**U.S.
      SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**






**FORM
      10-KSB**


(mark
      one)




þ  Annual
      Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of
      1934




For
      the
      fiscal year ended **June
      30, 2005**




o  Transition
      report under Section 13 or 15(d) of the Securities Exchange Act of
      1934




For
      the
      transition period from _______ to _______.




**Commission
      File No. 333-122822**




**SAGAMORE
      HOLDINGS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)







**Florida**
            **20-1600519**(State
                or Other Jurisdiction of Incorporation or Organization)
            (I.R.S.
                Employer Identification No.)**402
                Prospect Street Brandon, Vermont**
            **05733**(Address
                of Principal Executive Offices)
            (Zip
                Code)




(802)
                247-6811(Issuer’s
                Telephone Number, Including Area
                Code)





Securities
      registered pursuant to Section 12(b) of the Act:




Title
                of each class
            Name
                of each exchange on which registered**None**
            **None**





Securities
      registered pursuant to Section 12(g) of the Act:


**Common
      Stock**


(Title
      of
      class)




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, and (2) has been subject
      to
      such filing requirements for the past 90 days.  Yes x No
o




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




Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes oNo
x




The
      Company’s revenues during its most recent fiscal year were
      $17,061,294.




The
      aggregate market value of the Company’s voting stock held by non-affiliates as
      of January 16, 2006 is not possible to calculate as we were not traded on any
      market or exchange as of that date. There were 101,540,000 shares of common
      stock outstanding as of March 15, 2006.









**FORWARD-LOOKING
      STATEMENTS AND ASSOCIATED RISKS**




Information
      included or incorporated by reference in this filing may contain forward-looking
      statements within the meaning of Section 27A of the Securities Act and Section
      21E of the Exchange Act. This information may involve known and unknown risks,
      uncertainties and other factors which may cause our actual results, performance
      or achievements to be materially different from the future results, performance
      or achievements expressed or implied by any forward-looking statements.
      Forward-looking statements, which involve assumptions and describe our future
      plans, strategies and expectations, are generally identifiable by use of the
      words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend” or “project” or the negative of these words or other variations on
      these words or comparable terminology.




This
      filing contains forward-looking statements, including statements regarding,
      among other things, (a) our projected sales and profitability, (b) our
      Company’s growth strategies, (c) our Company’s future financing plans and
      (d) our Company’s anticipated needs for working capital. These statements
      may be found under “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations” and “Business,” as well as in this prospectus
      generally. Actual events or results may differ materially from those discussed
      in forward-looking statements as a result of various factors, including, without
      limitation, the risks outlined under “Risk Factors” and matters described in
      this filing generally. In light of these risks and uncertainties, there can
      be
      no assurance that the forward-looking statements contained in this filing will
      in fact occur.




2




**PART
      I**




**ITEM
      1.**  **DESCRIPTION
      OF BUSINESS**




**Overview**




Sagamore
      Holdings, Inc. (“Sagamore Holdings”) was formed and incorporated in the State of
      Florida on August 30, 2004 to acquire substantially all of the net assets and
      the business of Nexus Custom Electronics, Inc. (“Nexus”), a wholly owned
      subsidiary of Jaco Electronics, Inc. (“Jaco”). As used herein, the “Company”
refers to Sagamore Holdings or Sagamore Holdings together with its subsidiary.
      The Company’s fiscal year ends on June 30th. The interim fiscal quarters
      consist of thirteen weeks ending on a Sunday.




On
      September 15, 2004, the Company sold 6,000,000 shares of Series A redeemable
      convertible preferred stock and received proceeds of $5,250,000, after deducting
      expenses. The consolidated financial statements reflect the operations of the
      Company for the period from September 15, 2004 (date of capitalization) to
      June
      30, 2005, which is referred to herein as “Fiscal 2005”. The Company had minimal
      operations prior to acquiring Nexus.




On
      September 20, 2004, the Company acquired Nexus through its newly formed,
      wholly-owned subsidiary, NECI Acquisition, Inc. that subsequently changed its
      name to Nexus. Nexus is a contract manufacturing company, which assembles
      electronic components and printed circuit boards. Total consideration paid
      for
      the net assets was $12,000,000, including $2,750,000 paid through the issuance
      of a 7% promissory note to Jaco. The remainder of the purchase price was funded
      by the net proceeds of the preferred stock issuance described above and
      $4,000,000 borrowed through a $6,200,000 bank credit facility with Comerica
      Bank
      (“Comerica”) that provided the Company with a revolving credit facility and a
      term loan. The acquisition was accounted for pursuant to the purchase method
      of
      accounting as if the acquisition was completed on October 3, 2004, the end
      of
      the interim period closest to the actual date of the acquisition. Accordingly,
      (i) the assets (including the identifiable intangible assets) and the
      liabilities of Nexus were recorded as of that date at their estimated fair
      values and (ii) the consolidated statement of operations for Fiscal 2005
      includes amounts related to the results of operations of Nexus only for the
      period subsequent to October 3, 2004. The Company’s other activities during the
      period from September 15, 2004 (date of capitalization) to October 3, 2004
      were
      limited to its formation and obtaining financing for consummating the
      acquisition of Nexus. Accordingly, the results of operations reflected in the
      consolidated statement of operations for Fiscal 2005 reflect activities
      primarily for the period from October 4, 2004 to June 30, 2005.




**General**




Nexus,
      a
      wholly owned subsidiary, provides contract-manufacturing services to industrial
      original equipment manufacturers ("OEMs") customers. Our subsidiary's core
      customer base consists primarily of small and medium-sized manufacturers that
      produce electronic equipment used in a wide variety of industries. Sales from
      our business are recognized at the time products are shipped to customers and
      may vary depending on the time of customers' orders, product mix and
      availability of component parts. Substantially all of our business is performed
      on a turnkey basis, which involves the procurement of specified components
      and
      raw materials from our network of suppliers and other suppliers, assembly of
      components on printed circuit boards and post-assembly testing. OEMs then
      incorporate the printed circuit boards into finished products. In assembling
      printed circuit boards, Nexus is capable of employing both conventional
      pin-through-hole interconnection technology, as well as advanced surface mount
      technology. Pin-through-hole interconnection technology is a method of
      assembling printed circuit boards in which component leads are inserted and
      soldered into plated holes in the board. Surface mount technology is a method
      of
      assembling printed circuit boards in which components are fixed directly to
      the
      surface of the board, rather than being inserted into holes. The gross profit
      margin for such materials is generally lower than the gross profit associated
      with the manufacturing process and other value-added services.




We
      do not
      typically enter into long-term purchase orders or commitments from our
      customers. Instead we work with our customers to develop forecasts for future
      orders, which are not binding. Customers may cancel their orders, change their
      orders, and change production quantities from forecasted volumes or delay
      production for a number of reasons beyond our control. Cancellations, reductions
      or delays by a significant customer or by a group of customers could have an
      adverse effect on us. In addition, as many of our costs and operating expenses
      are relatively fixed, a reduction in customer demand can adversely affect our
      gross margins and operating income.




3


**Operations**




We
      conduct our contract manufacturing operations through our wholly owned
      subsidiary Nexus, at two locations. The first location is an approximately
      32,000 square foot facility located in Brandon, Vermont and offers full turnkey
      contract manufacturing services. In November 2005, Nexus scaled back its second
      facility located in Woburn, Massachusetts. Currently Nexus is in negotiations
      with the Woburn facility landlord to reduce the square footage of this operation
      to 10,000 square feet. The Woburn facility is a satellite of Nexus specializing
      in prototype, new customer introduction, as well as operating two dedicated
      lines for a defense contractor and an automotive customer. Nexus provides
      turnkey contract manufacturing services to OEM customers, which includes
      procurement of customer specified components and raw materials from our network
      of suppliers and other suppliers, assembly of components on printed circuit
      boards and post-assembly testing. OEMs then incorporate the printed circuit
      boards into finished products. In assembling printed circuit boards, Nexus
      is
      capable of employing both pin-through-hole and surface mount
      technology.




Pin-through-hole
      interconnection technology is a method of assembling printed circuit boards
      in
      which component leads are inserted and soldered into plated holes in the board.
      Surface mount technology is a method of assembling printed circuit boards in
      which components are fixed directly to the surface of the board, rather than
      being inserted into holes. The surface mount technology process allows for
      more
      miniaturization, cost savings and shorter lease paths between components (which
      results in greater signal speed).




Nexus
      provides electronics manufacturing services to the communications, aviation,
      defense, medical devices and instrumentation industries and serves the
      continental United States, with its concentrated market in the eastern region
      of
      the United States. Both of Nexus' manufacturing facilities have earned ISO
      9001:2000 certification by the Geneva-based organization dedicated to the
      development of worldwide standards for quality management guidelines and quality
      assurance. Management believes sophisticated customers increasingly are
      requiring their manufacturers to be ISO 9001 certified for purposes of quality
      assurance.




**Manufacturing
      Of Electronic Assemblies**




Printed
      Circuit Board Assembly .
      Printed
      circuit boards are platforms on which integrated circuits and other electronic
      components are mounted.




Semiconductor
      designs are complex and often require printed circuit boards with many layers
      of
      narrow, densely-spaced wiring. Rapid technological advances have occurred in
      the
      electronics industry in recent years that have increased the speed and
      performance of components, while reducing their size. These technological
      advances have caused printed circuit boards to become smaller with components
      more densely attached to the board requiring increasingly advanced surface
      mount
      manufacturing technologies, in addition to traditional surface mount and pin
      through-hole technology.




