantumReader, under the trade name VuITTM, tothe mobile communications user market.

 

The Company intends tointroduce its VuITTM application by putting products into the marketplacesequentially based on the maturity of the VuITTM  platform, the technical capabilities of thedevice, and the user commitment to the device. As the technical capabilities of VuITTM are increased and optimized, theproduct will be introduced laterally into the space occupied by devices capableof fully utilizing the more advanced application.  The Company has identified the followingpotential markets for QuantumReader software technology:

 

•                  Consumer

•                  Books

•                  News

•                  E-mail

•                  Messaging

 

•                  Professional

•                  Medicaldocuments

•                  Legal briefs

•                  Continuingeducations documents

•                  White papers

 

•                  Academic

•                  Early education

•                  Higher education

•                  On-linetraining/learning

 

•                  Disabled/handicapped

•                  Vision impairment

•                  Dyslexia

•                  ADD

•                  Maculardegeneration

 

•                  Internet

•                  Embedded withinweb portals

 

•                  Broadcasting/Advertising

•                  Deliveryenhancement

 

There can be no guarantee theCompany will either successfully develop or adapt the QuantumReader softwaretechnology for these markets or if the Company is successful in doing so that thesemarkets or any other markets will accept the product.

 

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***Competition***

 

The Company believes thatcompetitors will emerge with a product that attempts to emulate VuITTM.  Currently, there are no known competitors inthe market with a product using the technologies, trade secrets and patentpending techniques employed by the Company. However, the academic community has conducted research on similartechnologies.  The competitors that areexpected to emerge could have greater resources than the Company and theCompany may not be able to successfully compete against them.

 

The Company has applied forpatents on its technologies and techniques.

 

Patents, trade marks and tradesecrets could limit potential competitor’s ability to create a product thatwould have the capabilities of VuITTM.

 

**Risk Factors**

 

**Material Risks Related To The Company’s Business**

 

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

 

Since theCompany’s inception, the Company has incurred losses every quarter. The extentof the Company’s future operating losses and the timing of profitability arehighly uncertain, and the Company may never achieve or sustain profitability. TheCompany has incurred significant net losses since inception, including netlosses of approximately $741,014 in 2004, $391,309 in 2003 and $1,518,486 in2002. At December 31, 2004, the Company has an accumulated deficit of$9,473,296. The Company anticipates that the Company will continue to incuroperating losses for the foreseeable future and it is possible that the Companywill never generate substantial revenues 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 hasnot 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.***

 

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The Company’s futurebusiness and financial success will depend on its ability to introduce newproducts and upgrade existing products into the marketplace. Developing newproducts and upgrades to existing and future products imposes burdens on theCompany’s management. This process is costly, and the Company cannot assure anyinvestor that the Company will be able to successfully develop any products orenhance any future products. If the Company’s product development efforts areunsuccessful, the Company will have incurred significant costs withoutrecognizing the expected benefits and business 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 cannotassure any investor that the Company’s proposed products will achieve marketacceptance. Failure of the Company’s proposed products to gain marketacceptance would severely harm the Company’s business, financial condition andresults of operations.

 

***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 believesthat the Company’s current cash and cash equivalents are not sufficient to meetprojected operating requirements through December 2005. Therefore, theCompany may seek additional funds from public and private stock or debtofferings, borrowings or other sources prior to such time. The Company’s capitalrequirements 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 ofthese factors, the Company will need to raise additional funds, and these fundsmay not be available on favorable terms, or at all. Furthermore, if the Companyissues equity or debt securities to raise additional funds, the Company’s existingstockholders may experience dilution, and the new equity or debt securities mayhave rights, preferences and privileges senior

 

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to those of theCompany’s existing stockholders. In addition, if the Company raises additionalfunds through collaboration, licensing or other similar arrangements, it may benecessary to relinquish valuable rights to the Company’s potential products orproprietary technologies, or grant licenses on terms that are not favorable to theCompany. If the Company cannot raise funds on acceptable terms, the Company maynot be able to develop or enhance the Company’s products, execute the Company’sbusiness plan, take advantage of future opportunities, or respond tocompetitive pressures or unanticipated customer requirements.

 

***The Company’s successwill depend on the Company’s ability to attract and retain key personnel,programming and engineering staff. If the Company fails to attract and retainkey personnel and programming staff, the Company may be unable to succeed inits market.***

 

The Company believesfuture success will depend on the Company’s ability to manage its growthsuccessfully, including attracting and retaining programmers, engineers andother highly skilled personnel. The Company’s key employees may terminate theiremployment with the Company at any time.  Hiring qualified management and technicalpersonnel is difficult due to the limited number 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 reliesin part on patents, trade secrets and other proprietary technologies to protectthe Company’s products. The Company may not be able to obtain or maintainadequate U.S. patent protection for new products or ideas, or prevent theunauthorized disclosure of the Company’s technical knowledge or other tradesecrets by the Company’s employees. Additionally, the laws of foreign countriesmay not protect the Company’s intellectual property rights to the same extentas the laws of the U.S. Even if the Company’s intellectual property rightsare adequately protected, litigation may be necessary to enforce them, whichcould result in substantial costs to the Company and substantial diversion ofthe attention of the Company’s management and key technical employees. If theCompany is unable to adequately protect the Company’s intellectual property, theCompany’s competitors could use the Company’s intellectual property to developnew products 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.***

 

As of December31, 2004, the Company’s common stock is no longer trading on the OTC BulletinBoard or the Pink Sheets as a result of the Company’s failure to file reportswith the Securities and Exchange Commission. The Company’s management intends to cause its common stock to begintrading after the Company becomes current on these reports but there can be noguarantee of this. However, a regular trading market for the securities may notbe sustained

 

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in the future. The OTC Bulletin Board is aninter-dealer, over-the-counter market that provides significantly less liquiditythan the NASD’s automated quotation system (the “NASDAQ Stock Market”). Quotesfor stocks included on the OTC Bulletin Board are not listed in thefinancial sections of newspapers as are those for the NASDAQ Stock Market.Therefore, prices for securities traded solely on the OTC Bulletin Boardmay be difficult to obtain and holders of common stock may be unable to reselltheir securities at or near their original offering price or at any price. Iflisted on any exchange, the market price for the Company’s common stock will beinfluenced by a number of factors, including:

 

•                  The issuance ofnew equity securities in a future offering;

 

•                  Issued andoutstanding shares of the Company’s common stock becoming eligible for resalepursuant to contractual registration requirements or pursuant to exemptionsfrom registration becoming available following the passage of time;

 

•                  Competitivedevelopments, including announcements by competitors of new products orservices or significant contracts, acquisitions, strategic partnerships, jointventures or capital commitments;

 

•                  Variations inquarterly operating results;

 

•                  Changes infinancial estimates by securities analysts;

 

•                  The depth andliquidity of the market for the Company’s common stock;

 

•                  General economicand other national conditions; and

 

•                  Changesin interest rates.

