UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C 20549




FORM
10-Q




x  
QUARTERLY REPORT UNDER SECTION
13 OR 15 (D) OF THE SECURITES


EXCHANGE
ACT OF 1934




FOR
THE QUARTERLY PERIOD ENDED June 30, 2008




COMMISSION
FILE NUMBER: 0-21419




NETFABRIC
HOLDINGS, INC.


(Exact
Name of Small Business Issuer as Specified in Its Charter)





Delaware
            76-0307819(State
      or Other Jurisdiction of
              Incorporation
      or Organization)
            (I.R.S
      Employer Identification No.)





(Address
of Principal Executive Offices)


299
Cherry Hill Road,


Parsippany,
New Jersey 07054




(973)-537-0077


(Issuer's
Telephone Number, Including Area Code)


(Former
address, if changed since last report)




Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15 (d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.


Yes  o No x




Indicate
by check mark whether the registrant has submitted electronically and posted on
its Website, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T ( 232.405 of this chapter) during
the preceding 12 months ( or for such shorter period that the registrant was
required to submit and post such files) Yes o No x.




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company.




Large
accelerated filer o                                                                                                Accelerated
filer o




Non-
accelerated filer o                                                                                                 Small
reporting company x




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




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of December 8, 2009, 97,053,044 shares of
common stock, $.001 par value per share, of the issuer were
outstanding.


Transitional
Small Business Disclosure Format (check one): Yes o   No
x







NETFABRIC
HOLDINGS, INC.




INDEX





PagePART
      I.
                    FINANCIAL
      INFORMATIONItem
      1.
                    Financial
      Statements (Unaudited)Condensed
      Consolidated Balance Sheets
                    1Condensed
      Consolidated Statements of Operations
                    2Condensed
      Consolidated Statements of Cash Flows
                    3Notes
      to Interim Condensed Consolidated Financial Statements
                    4Item
      2.
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    8Item
      4.
                    Controls
      and Procedures
                    13PART
      II.
                    OTHER
      INFORMATION
                    13Item
      1.
                    Legal
      Proceedings
                    13Item
      2.
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    13Item
      3.
                    Defaults
      Upon Senior Securities
                    13Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    14Item
      5.
                    Other
      Information
                    14Item
      6.
                    Exhibits
                    14Signatures
                    15











NETFABRIC
HOLDINGS, INC. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 
 June
      30, 2008
                                                                                      
                                                                                      
                                                                                      DECEMBER
      31,
                                                                                        2007(Unaudited)
                                                                                      
                                                                                      
                                                                                      (See
      Note)ASSETSCURRENT
      ASSETS:Cash
                                                                                      
                                                                                      $
                                                                                      35,722
                                                                                      
                                                                                      
                                                                                      $
                                                                                      15,224Trade
      accounts receivable, net
                                                                                      
                                                                                      
                                                                                      2,723,612
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,758,821Prepaid
      expenses and other current assets
                                                                                      
                                                                                      
                                                                                      193,549
                                                                                      
                                                                                      
                                                                                      
                                                                                      34,012Total
      current assets
                                                                                      
                                                                                      
                                                                                      2,952,883
                                                                                      
                                                                                      
                                                                                      
                                                                                      1,808,057Property
      and equipment, net
                                                                                      
                                                                                      
                                                                                      154,808
                                                                                      
                                                                                      
                                                                                      
                                                                                      206,329Goodwill
                                                                                      
                                                                                      
                                                                                      5,704,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      5,704,000Other
      intangibles, net
                                                                                      
                                                                                      
                                                                                      549,680
                                                                                      
                                                                                      
                                                                                      
                                                                                      659,687Other
      assets
                                                                                      
                                                                                      
                                                                                      22,921
                                                                                      
                                                                                      
                                                                                      
                                                                                      22,929TOTAL
      ASSETS
                                                                                      
                                                                                      $
                                                                                      9,384,292
                                                                                      
                                                                                      
                                                                                      $
                                                                                      8,401,002LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIES:Private
      Placement, net of unamortized discount
                                                                                      
                                                                                      $
                                                                                      150,000
                                                                                      
                                                                                      
                                                                                      $
                                                                                      150,000Short
      term borrowings
                                                                                      
                                                                                      
                                                                                      750,000
                                                                                      
                                                                                      
                                                                                      
                                                                                      970,000Accounts
      payable and accrued liabilities
                                                                                      
                                                                                      
                                                                                      4,209,964
                                                                                      
                                                                                      
                                                                                      
                                                                                      3,976,771Accrued
      compensation
                                                                                      
                                                                                      
                                                                                      535,616
                                                                                      
                                                                                      
                                                                                      
                                                                                      554,880Deferred
      revenues and customer advances
                                                                                      
                                                                                      
                                                                                      769,964
                                                                                      
                                                                                      
                                                                                      
                                                                                      112,000Convertible
      note, net of unamortized discount
                                                                                      
                                                                                      
                                                                                      1,191,320Revolving
      note, net of unamortized discount
                                                                                      
                                                                                      
                                                                                      1,322,643
                                                                                      
                                                                                      
                                                                                      
                                                                                      981,555Total
      current liabilities
                                                                                      
                                                                                      
                                                                                      8,929,507
                                                                                      
                                                                                      
                                                                                      
                                                                                      6,745,206Convertible
      note, net of unamortized discount
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      
                                                                                      940,232Total
      liabilities
                                                                                      
                                                                                      
                                                                                      8,929,507
                                                                                      
                                                                                      
                                                                                      
                                                                                      7,685,438COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITY :Common
      Stock, $.001 par value, authorized shares 200,000,000,
      97,053,044  and 96,053,044 shares issued and outstanding,
      respectively
                                                                                      
                                                                                      
                                                                                      97,053
                                                                                      
                                                                                      
                                                                                      