In
      pin-through-hole production, components are attached by pins, also called leads,
      inserted through and soldered to plated holes in the printed circuit board.
      In
      traditional surface mount technology production, the leads on integrated
      circuits and other electronic components are soldered to the surface of the
      printed circuit board rather than inserted into holes. Surface mount
      technologies can accommodate a substantially higher number of leads in a given
      area than pin-through-hole production. As a result, surface mount technologies
      allow the printed circuit board to interconnect a greater density of integrated
      circuits. This density permits tighter component spacing and a reduction in
      the
      printed circuit board dimensions. Additionally, surface mount technologies
      allow
      components to be placed on both sides of the printed circuit board to permit
      even greater density. The substantially finer lead-to- lead spacing in surface
      mount technologies requires a manufacturing process far more exacting than
      the
      pin-through-hole interconnect products. An advanced surface mount technology
      called micro ball grid array allows for even greater densities than traditional
      surface mount technology. The ball grid array assembly process uses small balls
      of solder, instead of leads that could bend and break, located directly
      underneath the part, to interconnect the component and circuit board. Because
      of
      their high number of leads, most complex or very large-scale integrated circuits
      are configured for surface mount technologies production.




We
      employ
      advanced surface mount technologies, in our printed circuit board assembly
      operations in addition to traditional surface mount technologies.




We
      also
      continue to support pin-through-hole technology and related semi-automated
      and
      manual placement processes for existing and new applications that require these
      technologies.




We
      focus
      on low to moderate volume manufacturing of highly complex printed circuit board
      assemblies. We manufacture these complex assemblies on a batch basis and have
      developed expertise in quickly changing equipment set-up and manufacturing
      capabilities in order to respond to our customers' changing needs.




We
      believe this capability provides our customers with optimal flexibility in
      product design, while allowing for rapid turnaround of new or highly complex
      but
      lower volume products.




4




**Our
      Customers and Markets**




We
      serve
      a wide range of customers from emerging growth companies to established
      multinational corporations in a variety of markets. The timing and level of
      orders from our customers varies substantially from period to
      period.




The
      historic level of net sales we have received from a specific customer in one
      particular period is not necessarily indicative of net sales we may receive
      from
      that customer in any future period. While we focus on maintaining long term
      relationships with our customers, for various reasons, including consolidation
      in our customers' industries, we have in the past and will continue in the
      future to terminate or lose relationships with customers. Customers may also
      significantly reduce the level of business they do with us or delay the volume
      of manufacturing services they order from us. Significant or numerous
      terminations, reductions or delays in our customers' orders could negatively
      impact our operating results in future quarters.




Our
      three
      largest customers, GSI Lumonics, Frequency Electronics, and S-TEC, accounted
      for
      70% of total sales in Fiscal 2005 and, as a result of their importance, we
      are
      dependent upon continuing our business with these customers. We nonetheless,
      continue to focus on expanding and diversifying our customer base to reduce
      dependence on any individual customer or market.




In
      many
      cases, our customers utilize more than one contract manufacturing provider
      across their product lines. Our goal is to be the primary contract manufacturing
      provider for our customers. We seek to manufacture the high-value, leading-edge
      products of our customers and target OEMs that require moderate volume
      production. Our low-to-medium volume, low cost facilities enable us to offer
      our
      customers a broad range of volume production and cost alternatives. We believe
      that we are advantageously positioned to be selected to provide manufacturing
      and value-added services for our customers' new product offerings due to
      our:




·
            close
                interaction with the design engineering personnel of our customers
                at the
                product development stage;




·
            prototype
                production experience;




·
            advanced
                manufacturing and engineering capabilities, such as radio frequency
                capabilities; and




·
            established
                and dependable materials pipeline.




We
      generally warrant that our products will be free from defects in workmanship
      for
      twelve months. We also pass on to our customers any warranties provided by
      component manufacturers and material suppliers to the extent permitted under
      our
      arrangements with these parties. Our warranty provides that during the warranty
      period we will take action to repair or replace failed products. We test
      substantially all of our assemblies prior to shipment. In addition, our
      customers generally test or have tested final products on a sample basis prior
      to deployment in the field. Our warranty costs have not been material to
      date.




**Research
      And Development**




The
      Company has not spent any funds on research and development since
      inception.




**Intellectual
      Property**




In
      connection with the acquisition of Nexus, the Company acquired the trademark
      relating to the Nexus name.




**Sales
      And Marketing**




We
      believe we have developed valuable long-term customer relationships and an
      in-depth understanding of our customers' needs and purchasing patterns. Our
      sales personnel are trained to identify our customers' requirements and to
      actively market our entire product line to satisfy those needs. We serve a
      broad
      range of customers in the aviation, communications, defense, medical equipment
      and other industries.




Sales
      are
      made throughout North America. Sales are made primarily through personal visits
      by our employees and by a staff of trained telephone sales personnel who answer
      inquiries and receive and process orders from customers.




5




**Our
      Suppliers**




Our
      OEM
      customers need us to:




·
            assure
                the short and long term supply of materials and components to manufacture
                their products;




·
            negotiate
                low prices for these materials;




·
            secure
                high quality and reliable
                materials;




·
            assure
                the on-time delivery of these materials;
                and




·
            provide
                them with the flexibility to change their production requirements
                on short
                notice.




To
      compete effectively in this business environment, we have developed a materials
      procurement strategy whereby we maintain strong, long-term relationships with
      a
      limited number of suppliers who conform to our high standards. We seek to work
      with suppliers that consistently deliver the best technology and quality
      materials at low total cost on short and flexible lead times. We consistently
      evaluate all of our suppliers' performances and provide them with suggestions
      for improving our relationships. When we do business with a supplier at our
      customer's direction, we closely monitor the supplier's performance and work
      with both the supplier and the customer to improve the supplier's performance
      when necessary. We believe this strategy enables us to provide optimal
      flexibility to our OEM customers and enables us to better satisfy their EMS
      needs.




Our
      team
      of materials acquisition professionals is responsible for all materials
      procurement and planning. We have a strategic purchasing group that develops
      our
      worldwide materials and commodity procurement strategy. This strategic group
      is
      responsible for understanding the needs of our customers and the commodity
      supply market, evaluating the overall quality of suppliers and negotiating
      and
      executing low cost commodity supply contracts with preferred suppliers. We
      also
      have a group that focuses on the day-to-day tactical execution of our materials
      procurement process to attempt to insure that material or component costs or
      shortages do not prevent us from providing optimal services to our customers.
      This group is responsible for proactively managing inventory programs,
      evaluating day-to-day supplier performance and coordinating customer plan
      production changes.




We
      typically procure components when a purchase order or forecast is received
      from
      a customer. Due to our utilization of just-in-time inventory techniques, the
      timely availability of many components depends on our ability to both develop
      accurate forecasts of customer requirements and manage our materials supply
      chain. Given our direct component procurement strategy with quality suppliers,
      we rely on a single or limited number of suppliers for many proprietary and
      other components used in our assembly process. Although we have strong
      relationships with high quality suppliers, we do not have any long-term supply
      agreements, except with Jaco, as described below. Shortages of materials and
      components have occurred from time to time and will likely occur in the future
      despite our development of select long-term supplier relationships. We believe
      our direct procurement strategy and the division of responsibility within our
      materials procurement team enable us to better manage our supply chain in order
      to reduce the occurrence and minimize the effect on our customers of materials
      or component shortages.




Nexus
      entered into a five-year Supply Agreement with Jaco Electronics, Inc., on
      September 20, 2004. Pursuant to the Supply Agreement, Jaco provides electronic
      components to Nexus for use in its manufacturing operations. Under the Supply
      Agreement, Nexus must purchase at least 15% if the dollar amount of its annual
      purchases of electronic components that are included in Jaco's line card and
      are
      compatible with Nexus' needs. However, Nexus may submit requests for proposals
      to other suppliers as it may choose. If Jaco's proposal contains the lowest
      price, then Nexus must purchase its components from Jaco. For Fiscal 2005,
      Nexus
      purchased components totaling $708,472.




**Competition**




The
      electronics contract manufacturing industry is highly fragmented and is
      characterized by relatively high levels of volatility, competition and pricing
      and margin pressure. Many large contract manufacturers operate high-volume
      facilities and primarily focus on high-volume product runs. In contrast, certain
      contract manufacturers, such as Nexus, focus on low-to-medium volume and
      service-intensive products.




6


We
      compete against numerous providers with global operations, including Benchmark
      Electronics, Celestica, Flextronics, Jabil Circuit, Plexus, Sanmina-SCI, Suntron
      and Solectron. We also face competition from a number of EMS providers that
      operate on a local or regional basis. In addition, current and prospective
      customers continually evaluate the merits of manufacturing products
      internally.




Consolidation
      in the EMS industry results in a continually changing competitive landscape.
      The
      consolidation trend in the industry also results in larger and more
      geographically diverse competitors who have significant combined resources
      with
      which to compete against us.




We
      believe that the principal competitive factors in the segments of the
      electronics contract manufacturing industry in which we operate
      are:




·
            geographic
                location and coverage;




·
            flexibility
                in adapting to customers' needs;




·
            manufacturing
                capability;




·
            price;




·
            service;




·
            technology;




·
            quality;




·
            reliability;
                and




·
            timeliness
                in delivering finished products.