 

***The limited prior public marketand trading market may cause volatility in the market price of the Company’s commonstock in the event it becomes listed.***

 

Currently, the Company’s stockis not actively traded on any market.  Inthe absence of an active trading 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.

 

***If******the Company’s common stock becomes listed on an exchange thestock may be considered a “penny stock” and may be difficult to sell.***

 

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To beconsidered to be a “penny stock,” securities must meet one or more of thedefinitions in Rules 15g-2 through 15g-6 promulgated underSection 15(g) of the Securities Exchange Act of 1934, as amended. These includebut are not limited to the following: (i) the stock trades at a price lessthan $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.

 

Potentialinvestors in the Company’s common stock are urged to obtain and read suchdisclosure carefully before purchasing any shares that are deemed to be “pennystock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks toapprove the account of any investor for transactions in such stocks beforeselling 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 the investor with a writtenstatement setting forth the basis on which the broker-dealer made thedetermination in (ii) above; and (iv) receive a signed and dated copyof such statement from the investor, confirming that it accurately reflects theinvestor’s financial situation, investment experience and investmentobjectives. Compliance with these requirements may make it more difficult forholders of the Company’s common stock to resell their shares to third partiesor to otherwise dispose of them in 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 totime, certain of the Company’s stockholders may be eligible to sell all or someof their shares of common stock by means of ordinary brokerage transactions inthe open market pursuant to Rule 144, promulgated under the Securities Act(“Rule 144”), subject to certain limitations. In general, pursuant toRule 144, a stockholder (or stockholders whose shares are aggregated) whohas satisfied a one-year holding period may, under certain circumstances, sellwithin any three-month period a number of securities which does not exceed thegreater of 1% of the then outstanding shares of common stock or the averageweekly trading volume of the class during the four calendar weeks prior to suchsale. Rule 144 also permits, under certain circumstances, the sale ofsecurities, without any limitations, by a non-affiliate of the Company that hassatisfied a two-year holding period.

 

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

 

The Company’s internalcontrols over financial reporting may have weaknesses and conditions that needto be addressed, the disclosure of which may have an adverse impact on theprice of the Company’s common stock. The Company is required to establish andmaintain appropriate internal controls over financial reporting. Failure toestablish those controls, or any failure of those controls once established,could adversely impact the Company’s public disclosures regarding the Company’sbusiness, financial condition or results of operations. In addition, management’sassessment of internal controls over financial reporting may identifyweaknesses and conditions that need to be addressed in the Company’s internalcontrols over financial reporting or other matters that may raise concerns forinvestors. Any actual or perceived weaknesses and conditions that need to beaddressed in the Company’s internal controls over financial reporting,disclosure of management’s assessment of the Company’s internal controls overfinancial reporting or disclosure of the Company’s public accounting firm’sattestation to or report on management’s assessment of the Company’s internalcontrols over financial reporting may have an adverse impact on the price of theCompany’s common stock.

 

***Upon such time as theCompany’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 adoptedby the Securities and Exchange Commission pursuant to Section 404 of theSarbanes-Oxley Act of 2002 require annual assessment of the Company’s internalcontrol over financial reporting, and attestation of the assessment by theCompany’s independent registered public accountants. This requirement willfirst apply to the Company’s annual report for fiscal 2006. The standards thatmust be met for management to assess the internal control over financialreporting as effective are new and complex, and require significantdocumentation, testing and possible remediation to meet the detailed standards.The Company may encounter problems or delays in completing activities necessaryto make an assessment of the Company’s internal control over financialreporting. In addition, the attestation process by the Company’s independentregistered public accountants is new and the Company may encounter problems ordelays in completing the implementation of any requested improvements andreceiving an attestation of the assessment by the Company’s independentregistered public accountants. If the Company cannot assess the Company’sinternal control over financial reporting as effective, or the Company’sindependent registered public accountants are unable to provide an unqualifiedattestation report on such assessment, investor confidence and share value maybe negatively impacted.

 

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

 

The Company hasnot paid cash dividends on its stock and it does not plan to pay cash dividendson its stock in the foreseeable future.

 

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**ITEM 2.DESCRIPTION OF PROPERTY.**

 

The Company requires minimalspace.  Currently, the Company’s Chairmanand CEO provides an office within his home at no charge to the Company until theCompany’s office space needs increase.  TheCompany does not own or lease any real property.

 

**ITEM 3.LEGAL PROCEEDINGS.**

 

On July 16, 2002, Larry Rodammer (“Rodammer”)filed a complaint against the Company, Mr. Phillip Lundquist and Christopher, inthe Circuit Court of the 15th Judicial Circuit, Broward County, Florida seekingdamages in excess of $210,000 and other unspecified relief. The litigation aroseout of the alleged failure to pay two promissory notes made by Christopher toRodammer and one promissory note made by the Company to Rodammer and includesclaims against Mr. Lundquist for alleged misrepresentations made 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 against Annapolis in the State ofIllinois seeking actual damages of approximately $100,000, and otherunspecified relief. The litigation arose out of orders placed by Annapolis withCellcards for prepaid cellular products. In July 2002, judgment was enteredagainst Annapolis.  The Companydiscontinued the operations of Annapolis in 2002.  Annapolis has no assets.

 

In November 2001, Cellmart Wireless, Inc. (“Cellmart”)filed a complaint against the Company, Annapolis and Messrs. Lundquist andBrisker in the State of Texas seeking actual damages of approximately $40,000and unspecified exemplary damages. The litigation arose out of a Non-ExclusiveDistributor Agreement dated July 6, 2001 by and between Cellmart and theCompany, and the conduct of the parties thereunder. On August 13, 2002,judgment was entered in favor of the plaintiff against the defendants. TheCompany discontinued the operations of Annapolis in 2002.  Annapolis has no assets.

 

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

 

The Company has not submitted a matter to avote of its shareholders during the fourth quarter of 2004.

 

**PART II**

 

**ITEM 5.MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS.**

 

There is no active public trading market forthe Company’s common stock at this time.

 

The Company has not declareddividends on its common stock and does not anticipate paying dividends on itscommon stock in the foreseeable future.

 

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The following shares were sold withoutregistration by the Company during the year 2004:

 

The Company sold 4,258,623 shares of itscommon stock for prices ranging from ten cents per share to twenty-five centsper share in reliance on the exemption from registration provided by Section4(2) of the Securities Act of 1933, as amended, and applicable state laws.