                                                                                      96,053Additional
      paid-in capital
                                                                                      
                                                                                      
                                                                                      37,946,088
                                                                                      
                                                                                      
                                                                                      
                                                                                      37,802,940Accumulated
      deficit
                                                                                      
                                                                                      
                                                                                      (37,588,356
                                                                                      )
                                                                                      
                                                                                      
                                                                                      (37,183,429
                                                                                      )Total
      stockholders' equity
                                                                                      
                                                                                      
                                                                                      454,785
                                                                                      
                                                                                      
                                                                                      
                                                                                      715,564TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                      
                                                                                      $
                                                                                      9,384,292
                                                                                      
                                                                                      
                                                                                      $
                                                                                      8,401,002The
      accompanying notes should be read in conjunction with the condensed
      consolidated financial statements.
  -1-




NETFABRIC HOLDINGS, INC. AND SUBSIDIARIES


UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS





Three
      Months
                                                                                              
                                                                                              
                                                                                              Three
      Months
                                                                                              
                                                                                              
                                                                                              Six
      Months
                                                                                              
                                                                                              
                                                                                              Six
      MonthsEnded
                                                                                              
                                                                                              
                                                                                              Ended
                                                                                              
                                                                                              
                                                                                              Ended
                                                                                              
                                                                                              
                                                                                              EndedJune
      30, 2008
                                                                                              
                                                                                              
                                                                                              June
      30, 2007
                                                                                              
                                                                                              
                                                                                              June
      30, 2008
                                                                                              
                                                                                              
                                                                                              June
      30, 2007Revenues
                                                                                              
                                                                                              $
                                                                                              6,331,072
                                                                                              
                                                                                              
                                                                                              $
                                                                                              4,109,276
                                                                                              
                                                                                              
                                                                                              $
                                                                                              11,348,314
                                                                                              
                                                                                              
                                                                                              $
                                                                                              8,379,464OPERATING
      EXPENSES:Direct
      employee compensation andconsultant expenses (includes share based
      compensationof  $5,842,
      $11,396,$19,580 and $22,792)
                                                                                              
                                                                                              
                                                                                              5,000,901
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,123,798
                                                                                              
                                                                                              
                                                                                              
                                                                                              8,891,971
                                                                                              
                                                                                              
                                                                                              
                                                                                              6,483,479Selling,
      general and administrative expenses (includesshare based
      compensation of  $25,232, $83,236, $84,568 and
      $253,839)
                                                                                              
                                                                                              
                                                                                              944,485
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,348,686
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,895,632
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,908,916Impairment
      of goodwill
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,397,451
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,397,451Depreciation
      and amortization
                                                                                              
                                                                                              
                                                                                              73,172
                                                                                              
                                                                                              
                                                                                              
                                                                                              108,529
                                                                                              
                                                                                              
                                                                                              
                                                                                              156,045
                                                                                              
                                                                                              
                                                                                              
                                                                                              197,763Total
      operating expenses
                                                                                              
                                                                                              
                                                                                              6,018,558
                                                                                              
                                                                                              
                                                                                              
                                                                                              7,978,464
                                                                                              
                                                                                              
                                                                                              
                                                                                              10,943,648
                                                                                              
                                                                                              
                                                                                              
                                                                                              12,987,609Income
      (loss) from operations
                                                                                              
                                                                                              
                                                                                              312,514
                                                                                              
                                                                                              
                                                                                              
                                                                                              (3,869,188
                                                                                              )
                                                                                              
                                                                                              
                                                                                              404,666
                                                                                              
                                                                                              
                                                                                              
                                                                                              (4,608,145
                                                                                              )OTHER
      INCOME / (EXPENSE):Amortization
      of debt discounts
                                                                                              
                                                                                              
                                                                                              (186,895
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (193,678
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (368,261
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (369,473
                                                                                              )Amortization
      of debt issuance costs
                                                                                              
                                                                                              
                                                                                              (121,000
                                                                                              )
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (253,373
                                                                                              )Interest
      and bank charges
                                                                                              
                                                                                              
                                                                                              (75,935
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (82,961
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (187,959
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (161,843
                                                                                              )Total
      other income / (expense)
                                                                                              
                                                                                              
                                                                                              (383,830
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (276,639
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (809,593
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (531,316
                                                                                              )Loss
      before provision for income taxes
                                                                                              
                                                                                              
                                                                                              (71,316
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (4,145,827
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (404,927
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (5,139,461
                                                                                              )Provision
      for income taxes
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -LOSS
      FROM CONTINUING OPERATIONS
                                                                                              
                                                                                              
                                                                                              (71,316
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (4,145,827
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (404,927
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (5,139,461
                                                                                              )DISCONTINUED
      OPERATIONSLoss
      from discontinued operations
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (53,398
                                                                                              )
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              (53,398
                                                                                              )NET
      LOSS
                                                                                              
                                                                                              $
                                                                                              (71,316
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (4,199,225
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (404,927
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (5,192,859
                                                                                              )Net
      loss from continuing operations per common share, basic and
      diluted
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.06
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.07
                                                                                              )Net
      loss from discontinued operations per common share, basic and
      diluted
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -Net
      loss per common share, basic and diluted
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.06
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.00
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (0.07
                                                                                              )Weighted
      average number of shares outstanding, basic and diluted
                                                                                              
                                                                                              
                                                                                              97,053,044
                                                                                              
                                                                                              
                                                                                              
                                                                                              75,663,883
                                                                                              
                                                                                              
                                                                                              
                                                                                              96,618,978
                                                                                              
                                                                                              
                                                                                              
                                                                                              75,484,435The
      accompanying notes should be read in conjunction with the condensed
      consolidated financial
statements.