We
      believe that we have developed a particular strength relative to some of our
      major competitors in the manufacturing of complex, low-to-moderate volume,
      leading-edge products. Competition from existing or potential competitors could
      result in reduced prices, margins and market share which would significantly
      and
      negatively impact our operating results.




We
      have
      entered into a business development services agreement with Celerity Systems,
      Inc. Pursuant to the agreement with Celerity, upon request Celerity shall assist
      us in managerial assistance, including significant guidance and counsel in
      management, operations or business objectives and policies. Such assistance
      may
      include strategic and financial planning, designing budgets and control systems.
      No services have been provided by Celerity to date.




Nexus
      is
      well-known in the industry in which it competes, particularly in the Northeast
      region and, together with its website and other marketing activities, the
      Company believes its tradename and trademark has value to the business. In
      connection with the acquisition purchase price allocation, the Company recorded
      $257,735 valuation for its trademark and tradename. Subsequently, an impairment
      charge in the amount of $45,070 was taken in Fiscal 2005 in accordance with
      SFAS
      No. 142, “Accounting for Goodwill and Other Intangible Assets”.




**Governmental
      Regulation**




Nexus
      is
      subject to certain federal, state and local regulatory requirements relating
      to
      environmental compliance and site cleanups, waste management and health and
      safety matters. In particular, we are subject to regulations promulgated
      by:




·
            The
                Occupational Safety and Health Administration pertaining to health
                and
                safety in the workplace;




·
            The
                Environmental Protection Agency pertaining to the use, storage, discharge
                and disposal of hazardous chemicals used in the manufacturing processes;
                and




·
            Corresponding
                state agencies.




7




**Employees**




As
      of
      January 16, 2006, we had a total of 103 employees, following a company-wide
      restructuring. Of our total, 9 were engaged in administration, 14 were
      managerial and supervisory employees, 3 were in sales, 18 performed warehouse
      and clerical functions, and 59 were involved with manufacturing.




There
      are
      no collective bargaining contracts covering any of our employees. We believe
      our
      relationship with our employees is satisfactory.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTIES**




Currently,
      our corporate headquarters are located at 402 Prospect Street, Brandon Vermont.
      This location is an approximately 32,000 square foot facility located in
      Brandon, Vermont, which is also used for manufacturing and storage in addition
      to our office space. This property is owned and occupied by our wholly-owned
      subsidiary, Nexus, and is fully encumbered by a first security interest, in
      the
      amount of $5,000,000, held by Comerica Bank on all property Nexus now or later
      owns or has an interest in.




We
      also
      operate a second facility in Woburn, Massachusetts through Nexus. This
      facility's address is 317 New Boston Street, 2nd Floor, Woburn Massachusetts
      01801. This property is leased and has a base rent of $14,197 per month. This
      lease expires on July 31, 2008, and has a three-year option to renew with base
      rent increases of 3.34%. We are presently negotiating a new lease with reduced
      square footage to 10,000 square feet.




We
      believe that our present facilities will be adequate to meet our needs for
      the
      foreseeable future.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




None. ****




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




None.




8




**PART
      II**






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




As
      of
      March 15, 2006, the Company has not traded on any market or exchange therefore
      no historical prices are available.




**Holders
      of Common Stock**




As
      of
      March 15, 2006, Sagamore Holdings had in excess of 150 shareholders of
      record.




**Dividends**




We
      have
      not paid any dividends on our common stock and do not anticipate paying any
      cash
      dividends in the foreseeable future. We intend to retain any earnings to finance
      the growth of the business. We cannot assure you that we will ever pay cash
      dividends. Whether we pay any cash dividends in the future will depend on the
      financial condition, results of operations and other factors that the Board
      of
      Directors will consider.




9




**DESCRIPTION
      OF SECURITIES**




**General**




Pursuant
      to Sagamore Holdings' Articles of Incorporation, as amended, we are authorized
      to issue 2,100,000,000 shares of stock, of which 2,000,000,000 shares are
      designated as common stock, $0.001 par value per share, and 100,000,000 shares
      are designated Preferred Stock. Of the Preferred Stock, 6,000,000 shares are
      designated Series A Convertible Preferred Stock, $0.001 par value per share,
      and
      10,000,000 shares are designated Series B Convertible Preferred Stock, no par
      value. As of the June 30, 2005, 101,540,000 shares of common stock are
      outstanding, 6,000,000 shares of Series A Convertible Preferred Stock are
      outstanding and 10,000,000 shares of Series B Convertible Preferred Stock are
      outstanding. The Board of Directors may issue additional shares of common stock
      or Preferred Stock in one or more series, with such voting powers, designation,
      preferences and rights or qualifications, limitations or restrictions thereof
      as
      shall be stated in the resolution or resolutions.




**Common
      Stock**




Each
      holder of our common stock is entitled to one vote for each share held of
      record. Holders of our common stock have no conversion, or redemption rights.
      Upon liquidation, dissolution or winding-up, the holders of common stock are
      entitled to receive our net assets pro rata with the holders of the Series
      B
      Convertible Preferred Stock, after the holders of the Series A Convertible
      Preferred Stock receive their liquidation preference. Each holder of common
      stock is entitled to receive ratably any dividends declared by our board of
      directors out of funds legally available for the payment of dividends. We have
      not paid any dividends on our common stock and do not contemplate doing so
      in
      the foreseeable future. As of June 30, 2005, Sagamore Holdings had 101,540,000
      shares of common stock outstanding and 159 shareholders of record.




**Series
      A Convertible Preferred Stock**




Each
      holder of our Series A Convertible Preferred Stock has the following rights
      and
      preferences:




Dividends .
      Each
      share of Series A Convertible Preferred Stock accrues dividends at a rate of
      5%
      per year. Such dividends are payable when and if declared by the board of
      directors. Dividends are payable in cash. The right to dividends is cumulative.
      As of June 30, 2005, no dividends have been declared on shares of Series A
      Convertible Preferred Stock.




Liquidation
      Preference .
      Each
      share of Series A Convertible Preferred Stock is entitled to receive prior
      and
      in preference to any Distribution of any assets to the holders of any class
      of
      common stock or any series of preferred stock an amount equal to $1.00 for
      each
      share outstanding, plus all declared and unpaid dividends thereon.




Conversion .
      Each
      share of Series A Convertible Preferred Stock, at the option of the holder,
      is
      convertible into such number of common stock as determined by dividing (a)
      the
      sum of (i) the amount due to the holder upon liquidation, plus (ii) all accrued
      but unpaid dividends thereon, by (b) the "Conversion Price" then in effect.
      The
      Conversion Price shall be equal to either (a) $1.00 per share (which shall
      be
      adjusted in the event of a subdivision or combination of shares), or (b) 80%
      of
      the average of the lowest closing bid price of the common stock during the
      five
      trading days immediately preceding the date of conversion, assuming a public
      market exists for shares of common stock, whichever is lower. A 4.99% beneficial
      ownership limitation limits conversion except if waived on 61 days' notice.
      Cornell Capital Partners, LP possesses this waiver right.




Redemption .
      After
      providing three days prior written notice, Sagamore Holdings has the right
      to
      redeem any outstanding shares of Series A Convertible Preferred Stock at an
      amount equal to 120% of the amount due to each holder upon liquidation, plus
      all
      declared and unpaid dividends thereon.




Non-voting .
      The
      Series A Convertible Preferred Stock is non-voting.




As
      of
      June 30, 2005, we had 6,000,000 shares of Series A Preferred Stock outstanding
      and 1 shareholder of record.




10




Registration
      Rights Agreement




The
      shares of common stock issuable by the Company to the investor upon conversion
      of shares of the Series A preferred stock will not be registered under the
      Securities Act of 1933. To provide for the registration of such underlying
      shares, the Company and the investor entered into a registration rights
      agreement, dated September 15, 2004, requiring the Company to prepare and file
      a
      registration statement covering the resale of the shares of common stock
      underlying the Series A preferred stock. The registration rights agreement
      required the Company to use its best efforts to cause such registration
      statement to be declared effective no later than 210 days following September
      15, 2004 (the closing of the sale of the Series A preferred stock).




The
      registration rights agreement also contains a liquidated damages provision
      which
      calls for the investor to receive from the Company a specified amount if: (i)
      The Company fails to file a registration statement covering the underlying
      shares of common stock within 60 days of September 15, 2004, and, (ii) the
      registration statement is not declared effective no later than 210 days
      following September 15, 2004. In the event that one of the aforementioned events
      occurs, the registration rights agreement calls for the Company to pay the
      investor common stock equal to 2% of the liquidated amount, as defined above,
      of
      that portion of the Series A preferred stock which has not been converted into
      common stock as of the occurrence of such event, with such amount to be paid
      by
      the Company to the investor on a monthly basis after the occurrence of such
      event. The investor is entitled to receive the aforementioned damages until
      such
      time as the registration statement is declared effective. Since the registration
      statement registering the underlying shares of common stock was not filed within
      60 days or declared effective within 210 days from September 15, 2004, the
      investor is currently entitled to receive such damages payable in common
      stock.




**Series
      B Convertible Preferred Stock**




Each
      holder of our Series B Convertible Preferred Stock has the following rights
      and
      preferences:




Dividends .
      Each
      share of Series B Convertible Preferred Stock shall be entitled to receive
      dividends on a pro rata basis when and if dividends on the common stock are
      declared by the Board of Directors.