 

**ITEM 6.MANAGEMENT’S DISCUSSION AND ANALYSIS.**

 

**BusinessOverview**

 

The Company is a holding company with oneoperating subsidiary, QR.

 

Vubotics, through QR, isdeveloping a new type of software product called QuantumReader (“QuantumReader”).The Company has developed a software application called VuITtm basedon the QuantumReader technology. QuantumReader is a hardware independent software system which changesthe way in which text is displayed on electronic displays.  Rather than treat the display like a staticpiece of paper, Quantum Reader dynamically delivers text to the viewingsurface.  The Company believes thisautomated presentation has the potential to decrease eye strain, increasereading rate, and improve comprehension. This is done by analyzing the content and tagging each individual wordfor comprehension and recognition characteristics.  The words are then displayed one at a time,as large as desired, and at a rate of speed optimized for the reader.  The system also improves comprehension byintegrating graphics and sound into the text in locations where they are mosteffective.  The Company is currently inthe beta test stage in the development of the VuITTM applications.  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 “Risk Factors.”

 

Certain Patent applicationshave been made in connection with the QuantumReader technology and the relatedmethods of analysis, abstraction and delivery of electronic information.  There can be no assurances that these patentswill be granted.  See “Risk Factors”.

 

**Summary ofCritical Accounting Policies**

 

The Company has nominal operatingrevenue as it is in the development process of its product.  At such time as the Company has revenue, theCompany intends to adopt such policies as revenue recognition and stockcompensation.

 

**Resultsof Operations**

 

General. Thefollowing discussion and analysis explains trends in the Company’s financialcondition and results of operations for the years ended December 31, 2004 and2003. The consolidated financial statements and notes thereto included as partof the financial statements should be read in conjunction with thesediscussions.

 

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The Company incurred a net loss for the twelvemonths ended December 31, 2004 of $741,014. This compares to a loss of $391,309for the same period in 2003, an increase of $349,705, or 89.4%

 

The Company recorded revenues of $5,635 for theyear ended December 31, 2004 compared to $0 for the year ended December 31,2003.  These revenues were derived from thesale of virtual reality headsets.

 

The increase in net loss is primarily theresult of an increase in consulting fees of $243,012 incurred in an effort toreposition the Company for future opportunities and the write-down ofintangible assets of $102,529.

 

**Liquidityand Sources of Capital**

 

As of December 31, 2004, the Company had acash balance of $16,045, and $16,045 in total assets. The Company’s currentliabilities increased from $2,162,039 to $2,370,140. Net cash used in operatingactivities was $253,187 related to the costs and expense of generating business,which primarily consisted of fees to consultants. Net cash provided byfinancing activities was $240,124 for the year ended December 31, 2004 and camefrom the sale of common stock.  Notespayable 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 Company has financed its operations primarilythrough the sale of its common stock.

 

The Company believes that its cash needs forthe next twelve months will be met by debt financings, loans from itsdirectors, officers and shareholders and private placements of Companysecurities. However, there can be no assurances that the Company will be successfulin obtaining sufficient funds needed for the development of its business.  If the Company issues more shares of itscommon stock its shareholders may experience dilution in the value per share oftheir common stock.  See “Risk Factors.”

 

The Company continues to investigate theavailability, source and terms for external financing, but has not entered into any agreements at this time for such financing. The Company cannot assurethat funds will be available from any source, or, if available, that theCompany will be able to obtain the funds on terms agreeable to it. Anyadditional debt the Company incurs could result in a substantial portion of itscash flows from operating activities, if any, being used for the payment ofprincipal and interest on the indebtedness, and could render the Company morevulnerable to competitive challenges and economic downturns.

 

**ITEM 7.FINANCIAL STATEMENTS.**

 

The financial statementsrequired by Item 310 of Regulation S-B are attached hereto as Exhibit A.

 

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

 

None.

 

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

 

Based on their most recent evaluation, whichwas completed in consultation with management in connection with of the filingof this Form 10-KSB, the Company’s Chief Executive Officer and Chief FinancialOfficer believe the design and operation of the Company’s disclosure controlsand procedures (as defined in Rules 13a-14 and 15d-14 promulgated under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”)) wereeffective as of December 31, 2004 and as of the date of such evaluation intimely alerting the Company’s management to material information required to beincluded in this Form 10-KSB and other Exchange Act filings. There were nochanges (including corrective actions with regard to significant deficienciesor material weaknesses) in the Company’s internal control that could materiallyaffect or are reasonably likely to materially affect the Company’s internalcontrol over financial reporting.

 

**ITEM 8B.OTHER INFORMATION.**

 

None.

 

**PART III**

 

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

 

The following table sets forthcertain information concerning directors, executive officers and key employeesof the Company:

 
| **Name**             | ** ** | **Age** | ** ** | **Position**                                                               |
|----------------------|------------|---------|------------|----------------------------------------------------------------------------|
|                 |       |    |       |                                                                       |
| Philip E.  Lundquist |       | 69      |       | Chairman,  CEO, President, Secretary, Chief Financial Officer and Director |
|                 |       |    |       |                                                                       |
| Ronan A.  Harris     |       | 33      |       | Director                                                                   |
|                 |       |    |       |                                                                       |
| Roy Dantzman         |       | 58      |       | Director                                                                   |

 

The term of office of eachdirector of the Company ends at the next annual meeting of the Company’sstockholders or when such director’s successor is elected and qualifies. Nodate for the annual meeting of stockholders is specified in the Company’sbylaws or has been fixed by the Board of Directors. Pursuant to the Company’sbylaws, the date of the annual meeting is to be determined by the current Boardof Directors.

 

15

----

 

The following information setsforth the backgrounds and business experience of the directors, executiveofficers and key employees:

 

PHILIP E. LUNDQUIST - Mr. Lundquist hasserved as Secretary/Chief Financial Officer and a Chairman of the Board for theCompany since January, 1999. On May 1, 2003, Mr. Lundquist was electedPresident and Chief Executive Officer of the Company. From 1988 to the presenthe has served as President of Lundquist Advisory Company, a company whichprovided corporate finance advisory services. He has held management positionsat Reynolds Securities, Montgomery Securities, Inc. and Alex Brown & Sonsin Miami, San Francisco and Baltimore. He was Director of Corporate Finance ofDeloitte & Touche, Atlanta, Georgia. Mr. Lundquist graduated from WilliamsCollege with a bachelors degree in political science and economics in 1957.During 1962 to 1964, he attended the Institute of Investment Banking at theWharton School of Business, University of Pennsylvania.