-2-




NETFABRIC
HOLDINGS, INC. AND SUBSIDIARIES
 UNAUDITED
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


Six
      Months
                              
                              
                              Six
      MonthsEnded
                              
                              
                              EndedJune
      30, 2008
                              
                              
                              June
      30, 2007OPERATING
      ACTIVITIESNet
      loss
                              
                              $
                              (404,927
                              )
                              
                              $
                              (5,192,859
                              )Loss
      from discontinued operations
                              
                              
                              
                              
                              
                              
                              53,398Adjustments
      to reconcile net loss to net cash  provided by operating
      activities:Common
      stock issued for services
                              
                              
                              
                              
                              
                              
                              77,600Non-cash
      charge for employee share based compensation
                              
                              
                              104,148
                              
                              
                              
                              199,031Non-cash
      financing fees
                              
                              
                              40,000Amortization
      of debt discounts
                              
                              
                              368,261
                              
                              
                              
                              369,473Amortization
      of debt issuance costs
                              
                              
                              253,373Impairment
      of goodwill
                              
                              
                              
                              
                              
                              
                              3,397,451Depreciation
      and amortization
                              
                              
                              156,045
                              
                              
                              
                              197,763Loss
      on disposal of property and equipment
                              
                              
                              5,287Changes
      in operating assets and liabilities:Trade
      accounts receivable
                              
                              
                              (964,791
                              )
                              
                              
                              (9,330
                              )Prepaid
      expenses and other current assets
                              
                              
                              (159,537
                              )
                              
                              
                              (14,035
                              )Other
      assets
                              
                              
                              
                              
                              
                              
                              4,593Accounts
      payable and accrued liabilities
                              
                              
                              231,525
                              
                              
                              
                              224,358Accrued
      compensation
                              
                              
                              (19,364
                              )
                              
                              
                              (18,233
                              )Deferred
      revenues and advances
                              
                              
                              657,964
                              
                              
                              
                              785,223Net
      cash provided by continuing operations
                              
                              
                              267,984
                              
                              
                              
                              74,433Net
      cash used in discontinued operations
                              
                              
                              
                              
                              
                              
                              (53,398
                              )Net
      cash provided by operating activities
                              
                              
                              267,984
                              
                              
                              
                              21,035INVESTING
      ACTIVITIESProceeds
      from disposal of property and equipment
                              
                              
                              5,981Purchases
      of property and equipment
                              
                              
                              (4,009
                              )
                              
                              
                              (85,108
                              )Net
      cash provided by (used in) investing activities
                              
                              
                              1,972
                              
                              
                              
                              (85,108
                              )FINANCING
      ACTIVITIESSubscription
      received
                              
                              
                              
                              
                              
                              
                              400,000Short
      term borrowings
                              
                              
                              400,000
                              
                              
                              
                              300,000Repayment
      of short term borrowings
                              
                              
                              (620,000
                              )
                              
                              
                              (100,000
                              )Repayment
      of convertible debenture
                              
                              
                              
                              
                              
                              
                              (500,000
                              )Proceeds
      from issuance (repayment) of revolving note, net
                              
                              
                              223,915
                              
                              
                              
                              (198
                              )Debt
      issuance costs
                              
                              
                              (253,373
                              )
                              
                              
                              (35,000
                              )Net
      cash (used in) provided by financing activities
                              
                              
                              (249,458
                              )
                              
                              
                              64,802Net
      increase in cash
                              
                              
                              20,498
                              
                              
                              
                              729Cash
      at beginning of period
                              
                              
                              15,224
                              
                              
                              
                              13,437Cash
      at end of  period
                              
                              $
                              35,722
                              
                              
                              $
                              14,166Supplemental
      cash flow information:Cash
      paid for interest
                              
                              $
                              216,000
                              
                              
                              $
                              175,000


The
accompanying notes should be read in conjunction with the condensed consolidated
financial statements.




-3-




NETFABRIC
HOLDINGS INC. AND SUBSIDIARIES





NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





RECENT
DEVELOPMENTS





On August
24, 2009, the “Company” along with its wholly-owned subsidiary, NetFabric
Technologies, Inc., d/b/a UCA Services, Inc. (“UCA”) and Fortify Infrastructure
Services, Inc. (“Fortify) entered into Amendment No. 1 (“Amendment”) to the
Option and Purchase Agreement  (“Option Agreement”) in connection with
the closing of Fortify’s  purchase of all of the outstanding capital
stock of UCA upon exercise of its option granted under the Option Agreement.
Pursuant to the Amendment, among other things,the Secured Convertible
Promissory Note in the principal amount of $5 million issued by UCA to Fortify
was cancelled, releases of certain obligations of the parties were granted as
specified in the Amendment , and the commencement date and measurement period
for the earn-out and bonuses provided for in the Option Agreement were
modified.





On March
13, 2009, the Company along with its wholly-owned subsidiary, UCA entered into a
Convertible Note Purchase Agreement dated March 12, 2009 with Fortify. Pursuant
to the Convertible Note Purchase Agreement, Fortify purchased a Secured
Convertible Promissory Note (the “Note”) from UCA in the principal amount of $5
million with the Company being a guarantor for UCA’s borrowings. Fortify, UCA
and the Company also entered into the Option Agreement. Pursuant to the Option
Agreement, Fortify has an option to acquire all of the outstanding shares of
common stock of UCA.





Theholders of a majority of
the Company’s outstanding common stock had previously approved the terms of the
Option Agreement by a written consent as detailed in the Company’s Definitive
Schedule 14 C Information Statement filed with the Securities and
Exchange Commission (the “SEC”) on July 9, 2009.




NOTE
1. NATURE OF BUSINESS AND MANAGEMENT'S PLANS




NetFabric
Holdings, Inc. ("Holdings" or the "Company") (formerly known as Houston
Operating Company) was incorporated under the laws of the State of Delaware on
August 31, 1989. On December 9, 2004, Holdings entered into an exchange
agreement (the "Acquisition Agreement" or "Share Exchange") with all of the
stockholders of NetFabric Corporation, a Delaware corporation ("NetFabric")
whereby Holdings acquired all of the issued and outstanding capital stock of
NetFabric and NetFabric became a wholly-owned subsidiary of Holdings. Upon
completion of the merger, the NetFabric stockholders controlled approximately
95% of the then issued and outstanding stock. NetFabric's business activities
were the activities of the merged company and Holdings was a shell corporation
without any operations. As a result of these factors, this transaction was
treated as a reverse merger for financial reporting purposes.