No
      Liquidation Preference .
      Series
      B Convertible Preferred Stock has no liquidation preference.




Conversion .
      Collectively, the shares of Series B Convertible Preferred Stock, at the option
      of the holder, are convertible into the lesser of: (i) 75,000,000 shares of
      common stock; or (ii) fifty-one percent of the outstanding shares of common
      stock after giving effect to the conversion of the Series B Convertible
      Preferred Stock.




**Redemption**




Sagamore
      Holdings has no right to redeem the shares of the Series B Convertible Preferred
      Stock.




**Voting**




The
      holders of the common stock and the Series B Convertible Preferred Stock vote
      together and not as a separate class. As a class, the holders of the Series
      B
      Convertible Preferred Stock shall, collectively, be entitled to cast fifty-one
      percent of the votes on all matters submitted to the stockholders of Sagamore
      Holdings for approval. If we liquidate, dissolve or wind up our affairs, whether
      voluntarily or involuntarily, the holders of Common and/or Preferred Stock
      of
      each series will be entitled to receive only that amount or those amounts as
      are
      fixed by the certificate of designations or by resolution of the board of
      directors providing for the issuance of that series or class. As of June 30,
      2005, the Company has 10,000,000 shares of Series B Convertible Preferred Stock
      outstanding and 2 shareholders of record.




**Transfer
      Agent**




The
      Company's transfer agent is Colonial Stock Transfer Company. Their address
      is 66
      Exchange Place, Salt Lake City, Utah 84111. Their telephone number is:
      801-355-5740.




11




**Disclosure
      Of SEC Position On Indemnification For Securities Act
      Liabilities**




Our
      Bylaws include an indemnification provision under which we have agreed to
      indemnify directors of Sagamore Holdings to the fullest extent possible from
      and
      against any and all claims of any type arising from or related to future acts
      or
      omissions as a director of Sagamore Holdings.




Insofar
      as indemnification for liabilities arising under the Securities Act of 1933
      may
      be permitted to directors, officers and controlling persons of Sagamore Holdings
      pursuant to the foregoing, or otherwise, Sagamore Holdings has been advised
      that
      in the opinion of the SEC such indemnification is against public policy as
      expressed in the Securities Act of 1933 and is, therefore,
      unenforceable.




**Anti-Takeover
      Effects Of Provisions of The Articles Of Incorporation Authorized And Unissued
      Stock**




There
      are
      no provisions in our Articles of Incorporation or Bylaws related to preventing
      or restricting takeovers, mergers or acquisitions of Sagamore Holdings by
      another company.




**Issuances
      Of Unregistered Securities**




**Common
      Stock**




On
      September 17, 2004, the Company issued 88,250,000 shares of its common stock
      to
      compensate two officers of the Company. The value of the shares of common stock
      was $882,500.




On
      September 20, 2004, the Company entered into a month-to-month agreement with
      a
      consultant to provide business development services. The Company issued
      7,500,000 shares of its common stock to Celerity Systems, Inc. as compensation
      for the services. The value of the shares of common stock was
      $75,000.




On
      September 20, 2004, the Company issued 1,750,000 shares of its common stock
      to
      Cornell Capital Partners, LP as a commitment fee under a now-terminated Standby
      Equity Distribution Agreement between the Company and Cornell Capital Partners,
      LP. The value of the shares of common stock was $17,500.




On
      September 17, 2004, the Company issued 2,500,000 shares of its common stock
      to
      Yorkville Advisors Management, LLC as a commitment fee relating to the sale
      of
      the Series A preferred stock. The value of the shares of common stock was
      $2,500.




On
      February 8, 2005, the Company issued 1,540,000 shares if its common stock to
      the
      154 current employees of Nexus under Rule 701 of the Securities Act. Each
      employee received 10,000 shares of the Company's common stock as an incentive
      bonus under the Company's 2004 Stock Incentive Plan. The value of the shares
      of
      common stock was $15,400.




**Series
      A Convertible Preferred Stock**




On
      September 15, 2004, the Company sold 6,000,000 shares of its Series A
      Convertible Preferred Stock pursuant to the Investment Agreement with Cornell
      Capital Partners and received proceeds of $5,250,000, net of fees of
      $750,000.




**Series
      B Convertible Preferred Stock**




On
      September 17, 2004, the Company issued 10,000,000 shares of its Series B
      Convertible Preferred Stock to compensate two officers of the Company. The
      value
      of the shares of Series B Convertible Preferred Stock was $750,000.




With
      respect to the sale of unregistered securities referenced above except as
      otherwise noted, all transactions were exempt from registration pursuant to
      Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and Regulation
      D
      promulgated under the 1933 Act. In each instance, the purchaser had access
      to
      sufficient information regarding the Company so as to make an informed
      investment decision. More specifically, we had a reasonable basis to believe
      that each purchaser was an "accredited investor" as defined in Regulation D
      of
      the 1933 Act and otherwise had the requisite sophistication to make an
      investment in our securities.




12




**Convertible
      Debentures**





Sagamore
      Holdings entered into a Securities Purchase Agreement (the “SPA”) on November
      10, 2005 with CSI Business Finance, Inc. (“CSI Finance”), a new investor, which
      provides for the sale of up to $1,250,000 of Secured Convertible Debentures
      that
      will be convertible into common shares of Sagamore Holdings. The SPA will expire
      on October 31, 2006. In addition to the SPA, Sagamore Holdings and CSI Finance
      entered into ancillary agreements covering CSI’s registration rights for the
      underlying common stock, and the security for any amount loaned. All assets
      of
      Sagamore Holdings will be pledged under this agreement. At the date of the
      agreement, and at January 22, 2006, the only assets owned by Sagamore Holdings
      were its shares of Nexus, its wholly owned operating subsidiary and,
      accordingly, the assets of Nexus will comprise the primary security for any
      amount loaned. However, CSI Finance’s lien on such assets is subordinate to the
      lien held by Comerica. As of January 22, 2006, CSI Finance had acquired $655,263
      of such debentures pursuant to the SPA.




The
      following are the principal terms of the Secured Convertible
      Debentures:




·
            They
                mature on October 31, 2006.




·
            Interest
                is payable monthly at 12% annual
                rate.




·
            Monthly
                principal payments begin on the earlier of (a) one month from the
                date the
                registration of the underlying common shares is declared effective,
                or (b)
                five months from the date of sale.




·
            Monthly
                payments are equal to the outstanding balance divided by the remaining
                number of months to the maturity
                date.




·
            They
                are convertible into common shares at the option of CSI Finance at
                a
                conversion rate of $ 0.025 per
                share.




·
            They
                are redeemable at the option of Sagamore Holdings at face value plus
                a 20%
                premium above the market value of the underlying shares common stock
                if
                the market value is greater than the conversion
                price.




·
            The
                Company must seek the consent of the holder if it wishes to sell
                any
                additional shares of capital stock or grant any additional security
                interests in its assets.




Subsequent
      to the commencement of the SPA, the ancillary agreements and the sale of the
      Secured Convertible Debentures discussed above, the Company has not complied
      with several provisions of these agreements and was thus in default as of
      January 22, 2006. The Company has not paid interest, it has not timely filed
      the
      registration statement for the underlying securities, it is not current in
      its
      filing of tax returns and it remains in default under the terms of its bank
      credit facility. Accordingly, CSI Finance could force the immediate repayment
      of
      the Secured Convertible Debentures.




On
      November 11, 2005, Corporate Strategies Inc. (“Corporate Strategies”) entered
      into a stock purchase agreement pursuant to which it purchased 70,600,000 shares
      of Sagamore Holdings’ common stock from previous holders who were also officers
      of the Company. As a result, Corporate Strategies acquired approximately 70%
      of
      the total shares of Sagamore Holdings’ common stock outstanding as of the date
      of said agreement, which resulted in a change in control of Sagamore Holdings
      and an event of default as defined in the loan agreement with Comerica. Mr.
      Timothy J. Connolly is the Chief Executive Officer of CSI and Corporate
      Strategies.




In
      connection with the acquisition of the control of Sagamore Holdings by Corporate
      Strategies, the previous holders of the common shares, simultaneously resigned
      from their positions as executive officers and members of the Board of Directors
      of Sagamore Holdings; agreed to the cancellation of their shares of the Series
      B
      preferred stock; and agreed to the cancellation of their respective employment
      agreements.




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




The
      following discussion should be read in conjunction with the audited financial
      statements of Sagamore Holdings, Inc. (“Sagamore Holdings” or the “Company”),
      and the related notes thereto included elsewhere herein.




13




**Overview**




Sagamore
      Holdings, Inc. was formed and incorporated in the State of Florida on August
      30,
      2004 to acquire substantially all of the net assets and the business of Nexus
      Custom Electronics, Inc. (“Nexus”), a wholly owned subsidiary of Jaco
      Electronics, Inc. (“Jaco”). As used herein, the “Company” refers to Sagamore
      Holdings, Inc. or Sagamore Holdings, Inc. together with its subsidiary.




The
      Company’s fiscal year ends on June 30 th .
      The
      interim fiscal quarters consists of thirteen weeks ending on a
      Sunday.




On
      September 15, 2004, the Company sold 6,000,000 shares of Series A redeemable
      convertible preferred stock and received proceeds of $5,250,000, after deducting
      expenses, with the proceeds restricted for use in the purchase of
      Nexus.