 

RONAN A. HARRIS - In January 1999, Mr. Harrisfounded Aubyn Management Ltd. which specializes in developing new markets andbusiness opportunities in Japan. From 1996 to January 1999 he was employed as aconsultant for JJ International, a financial consulting business. From December,1993 to February, 1996 he was employed as an engineer at MitsubishiCorporation. He graduated with honors from The University of Dublin with adegree in Electrical Engineering. Presently, Mr. Harris lives in Dublin,Ireland and is employed by Google, Inc.

 

ROY DANTZMAN – Mr. Dantzman is anentrepreneur with broad business experience. For over thirty years, Mr.Dantzman has been involved in various business ventures.  Mr. Dantzman owns and operates a successfuldesign firm.

 

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

 

There are no familyrelationships among any of the officers or directors of the Company.

 

**Compliancewith Section 16**

 

Section 16(a) of the Securities Exchange Actof 1934 requires the Company directors, executive officers and persons who ownmore than ten percent of a registered class of the Company’s equity securities,to file with the Securities and Exchange Commission (“SEC”) initial reports ofownership and reports of changes in ownership of common stock and the Company’sother equity securities. Officers, directors and greater than ten-percentbeneficial owners are required by SEC regulations to furnish the Company withcopies of all Section 16(a) reports they file. During the year ended December31, 2004, Form 3s and Form 4s for Mr. Lundquist and Mr. Harris were not filedas required.

 

**Code of Ethics**

 

The Company has adopted a code of ethicswhich is included in the exhibits.

 

16

----

 

**ITEM 10.EXECUTIVE COMPENSATION**

 

The following table sets forththe compensation earned by the Company’s executive officers during the lastthree fiscal years.  None of the Company’sofficers received compensation in excess of $100,000 during any of the last threefiscal years. The Company paid no compensation during 2004.

 

**SummaryCompensation Table**

 
| ** **                                             | ** ** | ** **              | ** ** | ** **       | ** ** | **Long Term  Compensation** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|------------------|------------|-----------------------------|------------|
| **Name and Principal**                                 | ** ** | **Annual Compensation** | ** ** | **Other Annual** | ** ** | **Securities Underlying**   | ** ** |
| **Position**                                           | ** ** | **Year**                | ** ** | **Salary ($)**   | ** ** | **Compensation**            | ** ** | **Options/SARs (#)** | ** ** |
|                                                   |       |                    |       |             |       |                        |       |   |   |
| Stephen E.  Brisker                                    |       | 2003                    |       | - 0 -            |       | $                           | 6,450      | (1) | - 0 - |   |
| President  and CEO Director (left 5/1/03)              |       | 2002                    |       | $                | 97,000     |                        | $          | 43,000 | (2)(3) | - 0 - |   |
|                                                   |       |                    |       |             |       |                        |       |   |   |
| Philip E.  Lundquist                                   |       | 2003                    |       | - 0 -            |       | $                           | 6,500      | (4) | - 0 - |   |
| Chairman,  Secretary Director, Chief Financial Officer |       | 2002                    |       | - 0 -            |       | $                           | 93,553     | (4) | - 0 - |   |
|                                                        |            |                         |            |                  |            |                             |            |  |  |  |  |

 

----

(1) Includes $6,500 for consulting servicesand expense reimbursement.

 

(2) Includes $18,000 for consulting servicesand expense reimbursement and 2,500,000 shares of common stock valued at$125,000.

 

(3) 2,500,000 shares of common stock issuedto Brisker and valued at $125,000.

 

(4) Paid for consulting services and expensereimbursement for business development.

 

**Compensationof Directors**

 

The Company has no standard arrangement forcompensation of its directors for any services provided as director, includingservices for committee participation or for special assignments.

 

**ITEM 11.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS**

 

The following table sets forththe beneficial ownership of the Company’s outstanding common stock of: (i) eachof its executive officers, (ii) each of its directors and (iii) all executiveofficers

 

17

----

 

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 32,759,274 shares ofcommon stock outstanding as of July 11, 2005.

 
| **Name and Address of  Beneficial Owner**                                  | ** ** | **Amount and Nature of  Beneficial Ownership** | ** ** | **Percent of  Class** | ** ** |
|----------------------------------------------------------------------------|------------|------------------------------------------------|------------|-----------------------|------------|
|                                                                       |       |                                           |       |                  |       |
| Roy Dantzman  238 Main Street  Montrose, Colorado, 81401                   |       | 846,250                                        |       | 2.6                   | %          |
|                                                                       |       |                                           |       |                  |       |
| Philip E.  Lundquist (1)  1108 Oglethorpe Drive  Atlanta, GA  30319   |       | 5,647,619                                      |       | 17.2                  | %          |
|                                                                       |       |                                           |       |                  |       |
| Ronan A.  Harris  98 The Drive, Castleton  Celbridge Co., Kildare, Ireland |       | 489,323                                        |       | 1.5                   | %          |
|                                                                       |       |                                           |       |                  |       |
| All Officers  and Directors as a Group                                     |       | 6,983,192                                      |       | 21.3                  | %          |

 

----

(1) Officer and Director

 

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

 

The following information summarizes certaintransactions  either engaged in the lasttwo years or proposed to engage in by the Company’s executive officers,directors, more than 5% stockholders, or immediate family members of suchpersons.

 

During fiscal year 2004, the Company paidPhilip E. Lundquist $44,274 for expense reimbursement for business development.

 

During the year 2003, the Company paidStephen Brisker, former President and Chief Executive Officer, $6,450 for expensereimbursement.

 

During fiscal year 2003, the Company paidPhilip E. Lundquist $6,500 for salary and expense reimbursement for businessdevelopment.

 

Currently, the Company’s Chairman and CEOprovides an office within his home at no charge to the Company.

 

18

----

 

**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.)                                                                              |
|            |       |                                                                                                                                                                                                                |
| 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).                            |

 

19

----

 
| 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.                                                                   |
|   |   |                                                                                                                                                                                    |
| 14.0   |   | Code of  Ethics.                                                                                                                                                                        |
|   |   |                                                                                                                                                                                    |
| 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 pursuant to Section 1350 of Title 18 of the United  States Code                                                                                   |
|   |   |                                                                                                                                                                                    |
| 32     |   | Statement of  Chief Financial Officer pursuant to Section 1350 of Title 18 of the Untied  States Code.                                                                                  |

 

**ITEM 14. PRINCIPALACCOUNTANT FEES AND SERVICES.**

 

Audit fees

 

Fees billed for professional servicesrendered for the audit of the Company’s annual financial statements for thefiscal year ended December 31, 2004 and the reviews of the financial statementsincluded in Forms 10-QSB for fiscal 2004 are $7,500.