NetFabric
was incorporated on December 17, 2002 and began operations in July 2003.
NetFabric developed and marketed Voice over Internet Protocol ("VoIP")
appliances that simplified the integration of standard telephone systems with an
IP infrastructure. On May 5, 2006, the Company announced its decision to exit
from the hardware-based VoIP communications product line (including resale of
transport services) that is targeted at small to mid-sized businesses ("SMBs").
In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets", ("SFAS No.
144"), the Company has presented the results of operations from its VoIP
business segment as “discontinued operations” in the accompanying consolidated
balance sheets, statements of operations and statements of cash flows (Note
3).




On May
20, 2005, Holdings entered into and closed on a share exchange agreement
("Exchange Agreement"), whereby Holdings acquired all of the issued and
outstanding shares of UCA Services, Inc., a New Jersey company ("UCA Services")
, from its shareholders in exchange for the issuance of 24,096,154 shares of
common stock of Holdings (see Note 8). Holdings emerged from the development
stage upon the acquisition of UCA Services. In May 2007, UCA Services changed
its legal name to NetFabric Technologies, Inc.




UCA
Services, a New Jersey company, is an information technology ("IT") services
company that serves the information and communications needs of a wide range of
Fortune 500 and small to mid-size business clients in the financial markets
industry as well as the pharmaceutical, health care and hospitality sectors. UCA
Services delivers a broad range of IT services in the practice areas of
infrastructure builds and maintenance, managed services and professional
services.


-4-





NETFABRIC
HOLDINGS INC. AND SUBSIDIARIES





NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





Management's
plans




The
accompanying unaudited condensed consolidated financial statements have been
prepared on a going concern basis. As shown in the accompanying unaudited
condensed consolidated financial statements, the Company has incurred
accumulated losses totaling $37,588,356 and has a working capital deficit of
$5,976,624 at June 30, 2008. These factors, among others, indicate that the
Company may be unable to continue as a going concern. The unaudited condensed
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.





Management
recognizes that the Company's continuation as a going concern is dependent upon
its ability to generate sufficient cash flow to allow the Company to continue
the development of its business plans and satisfy its current and long-term
obligations on a timely basis. The Company believes that it will be able to
complete the necessary steps in order to meet its cash requirements throughout
fiscal 2008 and continue its business development efforts.




In March
2009, the company entered into a transaction with Fortify Infrastructure
Services, Inc. See Note 2. Pursuant the transaction, the Company will transfer
its ownership interest in UCA Services. Out of proceeds from the transaction,
the Company repaid all of its debt.  After the eventual divesture of
UCA, the Company will not have any operations. However, the Company will be debt
free. The Company will explore strategic alternatives including merger with
another entity. Currently, the Company does not have any agreement or
understanding with any entity and there is no assurance that such a transaction
will ever be consummated .





BASIS OF PRESENTATION / INTERIM
FINANCIAL STATEMENTS




The
accompanying unaudited condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"), except for the condensed consolidated balance sheet as of
December 31, 2008, which was derived from audited financial statements. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles in the
United States of America have been omitted pursuant to such rules and
regulations. However the Company believes that the disclosures are adequate to
make the information presented not misleading. The financial statements reflect
all adjustments (consisting only of normal recurring adjustments) that are, in
the opinion of management, necessary for a fair presentation of the Company's
financial position and results of operations. The operating results for the
three and six months ended June 30, 2008  are not necessarily
indicative of the results to be expected for any other interim period or any
future year. The accompanying unaudited condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 2007
consolidated financial statements, including the notes thereto, which are
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 2007 filed on  February 18 , 2010.





RECLASSIFICATIONS




Certain
reclassifications have been made in the prior periods consolidated financial
statements to conform to the current period’s presentation.





ESTIMATES




The
preparation of the condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities as of the date of the condensed consolidated financial statements
and the reported amounts of revenues and expenses during the reporting period.
The accounting estimates that require management's most difficult and subjective
judgments include provisions for bad debts, depreciable/amortizable lives,
impairment of long-lived assets, accounting for goodwill and other intangible
assets, the fair value of the Company's common stock, the fair value of options
and warrants issued for services, the allocation of proceeds from certain
financings to equity instruments and the computation of other reserves. Because
of the uncertainty inherent in such estimates, actual results may differ from
these estimates.





Concentrations of Credit
Risk




Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents and accounts receivable. The
Company reduces its credit risk by placing its cash and cash equivalents with
major financial institutions with high credit ratings. At times, such amounts
may exceed Federally insured limits. The Company reduces its credit risk related
to accounts receivable by routinely assessing the financial strength of its
customers and maintaining an appropriate allowance for doubtful
accounts.




-5-


NETFABRIC
HOLDINGS INC. AND SUBSIDIARIES





NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS





The
Company's services have been provided primarily to a limited number of clients
located in a variety of industries. The Company had revenues from two clients
representing a total of 65% (51% and 14%, respectively) of revenues during the
three months ended June 30, 2008. For the six months ended June 30, 2008, the
Company had revenues from two clients representing a total of 62% (46% and 16%,
respectively).





The
Company generally does not require its clients to provide collateral.
Additionally, the Company is subject to a concentration of credit risk with
respect to its accounts receivable. The Company had 2 clients accounting for 65%
(46% and 19%, respectively) of total gross accounts receivable as of June 30,
2008.