On
      September 20, 2004, the Company acquired Nexus through its newly formed, wholly
      owned subsidiary, NECI Acquisition, Inc. (“NECI”), that subsequently changed its
      name to Nexus. Nexus is a contract manufacturing company, which assembles
      electronic components and printed circuit boards. Total consideration paid
      for
      the net assets was $12,000,000, including $2,750,000 paid through the issuance
      of a 7% promissory note to Jaco. The remainder of the purchase price was funded
      by the net proceeds of the preferred stock issuance described above and
      $4,000,000 borrowed under a bank credit facility with Comerica Bank
      (“Comerica”).




The
      acquisition was accounted for pursuant to the purchase method of accounting
      as
      if the acquisition was completed on October 3, 2004, the end of the interim
      period closest to the actual date of the acquisition. Accordingly, (i) the
      assets (including the identifiable intangible assets) and the liabilities of
      Nexus were recorded as of that date at their estimated fair values and (ii)
      the
      audited consolidated statement of operations of the Company for the period
      from
      September 15, 2004 (date of capitalization) to June 30, 2005 (“Fiscal 2005”), do
      not include any amounts related to the operations of Nexus prior to the date
      of
      acquisition.




**Going
      Concern Matters**




The
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern. However, the Company incurred a net loss
      of
      $7,556,949 in Fiscal 2005 and had a net working capital deficiency of $3,578,734
      at June 30, 2005. It also did not meet certain covenants under its credit
      facility with Comerica and promissory note with Jaco and, accordingly, the
      outstanding balance of $3,779,423 under the credit facility ($2,759,423 under
      the revolver and $1,020,000 under the term loan) and the outstanding balance
      of
      $2,750,000 under the note agreement were in default as of June 30, 2005 and
      classified in current liabilities in the consolidated balance sheet.
      Accordingly, there is substantial doubt as to the ability of Sagamore Holdings
      and its subsidiary to continue as going concern.




The
      Company did not meet the requirements of four covenants under the provisions
      of
      its credit facility with Comerica: minimum working capital ratio; debt service
      ratio (“EBITDA”, as defined, divided by interest and principal payment
      requirements); leverage ratio (liabilities to tangible net worth ratio) and
      minimum tangible net worth (tangible net worth includes subordinated debt but
      excludes intangible assets), and therefore, was in default. During the period
      while the Company is in default under the credit facility, the lender may force
      immediate repayment of amounts due ($3,779,423 at June 30, 2005), and invoke
      penalty interest (up to three percentage points or approximately $114,000
      annually) at the lender’s discretion. Since the Company has not been notified
      that it will be charged penalty interest, it has not accrued any as of June
      30,
      2005.




The
      Company entered into a forbearance agreement with Comerica on July 15, 2005,
      effective July 1, 2005 through August 1, 2005, which essentially provided an
      extension of the revolver under the credit facility which expired on July 1,
      2005, and also provided that Comerica would not exercise its right to call
      for
      acceleration of all amounts due under the term loan and revolver under the
      credit facility, if the Company met certain conditions. Effective August 1,
      2005, the Company and Comerica agreed to extend the maturity date of the
      revolver under the credit facility to September 1, 2005. The Company and
      Comerica are currently negotiating an extension of the forbearance agreement
      from September 1, 2005 through June 30, 2006. If an extension is agreed upon,
      the Company intends to attempt to negotiate an amendment to the credit facility
      in order to renew the facility and have the Company in compliance going forward.
      However, there can be no assurance that the Company will get an extension on
      the
      forbearance agreement.




The
      Company is also in default under its promissory note agreement with Jaco, due
      to
      being delinquent on interest payments, as well as effecting a change in control
      event subsequent to June 30, 2005. As a result of these events of default,
      the
      $2,750,000 underlying note was also classified as a current obligation since
      Jaco has a right to accelerate payment. The Company disputes the amount due
      Jaco
      under the purchase agreement. In addition, the Company intends to pursue its
      claims and remedies against Jaco.




14


Sagamore
      Holdings entered into the SPA on November 10, 2005 with CSI Business Finance,
      Inc. (“CSI Finance”), a new investor, which provides for the sale of up to
      $1,250,000 of Secured Convertible Debentures that will be convertible into
      common shares of Sagamore Holdings. The SPA will expire on October 31, 2006.
      In
      addition to the SPA, Sagamore Holdings and CSI Finance entered into ancillary
      agreements covering CSI’s registration rights for the underlying common stock,
      and the security for any amount loaned. All assets of Sagamore Holdings will
      be
      pledged under this agreement. At the date of the agreement, and at January
      22,
      2006, the only assets owned by Sagamore Holdings were its shares of Nexus,
      its
      wholly owned operating subsidiary and, accordingly, the assets of Nexus will
      comprise the primary security for any amount loaned. However, CSI Finance’s lien
      on such assets is subordinate to the lien held by Comerica. As of January 22,
      2006, CSI Finance had acquired $655,263 of such debentures pursuant to the
      SPA.




The
      following are the principal terms of the Secured Convertible
      Debentures:




·
            They
                mature on October 31, 2006.




·
            Interest
                is payable monthly at 12% annual
                rate.




·
            Monthly
                principal payments begin on the earlier of (a) one month after the
                date
                the registration of the underlying common shares is declared effective,
                or
                (b) five months from the date of sale.




·
            Monthly
                payments are equal to the outstanding balance divided by the remaining
                number of months to the maturity
                date.




·
            They
                are convertible into common shares at the option of CSI Finance at
                a
                conversion rate of $ 0.025 per
                share.




·
            They
                are redeemable at the option of Sagamore Holdings at face value plus
                a 20%
                premium above the market value of the underlying shares common stock
                if
                the market value is greater than the conversion
                price.




·
            The
                Company must seek the consent of the holder if it wishes to sell
                any
                additional shares of capital stock or grant any additional security
                interests in its assets.




Subsequent
      to the commencement of the SPA, the ancillary agreements and the sale of the
      Secured Convertible Debentures discussed above, the Company has not complied
      with several provisions of these agreements and was thus in default as of
      January 22, 2006. The Company has not paid interest, it has not timely filed
      the
      registration statement for the underlying securities, it is not current in
      its
      filing of tax returns and it remains in default under the terms of its bank
      credit facility. Accordingly, CSI Finance could force the immediate repayment
      of
      the Secured Convertible Debentures.




Unless
      the Company can negotiate an extension of the forbearance agreement and/or
      amendments to the credit facility as discussed above, and it can resolve its
      default under the promissory note with Jaco, the Company’s operating results and
      cash flows will not be adequate to enable it to pay the balance due at or
      subsequent to June 30, 2005 unless it can obtain an alternate credit facility
      and/or additional financing. Management cannot assure that the Company will
      be
      able to obtain such an extension, amendment or resolution. These matters raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The consolidated financial statements do not include any adjustments related
      to
      the recoverability and classification of assets or the amount and classification
      of liabilities that might result from the outcome of this
      uncertainty.




On
      November 11, 2005, another new investor, Corporate Strategies Inc. (“Corporate
      Strategies”), an affiliate of the first new investor, entered into a stock
      purchase agreement pursuant to which it purchased 70,600,000 shares of Sagamore
      Holdings’ common stock from previous holders. Such shares represented
      approximately 70% of the total outstanding shares of common stock as of the
      date
      of said agreement, which resulted in a change in control of Sagamore Holdings
      and an event of default as defined in the loan agreement with Comerica. Mr.
      Timothy J. Connolly is the Chief Executive Officer of CSI Finance and Corporate
      Strategies. As of January 22, 2006, Sagamore Holdings had sold $655,263 of
      Secured Convertible Debentures to the new investor. However, as of that date,
      the Company was in default under the terms of the Secured Convertible Debentures
      and the Company may not be able to obtain any additional funding under the
      SPA.
      The Company has no other agreements in place other than the SPA providing for
      additional debt or equity financing for the Company.




15




In
      connection with the acquisition of the control of Sagamore Holdings by Corporate
      Strategies, the previous holders of the common shares, simultaneously resigned
      from their positions as executive officers and members of the Board of Directors
      of Sagamore Holdings; agreed to the cancellation of their shares of the Series
      B
      preferred stock; and agreed to the cancellation of their respective employment
      agreements.





If
      the
      Company cannot complete the above mentioned actions related to the credit
      facility, resolve its default under the promissory note and obtain additional
      proceeds under the SPA, it would have to examine other strategic alternatives,
      including raising capital in the debt or equity markets, or a possible sale
      or
      liquidation of its business.




Since
      July 1, 2004, the Company has experienced market softness, and it has
      experienced increased competitive pressure from offshore electronic
      manufacturers, which have won some business from current customers. We have
      also
      just completed negotiating terms of future business with one of our major
      customers and are negotiating continuation of this business. Until an agreement
      is reached, the uncertainty of this business could have a significant impact
      on
      revenues. Several of our long-term customers are seeking price discounts, which
      will have an adverse impact on gross margins.