 

Financial Information Systems Design andImplementation Fees

 

None.

 

All Other Fees

 

None.

 

20

----

 

**SIGNATURES**

 

In accordance with Section 13 or15(d) of the Exchange Act, the registrant caused this report to be signed onits behalf by the undersigned, hereunto duly authorized.

 

 
|                     | VUBOTICS,  INC.                       |
|--------------------------|---------------------------------------|
|                     |                                  |
| Dated:  October 14, 2005 | /s/ Philip  E. Lundquist              |   |
|                     |                                  |
|                     | Philip E.  Lundquist, CEO/President   |
|                     |                                  |
|                     | Director and  Chief Financial Officer |

 

 

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

 

 
| Dated:  October 14, 2005 | /s/ Philip  E. Lundquist                      |   |
|--------------------------|-----------------------------------------------|--------|
|                     |                                          |
|                     | Philip E.  Lundquist, CEO/President, Director |
|                     | and Chief  Financial Officer                  |
|                     |                                          |
|                     |                                          |
| Dated:  October 14, 2005 | /s/ Ronan A.  Harris                          |   |
|                     |                                          |
|                     | Ronan A.  Harris, Director                    |
|                     |                                          |
|                     | /s/ Roy  Dantzman                             |   |
|                     | Roy  Dantzman, Director                       |
|                          |                                               |        |  |  |

 

21

----

 

**VUBOTICS,INC. AND SUBSIDIARIES**

 

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

 

**CONSOLIDATED FINANCIAL STATEMENTS**

 

**DECEMBER 31, 2004**

 

22

----

 

**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                  |   |

 

23

----

 

**INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM’S REPORT**

 

 

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

Atlanta, Georgia

 

We have audited theaccompanying consolidated balance sheet of Vubotics, Inc. (a Nevadacorporation) and subsidiaries as of December 31, 2004, and the relatedconsolidated statements of operations, stockholders’ deficit and cash flows forthe years ended December 31, 2004 and 2003. These consolidated financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these consolidated financialstatements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audits toobtain reasonable assurance about whether the consolidated financial statementsare free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidated financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall consolidatedfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

In our opinion, the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Vubotics, Inc. and subsidiaries as ofDecember 31, 2004, and the results of its operations and cash flows for theyears ended December 31, 2004 and 2003, in conformity with U.S. generallyaccepted accounting principles.

 

The accompanying consolidated financialstatements have been prepared assuming that the Company will continue as agoing concern. As discussed in Note 8 to the financial statements, the Companyhas suffered recurring losses and has a net capital deficiency. Theseconditions raise substantial doubt about its ability to continue as a goingconcern. Management’s plans in regard to these matters are also described inNote 8. The financial statements do not include any adjustments relating to therecoverability and classification of asset carrying amounts or the amount andclassification of liabilities that might result should the Company be unable tocontinue as a going concern.

 

 

Bongiovanni and Associates, CPA’s, PA

Cornelius, North Carolina

 

July 19, 2005

 

24

----

 

**VUBOTICS, INC. AND SUBSIDIARIES**

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

**CONSOLIDATED BALANCE SHEET**

**DECEMBER 31, 2004**

 
| **ASSETS**                                                                                              |   |       |      |
|---------------------------------------------------------------------------------------------------------|--------|------------|-----------|
|                                                                                                    |   |       |      |
| **Current  Assets**                                                                                     |   |       |      |
| Cash                                                                                                    |   | $          | 16,045    |   |
| **Total current assets**                                                                                |   | 16,045     |      |
|                                                                                                    |   |       |      |
| **Other  Assets**                                                                                       |   |       |      |
| Intangible asset                                                                                        |   | 102,529    |      |
| Impairment reserve                                                                                      |   | (102,529   | )         |
| Total other assets                                                                                      |   | —     |      |
|                                                                                                    |   |       |      |
| **Total Assets**                                                                                        |   | $          | 16,045    |   |
|                                                                                                    |   |       |      |
| **LIABILITIES  AND STOCKHOLDERS’ DEFICIT**                                                         |   |       |      |
|                                                                                                    |   |       |      |
| **Current  Liabilities**                                                                                |   |       |      |
| Notes payable                                                                                           |   | $          | 1,135,000 |   |
| Accrued expenses                                                                                        |   | 233,000    |      |
| Accrued interest                                                                                        |   | 945,548    |      |
| Due to related party                                                                                    |   | 5,262      |      |
| Accounts payable                                                                                        |   | 51,330     |      |
| **Total current liabilities**                                                                           |   | 2,370,140  |      |
|                                                                                                    |   |       |      |
| **Commitments  and Contingencies – Note 7**                                                        |   |       |      |
|                                                                                                    |   |       |      |
| **Stockholders’  (Deficit)**                                                                       |   |       |      |
| Common stock, $0.001 par value, 50,000,000  shares authorized, 26,127,609 shares issued and outstanding |   | 26,128     |      |
| Additional paid-in capital                                                                              |   | 7,093,006  |      |
| Common stock to be issued                                                                               |   | 67         |      |
| Accumulated deficit                                                                                     |   | (9,473,296 | )         |
|                                                                                                    |   | (2,354,095 | )         |
|                                                                                                    |   |       |      |
| **Total Liabilities and Stockholders’ Deficit**                                                    |   | $          | 16,045    |   |

 

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

 

25

----

 

**VUBOTICS, INC. AND SUBSIDIARIES**

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

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003**

 
| ** **                                            | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                               |       | $          | 5,635      |       | $          | — |   |
|                                                  |       |       |       |       |       |
| Cost of  sales                                        |       | 572        |       | —     |       |
|                                                  |       |       |       |       |       |
| Gross profit                                          |       | 5,063      |       | —     |       |
|                                                  |       |       |       |       |       |
| Consulting  and professional fees                     |       | 452,220    |       | 211,737    |       |
| Selling,  general and administrative expenses         |       | 53,138     |       | 41,438     |       |
| Impairment  of intangible asset                       |       | 102,529    |       | —     |       |
|                                                  |       | 607,887    |       | 253,175    |       |
|                                                  |       |       |       |       |       |
| Loss from  operations                                 |       | (602,824   | )          | (253,175   | )          |
|                                                  |       |       |       |       |       |
| Interest expense                                      |       | (138,200   | )          | (138,200   | )          |
| Interest income                                       |       | 10         |       | 66         |       |
|                                                  |       | (138,190   | )          | (138,134   | )          |
|                                                  |       |       |       |       |       |
| Net loss                                              |       | $          | (741,014   | )          | $          | (391,309 | ) |
|                                                  |       |       |       |       |       |
| Net loss per  common share - basic and fully diluted  |       | $          | (0.03      | )          | $          | (0.02 | ) |
|                                                  |       |       |       |       |       |
| Weighted  average number of common shares outstanding |       | 21,294,743 |       | 18,933,195 |       |