Earnings
(Loss) Per Share




The
Company calculates earnings (loss) per share in accordance with SFAS No. 128,
"Earnings per Share" (“SFAS No. 128”). SFAS No. 128 computes basic earnings
(loss) per share by dividing the net income (loss) by the weighted average
number of shares of common stock outstanding during the period. Diluted earnings
(loss) per share is computed by dividing the net income (loss) by the weighted
average number of shares of common stock outstanding during the period plus the
effects of any dilutive securities.




Diluted
earnings (loss) per share considers the impact of potentially dilutive
securities except in periods in which there is a loss because the inclusion of
the potential common shares would have an anti-dilutive effect. The Company's
potentially dilutive securities include common shares which may be issued upon
exercise of its stock options, exercise of warrants or conversion of convertible
debt.




Diluted
loss per share for the three and six  months ended June 30, 2008 and
2007 exclude potentially issuable common shares of approximately 14,368,856 and
18,856,124, respectively, primarily related to the Company's outstanding stock
options, warrants and convertible debt, because the assumed issuance of such
potential common shares is antidilutive.





Recent
Accounting Pronouncements




In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements," (“SFAS
No. 157”), which defines fair value, establishes a framework for using fair
value to measure assets and liabilities, and expands disclosures about fair
value measurements. SFAS No. 157 applies whenever other statements require or
permit assets or liabilities to be measured at fair value. SFAS No. 157 is
effective for fiscal years beginning after November 15, 2007. The Company
adopted SFAS No. 157 effective January 1, 2008 and determined that
it did not have a material effect on our consolidated financial
statements.





In
February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for
Financial Assets and Financial Liabilities. (“FAS 159”) is effective for fiscal
years beginning after November 15, 2007. Early adoption is permitted subject to
specific requirements outlined in FAS 159. Therefore, calendar-year companies
may be able to adopt FAS 159 for their first quarter 2007 financial
statements.




FAS 159
allows entities to choose, at specified election dates, to measure eligible
financial assets and liabilities at fair value that are not otherwise required
to be measured at fair value. If a company elects the fair value option for an
eligible item, changes in that item's fair value in subsequent reporting periods
must be recognized in current earnings. FAS 159 also establishes presentation
and disclosure requirements designed to draw comparisons between entities that
elect different measurement attributes for similar assets and liabilities.
Management is currently evaluating the effect of this pronouncement on financial
statements.




In
December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” which
replaces FASB Statement No. 141, “Business Combinations.” SFAS No. 141(R)
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any non-controlling interest in the acquired, and the
goodwill acquired. The Statement also establishes disclosure requirements that
will enable users to evaluate the nature and financial effects of the business
combination. SFAS No. 141(R) is effective for business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company has not completed
its evaluation of the potential impact, if any, of the adoption of SFAS No.
141(R) on its consolidated financial position, results of operations, and cash
flows.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements – an amendment of Accounting Research Bulletin
No. 51,” which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest, changes in a parent’s ownership interest and the valuation of retained
noncontrolling equity investments when a subsidiary is
deconsolidated.  The Statement also establishes reporting requirements
that provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the noncontrolling
owners. SFAS No.160 is effective as of the beginning of an entity’s fiscal year
that begins after December 15, 2008 (our Fiscal 2010). The Company has not
completed its evaluation of the potential impact, if any, of the adoption of
SFAS No. 160 on our consolidated financial position, results of operations, and
cash flows.


The
Company does not believe that any other recently issued, but not effective,
accounting standards, if currently adopted will have material effect on the
Company’s consolidated financial position, results of operations and cash
flows





NOTE
2. DEBT FINANCINGS





During
the six months ended June 30, 2008, the Company and Laurus entered into a
waiver/ amendment agreement, pursuant to which Laurus waived the Company’s non
compliance of certain terms of the Security Agreement. In exchange for the
waivers the Company issued Laurus 1,000,000 shares of its common stock. The fair
value of the shares was $40,00 and was charged to operations expense during the
six months ended June 30, 2008.





During
the six months ended June 30, 2008 the Company borrowed an aggregate of $400,000
from six individuals and repaid an aggregate of $620,000. The aggregate amount
of short term borrowings outstanding as of  June 30, 2008 is $750,000.
The borrowings outstanding at June 30, 2008 are due at various dates through
February 2009. The borrowings are unsecured and bear nominal interest. The
Company paid financing costs of $253,373 to third parties and lenders and this
amount is being amortized over the term of the borrowings. During three months
ended June 30, 2008, $253,373 was charged to operations as amortization of debt
issuance costs.





Debt
Financings consist of the following as of June 30, 2008:





2008UnamortizedPrincipal
                                          
                                          
                                          debt
      discount
                                          
                                          
                                          NetLaurus
      Revolving Note Due in March  2009
                                          
                                          $
                                          1,500,863
                                          
                                          
                                          $
                                          (178,220
                                          )
                                          
                                          $
                                          1,322,643Laurus
      Convertible Note Due in March 2009
                                          
                                          
                                          1,500,000
                                          
                                          
                                          
                                          (308,680
                                          )
                                          
                                          
                                          1,191,3202006
      Convertible Debentures
                                          
                                          
                                          150,000
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          150,000Short
      term borrowings
                                          
                                          
                                          750,000
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          750,000$
                                          3,900,863
                                          
                                          
                                          $
                                          (486,900
                                          )
                                          
                                          $
                                          3,413,963


-6-





NETFABRIC
HOLDINGS INC. AND SUBSIDIARIES





NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS




NOTE
3. STOCKHOLDERS' EQUITY





Warrants


Outstanding
warrant securities consist of the following at June 30, 2008




ExercisePrice
                                    
                                    ExpirationLaurus
      Warrants
                                    
                                    
                                    554,282
                                    
                                    
                                    $
                                    0.001
                                    
                                    See
      (1)2006
      Private Placement
                                    
                                    
                                    1,350,000
                                    
                                    
                                    $
                                    0.01
                                    
                                    April
      to November 20092007
      Short Term Financing
                                    
                                    
                                    890,000
                                    
                                    
                                    $
                                    0.01
                                    
                                    April
      to November 2010Others
                                    
                                    
                                    3,526,137
                                    
                                    
                                    $
                                    $0.15
      to $.082
                                    
                                    July
      2008 to June 20116,320,149


(1)
            No
      expiration .