Due
      to
      the softness and uncertainties of the market, the Company decided to downsize
      its manufacturing facility in Woburn Massachusetts and operate it as a satellite
      operation instead of a full service facility. In connection therewith, the
      Company incurred approximately $48,000 in related costs, including $40,000
      in
      severance costs relating to the termination of 50 employees. These costs will
      be
      recorded in the statement of operations for the fiscal quarter ended January
      1,
      2006 in which period the partial closing was decided. The Company recognized
      an
      impairment loss of $116,000 on manufacturing equipment at this facility, which
      was underutilized prior to the decision to downsize, and has since been
      abandoned or segregated for sale. This loss was recognized in Fiscal 2005.
      The
      Company has thus reduced its ongoing costs significantly, and also eliminated
      a
      significant amount of low margin products. Due to these market conditions,
      and
      these changes, sales for the next fiscal year (Fiscal 2006) will be 20% to
      30%
      less than the previous year, but operating margins should begin improving by
      the
      end of Fiscal 2006.




These
      same market conditions and the impact on the Company’s operating results, has
      caused the Company to incur operating losses and therefore, has recognized
      impairment losses totaling $2,282,591. These losses are reflected in the
      Company’s Fiscal 2005 statement of operations.




We
      continue to search for other areas within the business to improve its cost
      structure and its efficiency, and thus, its competitiveness. During the first
      calendar quarter in 2005, for example, we began an initiative to review (value
      stream mapping) all processes in order to implement the “Lean Manufacturing”
concepts. Lean Manufacturing is a systematic approach to eliminating non-value
      added activities (waste). Flow is created throughout the entire Company
      eliminating overproduction and modifying traditional scheduling systems to
      produce what the customer wants, when they want it. Lean Manufacturing, based
      on
      the Toyota Model, provides a company the tools to implementing long-term plans
      to streamline operations.




It
      is
      also important for us to be able to support customer demand with adequate amount
      of working capital and manufacturing capacity. We, therefore, will pursue an
      amendment to the credit facility discussed above and a waiver of noncompliance
      with the promissory note holder; however, there are no assurances that the
      amendment or waiver will be approved and received.




Management
      believes that the improvement in its cost structure, and the normalization
      of
      conditions with lenders, should enable the Company to return to improved
      operating results.




**Critical
      Accounting Policies and Estimates**




The
      Company’s fiscal year ends on June 30th.




The
      preparation of the financial statements requires us to make estimates and
      judgments that affect the reported amounts of assets, liabilities and expenses.
      On an on-going basis, we evaluate our estimates, including those related to
      uncollectible accounts receivable, inventories and long-lived assets. We base
      our estimates on historical experience and on various other assumptions that
      are
      believed to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. Actual results may differ
      from
      these estimates under different assumptions or conditions.




16


We
      believe the following critical accounting policies affect the more significant
      judgments and estimates used in the preparation of the financial
      statements:




·
            On
                September 20, 2004, the Company, through its subsidiary, NECI, purchased
                substantially all of the net assets of Nexus. However, the acquisition
                has
                been accounted for as a purchase as if it was completed on October
                3,
                2004, the end of the interim period closest to the actual date of
                the
                acquisition.




·
            The
                acquisition of Nexus has been accounted for by the Company under
                the
                purchase method of accounting in accordance with Statement of Financial
                Accounting Standards No. 141, “Business Combinations.” Under the purchase
                method, assets acquired and liabilities assumed are recorded at their
                estimated fair values. Goodwill is recorded to the extent the purchase
                price, including certain acquisition and closing costs, exceeds the
                fair
                value of the net identifiable tangible and intangible assets acquired
                at
                the date of the acquisition.




·
            We
                maintain allowances for uncollectible accounts receivable for estimated
                losses resulting from the inability of its customers to make required
                payments. If the financial condition of the customers were to deteriorate,
                resulting in an impairment of their ability to make payments, additional
                allowances may be required.




·
            We
                recognize sales when title passes at the time of shipment and
                collectibility is reasonably assured. We record provisions for returns
                and
                discounts to customers as reductions to sales in the same period
                the
                related sales are recorded.




·
            We
                carry inventories at the lower of cost or estimated net realizable
                value
                and provide an allowance for obsolescence. If actual market conditions
                are
                less favorable than those originally projected by management and
                the sale
                of inventories in the ordinary course of business are expected to
                be at
                prices that are less than cost, whether due to cancellation of customer
                orders, physical deterioration, obsolescence, changes in price levels
                or
                other causes, the difference will be recognized as a loss in the
                current
                period. Accordingly, we recorded a charge of $913,777 relating to
                inventory that we identified as obsolete in 2005 as the result of
                reduction of sales, cancelled purchase orders and technical obsolescence.




·
            Property
                and equipment owned by us are depreciated and amortized over their
                estimated useful lives. Useful lives are based on management’s estimates
                over the period that such assets will generate revenue. Future adverse
                changes in market conditions or poor operating results of underlying
                capital investments could result in losses or an inability to recover
                the
                carrying value of such assets, thereby possibly requiring an impairment
                charge in the future.




·
            We
                acquired identifiable intangible assets and goodwill in connection
                with
                the acquisition of Nexus. Certain of the intangible assets had
                determinable lives, and therefore are subject to amortization. Other
                intangible assets had indefinite lives and thus are not subject to
                amortization.




·
            We
                follow Statement of Financial Accounting Standards ("SFAS") No. 144,
                “Accounting for the Impairment or Disposal of Long-Lived Assets”, which
                requires impairment losses to be recorded on long-lived assets used
                in
                operations such as property and equipment and amortizable intangible
                assets, when indicators of impairment are present and the undiscounted
                cash flows estimated to be generated by those assets are less than
                the
                asset's carrying amount. In the evaluation of the fair value and
                future
                benefits of these types of long-lived assets, we perform an analysis
                of
                the anticipated undiscounted future net cash flows of the related
                long-lived assets. If the carrying value of the related asset exceeds
                the
                undiscounted cash flows, the carrying value is reduced to its fair
                value.
                Various factors including future sales growth and profit margins
                are
                included in this analysis.




17




·
            We
                also follow SFAS No. 142, “Accounting for Goodwill and Other Intangible
                Assets”. This statement requires that goodwill and intangible assets not
                subject to amortization be assessed for impairment using fair value
                measurement techniques. Specifically, goodwill impairment is determined
                using a two-step process. The first step of the goodwill impairment
                test
                is used to identify potential impairment by comparing the fair value
                of
                Nexus with its net book value (or carrying amount), including goodwill.
                If
                the fair value of the reporting unit for which goodwill was recorded
                exceeds its carrying amount, goodwill is not considered impaired
                and the
                second step of the impairment test is unnecessary. If the carrying
                amount
                of the reporting unit exceeds its fair value, the second step of
                the
                goodwill impairment test is performed to measure the amount of impairment
                loss, if any. The second step of the goodwill impairment test compares
                the
                implied fair value of our goodwill with the carrying amount of that
                goodwill. If the carrying amount of the reporting unit's goodwill
                exceeds
                the implied fair value of that goodwill, an impairment loss is recognized
                in an amount equal to that excess. The implied fair value of goodwill
                is
                determined in the same manner as the amount of goodwill recognized
                in a
                business combination. That is, the fair value of the reporting unit
                is
                allocated to all of the assets and liabilities of that unit (including
                any
                unrecognized intangible assets) as if the reporting unit had been
                acquired
                in a business combination and the fair value of the reporting unit
                was the
                purchase price paid to acquire the Company. The impairment test for
                other
                unamortizable intangible assets consists of a comparison of the fair
                value
                of the intangible asset with its carrying value. If the carrying
                value of
                the intangible asset exceeds its fair value, an impairment loss is
                recognized in an amount equal to that
                excess.




Determining
      the fair value of the reporting unit under the first step of the goodwill
      impairment test and determining the fair value of individual assets and
      liabilities of the reporting unit (including unrecognized intangible assets)
      under the second step of the goodwill impairment test is judgmental in nature
      and uses estimates and assumptions. Similarly, estimates and assumptions are
      used in determining the fair value of other intangible assets. These estimates
      and assumptions could have a significant impact on whether or not an impairment
      charge is recognized and also the magnitude of any such charge. To assist in
      the
      process of determining goodwill impairment, we obtained appraisals from an
      independent valuation firm. In addition to the use of an independent valuation
      firms, we performed an internal valuation analyses and considers other market
      information that is publicly available. Estimates of fair value are primarily
      determined using discounted cash flows and market comparisons and recent
      transactions. These approaches use significant estimates and assumptions
      including projected future cash flows (including timing), discount rate
      reflecting the risk inherent in future cash flows, perpetual growth rate,
      determination of appropriate market comparables and the determination of whether
      a premium or discount should be applied to comparables.




Due
      to
      the slowdown in its industry, and the loss of certain business to lower cost
      Asian markets, we have incurred operating losses and therefore, have estimated
      its fair value of its intangible assets and its overall fair value, and found
      it
      necessary to recognize an impairment losses summarized below. Losses due to
      following the provisions of SFAS No. 142 were $45,070, and losses following
      the
      provisions of SFAS No. 144 were the remainder. These losses are reflected in
      our
      Fiscal 2005 Statement of Operations.









Impairment
            
            
            AdjustedLosses
            
            
            ValuesIdentifiable
                IntangiblesCustomer
                lists
            
            $
            229,610
            
            $
            836,677Backlog
            
            
            77,681
            
            
            60,243Employment
                agreement
            
            
            11,626
            
            
            47,092ISO
                certification
            
            
            29,066
            
            
            110,741Trademark
            
            
            45,070
            
            
            212,665Totals
            
            $
            393,053
            
            $
            1,267,418Goodwill
            
            $
            1,773,538
            
            $
            0




**Quantitative
      and Qualitative Disclosures about Market Risk**




Market
      risk represents the risk of changes in value of a financial instrument,
      derivative or non-derivative, caused by fluctuations in interest rates, foreign
      exchange rates and equity prices. The Company has no financial instruments
      that
      give it exposure to foreign exchange rates or equity prices.