 

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

 

26

----

 

**VUBOTICS, INC. AND SUBSIDIARIES**

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

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT**

**FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003**

 
| ** **                                                    | ** ** | **Common Stock** | ** ** | **Common  Stock to be** | ** ** | **Additional** | ** ** | **Accumulated**     | ** ** | **Total  Stockholders’** | ** ** |
|---------------------------------------------------------------|------------|------------------|------------|-------------------------|------------|----------------|------------|---------------------|------------|-------------------------------|------------|
| ** **                                                    | ** ** | **Shares**       | ** ** | **Amount**              | ** ** | **Issued**     | ** ** | **Paid-In Capital** | ** ** | **Deficit**                   | ** ** | **Deficit** | ** ** |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Balance, December 31, 2002                                    |       | 18,803,486       |       | $                       | 18,803     |           | $          | —              |       | $                             | 6,368,046  |   | $ | (8,340,973 | ) | $ | (1,954,124 | ) |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Issuance of common stock for cash                             |       | 74,000           |       | 74                      |       | —         |       | 14,826              |       | —                        |       | 14,900 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Issuance of common stock for services                         |       | 95,000           |       | 95                      |       | —         |       | 10,905              |       | —                        |       | 11,000 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Common Stock to be issued                                     |       |             |       |                    |       | 1,777          |       | 184,825             |       |                          |       | 186,602 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Net loss                                                      |       | —           |       | —                  |       | —         |       | —              |       | (391,309                      | )          | (391,309 | ) |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| 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 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Common stock to be issued                                     |       | —           |       | —                  |       | 67             |       | 9,933               |       | —                        |       | 10,000 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Issuance of common stock for acquisition of  intangible asset |       | 1,000,000        |       | 1,000                   |       | —         |       | 99,000              |       | —                        |       | 100,000 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| Issuance of common stock for services                         |       | 1,896,500        |       | 1,897                   |       | (686           | )          | 132,889             |       | —                        |       | 134,100 |   |
|                                                          |       |             |       |                    |       |           |       |                |       |                          |       |   |   |
| 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 | ) |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

27

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**VUBOTICS, INC. AND SUBSIDIARIES**

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

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003**

 
| ** **                                                                   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash  Flows From Operating Activities**                                    |       |       |       |       |       |
| Net loss                                                                     |       | $          | (741,014   | )          | $          | (391,309 | ) |
| Adjustments  to reconcile net loss to net cash used in operating activities: |       |       |       |       |       |
| Issuance of common stock for services                                        |       | 134,100    |       | 11,000     |       |
| Impairment of intangible asset                                               |       | 102,529    |       | —     |       |
| Increase  (decrease) in operating liabilities:                               |       |       |       |       |       |
| Accounts payable                                                             |       | 19,998     |       | 12,707     |       |
| Accrued expenses                                                             |       | 93,000     |       | —     |       |
| Accrued interest                                                             |       | 138,200    |       | 138,200    |       |
| Net cash  used in operating activities                                       |       | (253,187   | )          | (229,402   | )          |
|                                                                         |       |       |       |       |       |
| **Cash  Flows From Financing Activities**                                    |       |       |       |       |       |
| Proceeds from issuance of common stock                                       |       | 275,750    |       | 14,900     |       |
| Proceeds from common stock to be issued                                      |       | 10,000     |       | 186,602    |       |
| Loans from related party                                                     |       | (45,626    | )          | 50,888     |       |
| Net cash  provided by financing activities                                   |       | 240,124    |       | 252,390    |       |
|                                                                         |       |       |       |       |       |
| Net increase  (decrease) in cash                                             |       | (13,063    | )          | 22,988     |       |
| Cash –  beginning of year                                               |       | 29,108     |       | 6,120      |       |
| Cash – end  of year                                                     |       | $          | 16,045     |       | $          | 29,108 |   |
|                                                                         |       |       |       |       |       |
| 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 an integral partof these consolidated financial statements.

 

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**VUBOTICS, INC. AND SUBSIDIARIES**

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

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**DECEMBER 31, 2004 AND 2003**

 

**NOTE1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**

 

***Business Operations***

 

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

 

Vubotics, Inc. (a Nevada Corporation) is aholding company with three subsidiaries - QuantumReader, Inc., ChristopherPartners, Inc. and X-VU, LLC.

 

Vubotics, through one of itswholly-owned subsidiaries, QuantumReader, Inc. is developing a new type ofsoftware product called Quantum Reader. Quantum Reader is a hardware independent software system which changesthe way in which text is displayed on electronic displays, according to theCompany.

 

**NOTE2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

***Principles of Consolidation***

 

The consolidated financialstatements include the books of Vubotics, Inc. (formerly Silver Strike MiningCompany) and its wholly owned subsidiaries Christopher Partners, Inc., QuantumReader,Inc. and X-VU, LLC. All inter-company transactions and accounts have beeneliminated

 

***Revenue Recognition***

 

The Company recognizes revenuewhen persuasive evidence of an arrangement exists, fees are fixed ordeterminable, delivery has occurred and collection 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 Based Compensation***

 

The Company has issued and mayissue stock in lieu of cash for certain transactions. The fair value of thestock, which is based on comparable cash purchases, third party quotations, orthe value of services, whichever is more readily determinable, is used to valuethe transaction

 

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***Use of Estimates***

 

The preparation of financialstatements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and the reported amounts of revenue andexpenses during the reporting period. Actual results could differ from thoseestimates.  It is possible that thesignificant estimates used will change within the next year.

 

***Impairment of Long-Lived Assets***

 

The Company reviews long-livedassets for possible impairment whenever events or changes in circumstancesindicate that the carrying amount of an asset may not be recoverable. If suchassets are considered to be impaired, the impairment to be recognized ismeasured by the amount by which the carrying value exceeds the fair value ofthe assets, as measured by discounted cash flows over the remaining life of theassets.

 

***Basic and Diluted Per Common Share***

 

Under Statement of FinancialAccounting Standards (“SFAS”) No. 128, “Earnings Per Share,” basic  earnings per common  share is computed bydividing income available to common stockholders by the weighted average numberof common shares assumed to be outstanding during the period ofcomputation.  Diluted earnings per shareis computed similar to basic earnings per share except that the denominator isincreased to include the number of additional common shares that would havebeen outstanding if the potential common shares had been issued and if theadditional common shares were dilutive. Because the Company has incurred net losses, basic and diluted loss pershare are the same since additional potential common shares would beanti-dilutive.