NOTE 4. STOCK-BASED
COMPENSATION




Share-based
compensation expense recognized under SFAS 123(R) for the three months ended
June 30, 2008 and 2007 was $31,074 and $94,632, respectively. For the six months
ended June 30, 2008 and 2007, share-based compensation expense was $104,148 and
$199,031, respectively. Share-based compensation expense recognized in the
Company's condensed consolidated statements of operations includes compensation
expense for share-based payment awards granted prior to, but not yet vested as
of December 31, 2005, based on the grant-date fair value estimated in accordance
with the provisions of SFAS 123.


-7-




ITEM
2.





MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS




The
following discussion and analysis and results of operations should be read in
conjunction with the unaudited condensed consolidated financial statements and
accompanying notes and the other financial information appearing elsewhere in
this report and reports included herein by reference. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results could differ materially from those discussed in the
forward-looking statements.




Our
independent registered public accounting firm has indicated in their report,
dated May 11, 2009, on our December 31, 2007 financial statements since we have
experienced net losses since inception and have a working capital deficiency
their report indicates that these matters raise substantial doubt about our
ability to continue as a going concern. Our plan with regard to this matter is
discussed elsewhere in this document. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.




CORPORATE
HISTORY




We were
formerly known as Houston Operating Company and were incorporated in Delaware on
August 31, 1989. On December 9, 2004, we entered into an Acquisition Agreement
with all of the stockholders of NetFabric Corp., a Delaware corporation.
NetFabric Corp. was incorporated in Delaware on December 17, 2002 and began
operations in July 2003. At the closing, which occurred simultaneously with the
execution of the Acquisition Agreement, we acquired all of the issued and
outstanding capital stock of NetFabric Corp. from the stockholders in exchange
for an aggregate of 32,137,032 newly-issued shares of our common stock. The
acquisition was accounted for as a reverse merger whereby NetFabric Corp. was
treated as the acquirer. On April 19, 2005, our name was changed from Houston
Operating Company to NetFabric Holdings, Inc. and our stock symbol was changed
from "HOOC" to "NFBH."




UCA
SERVICES, INC. ACQUISITION




On May
20, 2005, we entered into and closed on a share exchange agreement, whereby we
purchased all of the issued and outstanding shares of UCA Services, Inc., a New
Jersey company (“UCA Services”) from its shareholders in exchange for the
issuance of 24,096,154 shares of our common stock. UCA Services is an IT
services and solutions company that serves the information needs of a wide range
of Fortune 500 clients in the financial markets industry and the pharmaceutical,
health care and hospitality sectors. UCA Services delivers a broad range of IT
services in managed services, professional services, infrastructure building and
maintenance, application development and maintenance areas. The acquisition was
accounted for using the purchase method of accounting with UCA Service’s results
of operations included in our consolidated financial statements from the date of
acquisition.




DISCONTINUED
OPERATIONS




Prior to
acquiring NetFabric Corp., Houston Operating Company did not have any
operations, and we were a shell company whose primary business objective was to
merge and become public.


8


NetFabric
Corp. was a provider of hardware and services to small to mid-sized businesses
("SMBs") that utilized the Internet for telephone communications or Voice over
Internet Protocol ("VoIP"). It developed and marketed appliances or Customer
Premises Equipment ("CPE") that simplified the integration of standard telephone
systems with an IP infrastructure. In addition, NetFabric Corp resold transport
services of a third party VoIP transport provider.




Our
operations, prior to the UCA Services acquisition, consisted of developing VoIP
appliances, including research and product development activities. We also hired
additional personnel for sales and marketing and developed our sales and
marketing programs.




With
minimal revenues from VoIP operations, we concluded that we could not implement
our original business plan for VoIP operations within our resources or with the
additional capital we could raise in the near term. On May 5, 2006, our Board of
Directors decided that the Company should exit the hardware-based VoIP
communications product line (including resale of transport services) that is
targeted to SMBs. In accordance with Statement of Financial Accounting Standards
(‘SFAS’) No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets", ("SFAS No. 144"), the results of operations from the VoIP business
segment has been reclassified as discontinued operations for all periods
presented. After the discontinuation of VoIP operations, our only operations are
that of UCA Services.




OVERVIEW
OF UCA SERVICES BUSINESS




UCA
Services derives revenues primarily from managed IT services, professional
services, application development services and business process management
services. Service arrangements with customers are generally on a time and
material basis or fixed-price, fixed-timeframe revenue basis. UCA Services
principal operating expenses are direct employee costs, consultant expenses and
selling, general and administrative expenses. The principal components of
selling, general and administrative expenses are salaries of sales and support
personnel, and office rent. Direct employee costs and consultant expenses are
comprised primarily of the costs of consultant labor, including employees,
subcontractors and independent contractors, and related employee benefits.
Approximately 50% of our consultants are employees and the remainder are
subcontractors and independent contractors.




We
compensate most of our consultants only for the hours that we bill to our
clients for projects undertaken, which allows us to better match our labor costs
with our revenue generation. With respect to our consultant employees, we are
responsible for employment-related taxes, medical and health care costs and
workers' compensation. Labor costs are sensitive to shifts in the supply and
demand of IT professionals, as well as increases in the costs of benefits and
taxes.




9





As previously noted, the December
9, 2004 acquisition of NetFabric Corp. was accounted for as a reverse merger
whereby NetFabric Corp. was treated as the acquirer. Accordingly, the historical
financial statements of NetFabric Corp. have been presented for all periods
required. NetFabric Corp. began operations in January 2003 and was a development
stage company until the UCA Services acquisition. The UCA Services acquisition
was accounted for using the purchase method of accounting with the results of
the operations included in the Company's consolidated financial statements from
the date of acquisition.