18




**Results
      of Operations**




As
      explained above, Sagamore Holdings was formed and incorporated in the State
      of
      Florida on August 30, 2004 to acquire substantially all of the net assets and
      the business of Nexus. It was initially capitalized on September 15, 2004,
      and
      it acquired Nexus on September 20, 2004.




However,
      the acquisition was accounted for pursuant to the purchase method of accounting
      as if the acquisition was completed, effectively, on October 3, 2004, the end
      of
      the interim period closest to the actual date of the acquisition and
      accordingly, (i) the assets (including the identifiable intangible assets)
      and
      the liabilities of Nexus were recorded as of that date at their estimated fair
      values and (ii) the consolidated statement of operations for the period from
      September 15, 2004 (date of capitalization) to June 30, 2005 do not include
      any
      amounts related to the operations of Nexus prior to October 3, 2004. The
      Company’s other activities during the period from September 15, 2004 (date of
      capitalization) to October 3, 2004 were limited to its formation and obtaining
      financing for and to consummate the acquisition. Accordingly, the consolidated
      financial statements of the Company and the financial statements of Nexus are
      not directly comparable.




The
      level
      of orders from our major customers primarily affects the results of operations
      for our company, as well as the amount of working capital required to manage
      the
      business. From the inception of the customers’ orders, changes may be instituted
      due to circumstances affecting our customer’s business such as variation in
      demand for their products, changes within our customer’s manufacturing
      strategies, competitive conditions, inventory imbalance and general economic
      conditions. Those changes instituted by our customers have had significant
      effects on our results of operations in the past. One of our major customers
      in
      the telecommunications market historically has experienced cyclical slow downs,
      which also adversely affects our business.




**Financial
      results of the Company: Results for Fiscal 2005 and 2004 on a pro forma
      basis**




The
      following discussion compares the unaudited pro forma financial information
      for
      the year ended June 30, 2005 and 2004, and has been prepared utilizing the
      fiscal 2005 audited financial statements of the Company included elsewhere
      in
      this report, and the historical financial information of the predecessor
      company. The following unaudited pro forma financial information is presented
      for informational purposes only and is prepared on the basis assuming the
      acquisition of Nexus occurred on July 1, 2004 and 2003. The financial
      information is not necessarily indicative of (i) the results of operations
      of
      the Company that actually would have occurred had the acquisition been
      consummated on the dates indicated or (ii) the results of operations of the
      Company that may occur or be attained in the future. The pro forma numbers
      do
      not give effect to the subsequent goodwill and other intangible asset
      impairments totaling $2,166,591.




Year
                Ended June 30,2005
            
            2004(Unaudited)Net
                sales
            $
            23,098,534
            
            $
            22,430,000Gross
                profit (loss)
            
            (677,626)
            
            
            2,215,279General
                and administrative expenses
            
            3,619,825
            
            
            2,763,124Selling
                expenses
            
            707,942
            
            
            511,152Impairment
                of property and equipment
            
            (116,000)
            
            
            (116,000)Interest
                expense
            
            514,813
            
            
            325,902Net
                loss
            $
            (5,636,206)
            
            $
            (1,500,899)




**Net
      Sales**




Net
      sales
      increased $668,534 to $23,098,534 in the Fiscal 2005 period, from $22,430,000
      in
      the Fiscal 2004 period. The increase in sales primarily occurred in the
      beginning of Fiscal 2005 on a comparative basis, due to the improved economic
      environment in the telecommunication, semi-conductor capital equipment and
      instrumentation industries at that time. The market began softening in the
      latter part of Fiscal 2005 and has continued into the subsequent
      year.




19


**Gross
      Profit (Loss)**




Gross
      loss was ($677,626) for the fiscal 2005 period versus a gross profit of
      $2,215,279 in Fiscal 2004. The decrease was due to a reduction in margin from
      competitive price pressure, an increase in wages as a percent of sales, higher
      manufacturing overhead, higher employee benefit costs, and higher obsolescence
      losses. The Company recorded an obsolescence and slow moving inventory reserve
      of $913,777 in 2005 as the result of reduction of sales, cancelled purchase
      orders and technical obsolescence. These same charges were negligible in
      2004.




During
      the latter part of fiscal 2004 and the beginning of fiscal 2005 Nexus increased
      and improved its engineering, technical and purchasing staff in order to service
      and support new business it was expecting. However, Nexus has not been able
      to
      realize the sales growth it expected due to the market slow down, and added
      competition.




**Selling,
      General and Administrative Expenses**




General
      and administrative expenses increased from $2,763,124 in Fiscal 2004 to
      $3,619,825 in Fiscal 2005. The increase was primarily attributable to
      compensation increases paid to administrative employees in the second half
      of
      Fiscal 2004 after a reduction and a freeze in the previous year. There also
      was
      an incurrence of approximately $685,000 of legal and professional costs during
      fiscal 2005 in connection with filing its registration statement.




Selling
      expense was $707,942 in Fiscal 2005 versus $511,152 in 2004, due to the salary
      increases discussed above and higher sales.




**Interest
      Expense**




Interest
      expense was higher in 2005 due to higher debt levels and interest
      rates.




**Financial
      Results of the Company: Period from September 15, 2004 (Date of Capitalization)
      through June 30, 2005**




**Net
      Sales**




Net
      sales
      (which as explained above, only reflect sales of Nexus subsequent to October
      3,
      2004) were $17,061,294 during this period as the Company experienced softening
      sales. Sales to its three largest customers amounted to 70%, of net sales in
      this period. Management expects that sales will continue to soften in at least
      the next two quarters due to a slow-down in the telecommunications market,
      and
      afterwards due to the significant reduction in operating activity at the
      Company’s Massachusetts facility.




**Gross
      Loss**




Gross
      loss was $1,129,838 or (6.6%) to net sales during the period. The gross loss
      was
      due to a reduction in margin due to competitive price pressure, an increase
      in
      headcount, higher manufacturing overhead, higher employee benefit costs,
      inventory obsolescence of 5% of sales, and non-recurring purchase accounting
      adjustments which were 2.7% of sales during the period from October 4, 2004
      through June 30, 2005.




The
      Company increased and improved its engineering, technical and purchasing staff
      in order to service and support new business it was expecting. However, the
      Company has not been able to realize the sales growth it expected due to the
      market slow down, and added competition. The Company expects that competitive
      pressure could continue to unfavorably impact its gross profit margin over
      the
      next several quarters.




Employee
      benefits increased due to more employees and higher insurance rates. Cost of
      sales included a one-time amortization of the “fair value” write up to inventory
      at the date of acquisition of $92,533 (0.5% of net sales) which related to
      underlying inventory which was sold during the period, and $233,045 of
      amortization of backlog, recorded in purchase accounting (1.4% of net sales).




20


The
      Company recorded a charge of $913,777 (5.4% of sales) in 2005 relating to
      inventory that was determined to be obsolete as the result of reduction of
      sales, cancelled purchase orders and technical obsolescence.




**Selling,
      General and Administrative Expenses**




Selling,
      general and administrative expenses were $3,819,743 or 22.4% of net sales for
      the period. Such expenses include $1,747,500 (10.2% of net sales) at the date
      of
      acquisition incurred in starting up and raising capital for the business and
      compensating employees, based on the estimated fair value of shares issued
      to
      officers and founders (98,250,000 shares), for consultant services (7,500,000
      shares), in connection with a standby equity distribution agreement which was
      subsequently terminated (1,750,000 shares), and for stock options granted to
      an
      employee (22,500,000 shares) and for the fair value of stock bonus awards given
      to employees (15,400,000 shares). Additionally, $684,853 of expenses (4.0%
      of
      net sales) were incurred relating to professional fees connected with the audit
      of the pre-acquisition financial statements of Nexus and in connection with
      filing the registration statement, post acquisition amortization of intangible
      assets recorded as a result of valuing assets acquired at their fair value
      ($13,682), higher salary and employee benefit costs increases (0.8% to net
      sales
      increase), and an increase in the provision for uncollectible accounts ($79,161
      or 0.5% of net sales).




**Other
      Operating Expenses**




The
      Company recognized impairment losses of $1,773,538 and $393,053 to its carrying
      value of goodwill and identifiable intangible assets, respectively, as well
      as
      an $116,000 impairment loss to the carrying value of property and equipment
      during Fiscal 2005. The reduction in the fair value of these assets was due
      to
      the slowdown in the electronics manufacturing industry, the loss of certain
      business to lower cost Asian markets, and the Company’s decision to downsize its
      Massachusetts manufacturing facility.




**Interest
      Expense**




Interest
      expense was $324,777 during the period, and was incurred on borrowings under
      the
      credit facility and the promissory note to Jaco, which was drawn in connection
      with the acquisition.