 

***Income Taxes***

 

Deferred income tax assets andliabilities are recognized for the estimated tax effects of temporarydifferences between the financial reporting and tax reporting bases of assetsand liabilities and for loss carryforwards based on enacted tax laws and rates.A valuation allowance is used to eliminate deferred income tax assets to theamount that is more likely than not to be utilized.

 

***Significant Recent Accounting Pronouncements***

 

In November 2002, the FASBissued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and DisclosureRequirements for Guarantee, Including Indirect Guarantees or Indebtedness ofOthers”, which addresses the disclosures to be made by a guarantor in itsinterim and annual financial statements about its obligations under guarantees.FIN 45 also requires the recognition of a liability by a guarantor at theinception of certain guarantees that are entered into or modified afterDecember 31, 2002.

 

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In****December 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation - Transition and Disclosure - an amendment to SFAS No.123” (“SFAS No. 148”), which provides alternative methods of transition forcompanies voluntarily planning on implementing the fair value recognitionprovisions of SFAS No. 123. SFAS No. 148 also revises the disclosure provisionsof SFAS No. 123 to require more promineI1t disclosure of the method ofaccounting for stock-based compensation, and requiring disclosure of pro formanet income and earnings per share as if the fair value recognition provisionsof SFAS No. 123 had been applied from the original effective date of SFAS No.123. The Company adopted the disclosure provisions of SFAS No. 148 for the quartersending after December 15, 2002.

 

In January 2003, the FASBissued FIN No. 46, “Consolidation of Variable Interest Entities”. FIN No. 46requires the consolidation of entities that cannot finance their activitieswithout the support of other parties and that lack certain characteristics of acontrolling interest, such as the ability to make decisions about the entity’sactivities via voting rights or similar rights. The entity that consolidatesthe variable interest entity is the primary beneficiary of the entity’sactivities. FIN No. 46 applies immediately to variable interest entitiescreated after January 31, 2003, and must be applied in the first periodbeginning after June 15,2003 for entities in which an enterprise holds avariable interest entity that it acquired before February 1, 2003. The adoptionof this standard did not have any impact on the Company’s financial statements.

 

In January 2003, the EITFreleased Issue No. 00-21, (“EITF 00-21”), “Revenue Arrangements with MultipleDeliveries”, which addressed certain aspects of the accounting by a vendor forarrangement under which it will perform multiple revenue-generating activities.Specifically, EITF 00-21 addresses whether an arrangement contains more thanone unit of accounting and the measurement and allocation to the separate unitsof accounting in the arrangement. EITF 00-21 is effective for revenuearrangements entered into in fiscal periods beginning after June 15, 2003. Theadoption of this standard did not have an impact on the Company’s financialstatements.

 

In****May 2003, the FASB issuedSFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities.” SFAS No. 149 amends and clarifies accounting for derivativeinstruments, including certain derivative instruments embedded in othercontracts, and for hedging activities under SFAS No. 133. SFAS No. 149 iseffective for contracts entered into or modified after June 30, 2003 and forhedging relationships designated after June 30, 2003. The adoption of this Standarddid not have any impact on the Company’s financial statements.

 

In May 2003, the FASB issuedSFAS No. 150, “Accounting for Certain Financial Instruments withCharacteristics of both Liabilities and Equity.” SFAS No. 150 establishesstandards for how companies classify and measure certain financial instrumentswith characteristics of both liabilities and equity. It requires companies toclassify a financial instrument that is within its scope as a liability (or anasset in some circumstances). SFAS No. 150 is effective for financialinstruments entered into or modified after May 31, 2003. The standard didimpact the Company’s financial statements.

 

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In December 2004, the FASBissued SFAS No. 123(R), “Accounting for Stock-Based Compensation”.  SFAS No. 123(R) establishes standards for theaccounting for transactions in which an entity exchanges its equity instrumentsfor goods or services.  This Statementfocuses primarily on accounting for transactions in which an entity obtainsemployee services in share-based payment transactions.  SGAS 123(R) requires that the fair value ofsuch equity instruments be recognized as expense in the historical financialstatements as services are performed. Prior to SFAS 123(R), only certain pro-forma disclosures of fair valuewere required.  SFAS 123(R) shall beeffective for the Company as of the beginning of the first interim or annualreporting period that 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 neednot comply with the new standard until fiscal periods beginning after December15, 2005.  The Company already recordsthe expense of employee stock options for annual and quarterly periods on fairvalue calculation according to SFAS No.123.

 

In November 2004, the FASB issued SFAS No.151, “Inventory Costs” (SFAS 151).  ThisStatement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” toclarify the accounting for abnormal amounts 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 Statementrequires that allocation of fixed production overheads to the costs ofconversion be based on the normal capacity of the production facilities.  The provisions of SFAS No. 151 are effectivefor inventory costs incurred in fiscal years beginning after June 15, 2005.

 

In December 2003, the issuedStaff Accounting Bulletin (“SAB”) No. 104, “Revenue Recognition,” rescinded theaccounting guidance contained in SAB No. 101, “Revenue Recognition in FinancialStatements,” and incorporated the body of previously issued guidance related tomultiple-element revenue arrangements. The Company’s adoption of SAB No. 104 did not have any impact on itsfinancial statements.

 

In March 2004, the FASB ratifiedEITF Issue No. 03-1, “The Meaning of Other-Than-Temporary Impairment and itsApplication to Certain Investments” (“EITF 03-1”), but delayed the recognitionand measurement provisions of EITF 03-1 in September 2004.  For reporting periods beginning after June14, 2004, only the disclosure requirements for available-for-sale securitiesand cost method investments are required. The Company’s adoption of the requirements did not have a significantimpact on the Company’s disclosures.

 

In July 2004, the FASB issuedEITF Issue No. 02-14, “Whether an Investor Should Apply the Equity Method ofAccounting to Investments Other than Common Stock” (“EITF 02-14”).  EITF 02-14 requires application of the equitymethod of accounting when an investor is able to exert significant influenceover operating and financial policies of an investee through ownership ofcommon stock or in-substance common stock. EITF 02-14 is effective for reporting periods beginning after September15, 2004.

 

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The adoption of EITF 02-14 willnot have a significant impact on the Company’s financial statements.