COMPARISON
OF THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007:





Revenues.


Revenues
of the three months ended June 30, 2008, increased by $2,221,796 or 54.1%
compared to the same period of the prior year. For the six months ended June 30,
2008, revenues increased by $2,98,850 or 35.4%.  The increase in
revenues were due to new projects  undertaken in 2008.




Direct
employee compensation and consultant expenses.


Excluding
non-cash share based compensation, for the three months ended June 30, 2008, our
direct employee compensation and consultant expenses increased by $,1882,657 or
60.5% to $4,995,059. For six months ended June 30, 2008, our direct employee
compensation and consultant expenses  excluding non-cash share based
compensation increase by $2,411,704 or 37.3% to $8,872,391 compared to the same
period of the prior year. Excluding non-cash share based compensation as a
percentage of revenues our direct employee compensation and consultant expenses
for the three and six months ended  June 30, 2008 were 78.9 and 78.2%
, respectively, compared to 75.7% and 77.1%, respectively  in 2007.
The increases in employee compensation and consultant expenses as a percentage
of revenues were  due to the nature of projects performed in
2008.




Selling,
general and administrative expenses.


Excluding
non-cash share based compensation, our selling, general and administrative
expenses decreased for the three months ended June 30, 2008 by $346,197, or
27.4%, to $919,253 compared to 2007. For the six months ended June 30, 2008, our
selling, general and administrative expenses excluding non-cash share based
compensation decreased by $844,013 or 31.8% to $1,811,064 compared to the same
period of prior year.  During the six months ended June 30, 2007, we
incurred approximately $162,000 in expenses ($240,000 including the fair value
of shares of common stock issued) for an acquisition of an entity and the
related financing. We terminated the acquisition related negotiation in April
2007 and the entire amount incurred was charged to operations during the three
months ended March 31, 2007. The decreases in our selling, general and
administrative expenses for the three and six months ended  June 30,
2008 compared to the same period of prior year were due to expense reductions
implemented in  the third quarter of 2007.




Depreciation
and amortization.


For three
months ended June 30, 2008, depreciation and amortization decreased by $35,3571
or 32.6%, to $73,172. For six months ended June 30, 2008, depreciation and
amortization decreased by $41,718 or 21.1%, to $156,045.




Amortization
of debt discount.


Amortization
of debt discount for the three months ended June 30, 2008 decreased by $6,783,
or 3.5%, to $186,895. For the six months ended June 30, 2008 amortization of
debt discount decreased by $1,212 or 0.3% to $368,261  As of June 30,
2008, the aggregate unamortized debt discount was $486,900, which will be
amortized and charged to operations over the term of the respective
debt.




Interest
expense.


For the
three months ended June 30, 2008, interest expense decreased by
$7,026. Interest expense for the six months ended June 30, 2008, increased
by $26,116. The increase was due to additional interest payable to Laurus due to
different terms negotiated with Laurus.





Discontinued
Operations.


On May 5,
2006, our Board of Directors decided to exit from the hardware-based VoIP
communications product line (including resale of transport services) that is
targeted to SMBs. In accordance with SFAS No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets", ("SFAS No. 144"), the results of operations
from the VoIP business segment has been reclassified as discontinued operations
for all periods presented. For the three months and six months ended June 30,
2008, losses from discontinued operations were $0 and $0, respectively. For the
three and six months ended June 30, 2007, losses from discontinued operations
were $53,398. Revenues from VoIP operations have been nominal in all periods
presented and operating expenses are the losses reported.





Goodwill
impairment




Pursuant
to SFAS No. 142 “Goodwill and Other Intangibles Assets,” (“SFAS No. 142”), the
Company performed its annual testing of goodwill impairment for the second
quarter ended June 30, 2007. As a part of goodwill impairment testing,
management reviewed various factors, such as the market price of the Company’s
common stock, discounted cash flows from projected earnings and values of
comparable companies to determine whether impairment exists. Based on this
evaluation it was determined that the goodwill was impaired.   The
impairment was due to a continued decline in our market
capitalization during the six months ended June 30, 2007 and due
to lower future cash flows expected to be generated by the business due to
working capital constraints. The implied value of the goodwill was $10,585,000
compared to a carrying value of $13,982,451, indicating an impairment of
$3,397,451. The impairment loss was charged to operations during the three
months ended June 30, 2007.


-10-





Net
loss.


As a
result of the foregoing, for the three months ended June 30, 2008, net loss
decreased by $4,127,909, or 98.3%, to a loss of $71,316, compared to a net loss
of $4,199,225 in the three months ended  June 30, 2008. For the six
months ended June 30, 2008, net loss decreased by $4,787,932 or 92.2% to a loss
of $404,927 compared to a net loss of $5,192,859 in the six months ended June
30, 2007.





LIQUIDITY
AND CAPITAL RESOURCES




As of
June 30, 2008, our working capital deficiency was $5,976,624, compared to a
working capital deficiency of $4,937,149 on December 31, 2007. The increase in
the working capital deficiency was principally due to operating losses and due
to reclassification of convertible note due in March 2009 as a current
liability.  During the six months ended June 30, 2008, our operating
activities from continuing operations provided approximately $268,000 of cash,
compared to approximately $74,000 provided during the six months ended June 30,
2007.




-11-





During
the six months ended June 30, 2008, our operating losses, after adjusting for
non-cash items, provided approximately $522,000 of cash, and working capital
items used approximately $254,000 of cash. The principal component of these
working capital changes was an increase in our deferred revenues and accounts
payable off set by an increase in  accounts
receivable.  During the six months ended  June 30, 2007, our
operating losses, after adjusting for non-cash items, utilized approximately
$898,000 of cash, and working capital items provided approximately $973,000 of
cash.