 

**NOTE 3 -NOTES PAYABLE**

 

The Company’s notes payable atDecember 31, 2004 are summarized as follows: 

 
| 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 amountsof the notes payable maturing in subsequent years as of December 31, 2004 areas follows:

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

 

**NOTE4 – PURCHASE OF QUANTUM READER, INC. AND RELATED IMPAIRMENT**

 

The Company purchased theentire stock of QuantumReader, Inc. (“QR”) in a stock for stocktransaction.  The purchase price wasvalued at $102,529 with $2,529 being allocated for liabilities assumed and1,000,000 shares of stock issued by the Company for the technology of the acquiredcompany.  As part of the acquisition, theCompany is obligated to fund a minimum of $250,000 during the first six months fromthe closing and another $250,000 during the second six months for continueddevelopment, marketing and other corporate uses.   Asmentioned in note 8, there exist significant concerns as to the Company’sviability as a going concern.  Thereforein light of such concerns and for other reasons set forth below, the Companyhas reserved for the entire amount of those intangible assets purchased.  In addition, there are certain compensatoryobligations that the Company has entered into with the former president of QuantumEnterprises Inc; see Note 7-Commitments and Contingencies.

 

The Company currently does not present any indefinite-lived intangibleassets in its balance sheet. For the year ended December 31, 2004 and inaccordance with SFAS No. 142, the Company performed its annual impairment testof its intangible asset and

 

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concluded that an impairment existed at that date. The factorsconsidered led to a substantial doubt of the Company to recover its investmentdue to a lack of certainty in future cash flows calculated on an undiscountedbasis. In addition, based on its fair market value estimate the related writedown was required to record the intangible asset on its fair market value. As aresult, the Company recorded an impairment charge in the amount of $102,529 forthe full carrying value of the intangible asset during the year endedDecember 31, 2004.

 

**NOTE5 - INCOME TAXES**

 

The effective tax rate variesfrom the maximum federal statutory rate as a result of the following items forthe twelve months ended December 31, 2004 and 2003:

 
| ** **                                                                                                                                                | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
|                                                                                                                                                      |       |                   |       |                   |       |
| 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 result principally  from the potential tax benefits of net operating loss carryforwards. |
|                                                                                                                                                      |
| The Company  has recorded a valuation allowance to reflect the uncertainty of the ultimate  utilization of the deferred tax assets as follows:            |
|                                                                                                                                                      |       |                   |       |                   |       |
| ** **                                                                                                                                                | ** ** | **December 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|                                                                                                                                                      |       |                   |       |                   |       |
| Deferred tax  assets                                                                                                                                      |       | $                      | 3,591,000  |                   | $          | 3,360,000 |   |
|                                                                                                                                                      |       |                   |       |                   |       |
| Less  valuation allowance                                                                                                                                 |       | (3,591,000             | )          | (3,360,000             | )          |
|                                                                                                                                                      |       |                   |       |                   |       |
| Net deferred  tax assets                                                                                                                                  |       | $                      | —     |                   | $          | — |   |

 

For financial statementpurposes, no tax benefit has been reported as the Company has had significantlosses in recent years and realization of the tax benefits is uncertain.Accordingly, a valuation allowance has been established in the full amount ofthe deferred tax asset.

 

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At December 31, 2004, theCompany had net operating loss carryforwards of approximately $9,328,000 whichwill be available to offset future taxable income. These net operating losscarryforwards expire at various through 2024. The utilization of the netoperating loss carryforwards is dependent upon the Company’s ability togenerate sufficient taxable income during the carryforward period.

 

**NOTE6 - RELATED PARTY TRANSACTIONS**

 

Loan repayments of $45,626 were paid toPhilip E. Lundquist, an officer and shareholder, during the year ended December31, 2004.

 

**NOTE 7 -COMMITMENTS AND CONTINGENCIES**

 

***Litigation***

 

On July 16, 2002, LarryRodammer (“Rodammer”) filed a complaint against the Company, Mr. PhillipLundquist and Christopher Partners, Inc., a wholly owned subsidiary of theCompany, in the Circuit Court of the 15th Judicial Circuit In and For BrowardCounty, Florida seeking damages in excess of $210,000 and other unspecifiedrelief. The litigation arose out of failure to pay two promissory notes made byChristopher Partners, Inc. to Rodammer and one promissory note made by theCompany to Rodammer and includes claims against Mr. Lundquist for allegedmisrepresentations made to Rodammer. On September 10, 2002, the Defendantsfiled an answer seeking dismissal of this case. Defendants intend to vigorouslydefend against the claims in the complaint.

 

On March 14, 2002, Cellcards of Illinois,L.L.C. (“Cellcards”) filed a complaint against Annapolis Valley Ventures, Inc.,a wholly owned subsidiary of the Company (“Annapolis”) in the State of Illinoisseeking actual damages of approximately $100,000, and other unspecified relief.The litigation arose out of orders placed by Annapolis with Cellcards forprepaid cellular products. In July 2002, judgment was entered againstAnnapolis.  This amount is included inaccrued expenses in the accompanying balance sheet at December 31, 2004.

 

In November 2001, Cellmart Wireless, Inc. (“Cellmart”)filed a complaint against the Company, Annapolis Valley Ventures, Inc. andMessrs. Lundquist and Brisker in the State of Texas seeking actual damages ofapproximately $40,000 and unspecified exemplary damages. The litigation aroseout of a NonExclusive Distributor Agreement dated July 6, 2001 by and betweenCellmart and the Company, and the conduct of the parties thereunder. On August13, 2002, judgment was entered in favor of the plaintiff against thedefendants.  This amount is included inaccrued expenses in the accompanying balance sheet at December 31, 2004.

 

As part of the purchase of the subsidiary QR,the Company entered into an agreement with an entity controlled by QR’s formerpresident obligating the Company to pay him

 

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$135,900 in 2005.  In addition, the president has agreed toenter into certain non-compete covenants.

 

**NOTE 8 –GOING CONCERN**

 

These consolidated financialstatements have been prepared in accordance with generally accepted accountingprinciples applicable to a going concern, which contemplates the realization ofassets and the satisfaction of liabilities and commitments in the normal courseof business. However, the Company has incurred net losses of $741,014 and$391,309 for the twelve months ended December 31, 2004 and 2003, respectively.The Company also had a working capital deficiency of $2,354,095 and an equity deficiencyof $2,354,095 at December 31, 2004 and has significant currently maturing debtand related accrued interest thereto. The Company has raised capital to fundthe operating activities primarily through private equity infusions fromstockholders, loans through stockholders and other demand loans. The Companyintends on financing its future development activities and its working capitalneeds largely from the sale of public equity securities with some additionalfunding from other traditional financing sources, including term notes, untilsuch time that funds provided by operations are sufficient to fund workingcapital requirements.

 

 These factors, among others, raise substantialdoubt about the Company’s ability to continue as a going concern for a reasonableperiod of time.

 

The consolidated financialstatements do not include any adjustments relating to the recoverability andclassification of recorded asset amounts other than what is described in Note 4below.

 

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