During
the six months ended June 30, 2008, we borrowed an aggregate
of  $400,000, repaid an aggregate of $620,000  previously
borrowed amounts from six individuals. The aggregate amount of short term
borrowings outstanding as of  June 30, 2008 is $750,000. The
borrowings outstanding at June 30, 2008 are due at various
dates  through February 2009.





We
evaluated several options for obtaining financing to fund our working capital
requirements and to retire our debt upon maturity. We had approximately $3.9
million debt that was due in the first quarter of 2009. After several
discussions and negotiations, we concluded that the most viable option would be
to sell the operations of UCA Services. This would not only provide us financing
but also enable UCA Services to grow to its optimal potential with appropriate
financial backing.




On March
12, 2009, we along with our wholly-owned subsidiary, NetFabric Technologies,
Inc., d/b/a UCA Services, Inc. (“UCA”) entered into a Convertible Note Purchase
Agreement with Fortify Infrastructure Services, Inc. (“Fortify). Pursuant to the
Convertible Note Purchase Agreement, Fortify purchased a Secured Convertible
Promissory Note (the “Note”) from UCA in the principal amount of $5 million with
the Company being a guarantor for UCA’s borrowings.




The Note
has a six-month term, and bears interest at 8% per annum, compounded annually.
The Note is secured by  (i)  all of the assets of
UCA and the Company, and (ii) all of the equity securities of UCA currently
owned or hereafter acquired by the Company. At the exclusive option of Fortify,
Fortify may convert the entire principal amount of, and accrued and unpaid
interest on, the Note into shares of Series A Preferred Stock of
UCA.  The conversion price shall be at a price equal to the price per
share reflecting a valuation of UCA equal to $5 million, on an as-converted
basis.




Fortify,
UCA and the Company also entered into a Credit Agreement whereby Fortify agreed
to provide UCA a revolving line of credit of up to $1 million for working
capital purposes. Amounts borrowed under the line of credit are secured by  (i)  all of the assets of
UCA and the Company and (ii) all of the equity securities of UCA currently owned
or hereafter acquired by the Company.




Fortify,
UCA and the Company also entered into an Option and Purchase Agreement (“Option
Agreement’). Pursuant to the Option Agreement, Fortify has an option to acquire
all of the outstanding shares of common stock of UCA upon effectiveness of this
Information Statement.  Upon exercise of the Option by Fortify, we
will (a) receive an aggregate purchase price of $500,000, less the amount of accrued
and unpaid interest, if any, on the Note, and (b) be released from the guaranty
obligations of the Note. The Company and certain employees of UCA will also be
eligible to receive earn-out payments in connection with the closing of the
Option based upon achievement of certain financial thresholds during a 24-month
period following the closing.




We used
approximately $3 million from the proceeds of the Note to repay all amounts owed
to Laurus Master Fund. The balance of the proceeds was used for repayment of
debt, other payables and for working capital purposes.





On August
24, 2009, we along with our wholly-owned subsidiary, UCA and Fortify entered
into Amendment No. 1 (“Amendment”) to the Option and Purchase
Agreement (“Option Agreement”) in connection with the closing of
Fortify’s purchase of all of the outstanding capital stock of UCA upon
exercise of its option granted under the Option Agreement. Pursuant to the
Amendment, among other things,the Secured Convertible
Promissory Note in the principal amount of $5 million issued by UCA to Fortify
was cancelled, releases of certain obligations of the parties were granted as
specified in the Amendment , and the commencement date and measurement period
for the earn-out and bonuses provided for in the Option Agreement were
modified.




After the
divesture of UCA, we will have no operations. However, the Company will be debt
free. We will explore strategic alternatives, including merging with another
entity. Currently, we do not have any agreement or understanding with any entity
and there is no assurance that such a transaction will ever be
consummated.


-12-




ITEM
4. CONTROLS AND PROCEDURES




A.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES:




Our
disclosure controls and procedures are designed to ensure that information
required to be disclosed in the reports filed or submitted under the Securities
Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and
reported, within the time period specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in the
reports filed under the Exchange Act are accumulated and communicated to
management, including the Chief Executive Officer ("CEO"") and Chief Financial
Officer ("CFO") , as appropriate, to allow timely decisions regarding required
disclosure. As of the end of the period covered by this report, we carried out
an evaluation, under the supervision and with participation of our management,
including our CEO and CFO, of the effectiveness of the design and operation of
our disclosure controls and procedures. Based upon and as of the date of that
evaluation, the CEO and CFO concluded that our disclosure controls and
procedures are effective to ensure that information required to be disclosed in
the reports we file and submit under the Exchange Act are recorded, processed,
summarized and reported as and when required.




B.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING:




There
were no changes in our internal controls over financial reporting during the
most recent fiscal quarter that have materially affected or are reasonably
likely to materially affect our internal control over financial
reporting.





PART II. OTHER INFORMATION





ITEM
1. LEGAL PROCEEDINGS




The
Company from time to time is involved in routine legal matters incidental to
business. In the opinion of management, the ultimate resolution of such matters
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity.





ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.




None.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES




None




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




None





ITEM
5. OTHER INFORMATION




None





ITEM
6. EXHIBITS




(a)
Exhibits:




31.1
      Rule 13a-14(a)/15d-14(a) Certification (CEO)
              
              31.2
      Rule 13a-14(a)/15d-14(a) Certification (CFO)
              
              32.1
      Section 1350 Certification (CEO)
              
              32.2
      Section 1350 Certification (CFO)




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SIGNATURES




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




Date: February
      19, 2010
                              By:
                              /s/ Fahad
      SyedName:
      Fahad SyedTitle:
      Chairman and Chief Executive OfficerBy:
                              /s/ Vasan
      ThathamName:
      Vasan ThathamTitle:
      Principal Financial Officer and Vice
President





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