**Liquidity
      and Capital Resources**




On
      September 15, 2004, the Company sold 6,000,000 shares of Series A Convertible
      Preferred Stock and received proceeds of $5,250,000, after deducting expenses,
      with the proceeds restricted for use in the purchase of Nexus. On September
      20,
      2004, the Company purchased substantially all of the assets of Nexus for
      $12,000,000, of which $9,250,000 was paid in cash at closing on September 20,
      2004 comprised of $5,250,000 from the sale of the preferred stock and $4,000,000
      from proceeds of borrowings by Nexus under a $6,200,000 credit facility provided
      by Comerica. The balance of $2,750,000 was paid in the form of a five-year
      promissory note, bearing interest at the lesser of a specified prime rate or
      7%.
      Interest on this note is payable quarterly from December 1, 2004 until
      September 1, 2009. The principal payments under the promissory note are due
      on
      the following dates: $500,000 on September 1, 2006, $156,250 per quarter
      commencing on December 1, 2006 through September 1, 2008 and $250,000 per
      quarter commencing on December 1, 2008 through September 1, 2009. As
      discussed above, the Company is in default of this note.




The
      aggregate consideration to be paid by the Company for the acquisition of Nexus
      is subject to further adjustments as explained below:




1.  A
      target
      net working capital, adjusted either up or down on a dollar-for-dollar basis
      up
      to $500,000 if the net working capital of Nexus as of September 20, 2004 is
      different than $7,331,000.




2.  An
      earn-out provision calculated at 5% of the net sales of Nexus in excess of
      $20,000,000 for each of the succeeding six years from the date of acquisition
      limited to total payments of $1,000,000.




The
      $6,200,000 credit facility with Comerica obtained by Nexus is collateralized
      by
      all of its assets. The credit facility includes a $1,200,000 term loan and
      a
      $5,000,000 revolver. Nexus borrowed a total of $4,319,049 from the credit
      facility. $1,200,000 was received from the term loan and $3,119,049 was advanced
      from the revolver. The Company used $4,000,000 borrowed under the credit
      facility to pay part of the purchase price and the remaining $319,049 was used
      to pay transaction costs and repay an existing capital lease obligation of
      Nexus. The term loan is payable in monthly principal payments of $20,000
      commencing November 1, 2004 and continuing through November 1, 2009. Interest
      at
      prime plus 1.5% is payable monthly commencing on October 1, 2004 (an effective
      rate of 7.75% at June 30, 2005). The revolver matures on July 1, 2005 and
      borrowings bear interest at prime plus 1%, or alternatively at LIBOR plus 3.75%
      (an effective rate of 7.25% at June 30, 2005). Borrowings under the revolver
      are
      limited to credit available based on eligible accounts receivable and inventory
      as defined in the credit facility.




21


As
      of
      June 30, 2005, Nexus did not meet certain covenants under its credit facility
      agreement and, accordingly, it was in default. The Company was in violation
      of
      the following four covenants:




(1)
      Minimum working capital ratio; (2) minimum debt service ratio (“EBITDA” which is
      earnings before interest, taxes, depreciation and amortization, as defined
      divided by interest and principal payment requirements), (3) leverage ratio
      (liabilities to tangible net worth (net worth including subordinated debt but
      excluding intangible assets); and, (4) minimum tangible net worth.




EBITDA
      was lower than anticipated when the covenant was written due to recent operating
      losses, higher than anticipated commercial and employee health insurance costs,
      and costs and expenses related to the requirements and the filing of this
      registration statement, including costs of auditing the prior year financial
      statements of Nexus which are included in this registration
      statement.




Violations
      of the other three covenants mentioned above resulted primarily from the impact
      of a significant amount of raw material inventory obsolescence and other
      significant costs. When the Company and Nexus negotiated the bank credit
      facility for Nexus prior to the acquisition, Nexus had been a division of the
      seller that had never prepared financial statements that had been audited and,
      accordingly, the terms of the covenants were based in part on the value of
      the
      Nexus inventory determined from unaudited information provided by the seller.
      After the acquisition, Sagamore determined that Nexus had purchased customized
      component parts included in raw material inventory that were based on customer
      orders that were cancelled. These materials could not be returned to suppliers,
      nor used in connection with orders from other customers. Management analyzed
      the
      aged balances of the Nexus raw material inventory primarily on an item-by-item
      basis at the end of each period, determined that items that had not been used
      to
      produce a finished product within a reasonable period of time would have no
      alternative use or scrap value and wrote those items off in each period.
      Management also recorded charges at the end of each period for estimates of
      items in inventory that had not reached the aging threshold but were likely
      to
      the aging threshold in the subsequent period. This aggregate reduction in the
      inventory balance was the primary cause of the default by Nexus with respect
      to
      its loan covenants at June 30, 2005.




As
      a
      result of the covenant violations as of June 30, 2005, the outstanding balance
      under the credit facility is in default and the balance of the term loan
      totaling $1,020,000 at June 30, 2005, included in the credit facility, has
      been
      classified in current liabilities in the consolidated balance sheet. During
      the
      period while the Company is in default under its credit agreement, the lender
      may force immediate repayment of amounts due ($3,799,423 at June 30, 2005),
      and
      invoke penalty interest (up to three percentage points or approximately $114,000
      annually) at the lender’s discretion. Since the Company has not been notified
      that it will be charged penalty interest, it has not accrued any as of June
      30,
      2005. On July 15, 2005, the Company entered into a forbearance agreement
      with Comerica Bank to extend the maturity date of the revolver under the credit
      facility (which had a balance of $2,779,423 as of June 30, 2005) from July
      1,
      2005 to August 1, 2005.




The
      Company also has a promissory note with an outstanding balance of $2,750,000
      at
      June 30, 2005 that it issued to Jaco as partial consideration for Nexus. The
      Company has not paid interest since February, 2005 and has incurred a change
      in
      control in November, 2005, as defined in the promissory note, both events of
      which constitute events of default. The note holder has not given notice that
      it
      will immediately accelerate the maturity, and declare the note immediately
      due
      and payable, although it has the right to do so. As a result of these events
      of
      default, the note has been classified as a current obligation. Defaults under
      other loan agreements, on loan amounts exceeding $5,000,000, could also result
      in an event of default under this promissory note agreement.




**Cash
      Flows of the Company - Period from September 15, 2004 (Date of Capitalization)
      through Fiscal 2005**




The
      operating activities of the Company provided $891,628 in net cash largely from
      reductions in inventories, accounts receivable, increases in accounts payable
      and accrued expenses, and non-cash charges relating to stock issuances and
      impairment losses, partially offset by the net loss of the
      business.




The
      Company’s investing activities utilized cash of $5,442,540 primarily related to
      the acquisition of Nexus.




The
      Company’s financing activities generated net cash of $4,710,375 primarily
      related to the proceeds received from sale of the Series A preferred stock,
      partially offset by reductions in obligations under the credit
      facility.




22




**Recent
      Accounting Pronouncements**




In
      December 2004, the Financial Accounting Standards Board (the “FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”) No. 123(R) (revised 2004),
“Share-Based Payment”, which amends FASB Statement No. 123 and will be
      effective for the first quarter of our fiscal year ending June 30, 2007.
      The new standard will require us to expense all employee stock options and
      other
      share-based payments over the service periods. The new standard may be adopted
      in one of three ways - the modified prospective transition method, a variation
      of the modified prospective transition method or the modified retrospective
      transition method. We are currently evaluating how we will adopt the standard
      and evaluating the effect that the adoption of SFAS No. 123(R) will have on
      our
      financial position and results of operations, although it is likely that we
      will
      have to recognize additional compensation expense in periods subsequent to
      adoption.




In
      November 2004, the FASB issued SFAS No.151, “Inventory Costs, an amendment of
      ARB No. 43, Chapter 4”. This statement amends the guidance in ARB No. 43,
      Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts
      of idle facility expense, freight, handling costs, and wasted material
      (spoilage). Paragraph 5 of ARB No. 43, Chapter 4, previously stated that
“...under some circumstances, items such as idle facility expense, excessive
      spoilage, double freight, and rehandling costs may be so abnormal as to require
      treatment as current period charges...” SFAS No. 151 requires that those items
      be recognized as current-period charges regardless of whether they meet the
      criterion of “so abnormal.” In addition, this statement requires that allocation
      of fixed production overheads to the costs of conversion be based on the normal
      capacity of the production facilities. The provisions of SFAS No. 151 shall
      be
      applied prospectively and are effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005, with earlier application
      permitted for inventory costs incurred during fiscal years beginning after
      the
      date this Statement was issued. The Company recognized these accounting
      guidelines as it priced its inventory during Fiscal 2005, and thus has already
      adopted SFAS No. 151.




In
      December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary
      Assets, an amendment of APB Opinion No. 29.” The guidance in
      APB Opinion No. 29, “Accounting for Non-monetary Transactions,” is based on
      the principle that exchanges of non-monetary assets should be measured based
      on
      the fair value of assets exchanged. The guidance in APB Opinion No. 29,
      however, included certain exceptions to that principle. SFAS No. 153 amends
      APB Opinion 29 to eliminate the exception for non-monetary exchanges of
      similar productive assets that do not have commercial substance. A non-monetary
      exchange has commercial substance if the future cash flows of the entity are
      expected to change significantly as a result of the exchange. SFAS No. 153
      is
      effective for non-monetary exchanges occurring in fiscal periods beginning
      after
      June 15, 2005. The adoption of SFAS No. 153 is not expected to have a
      material impact on our financial position and results of operations.





In
      May,
      2005, the FASB issued SFAS No. 154, “ Accounting
      Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB
      Statement No. 3”. This
      Statement replaces APB Opinion No. 20, “Accounting Changes”, and FASB Statement
      No. 3, “Reporting Accounting Changes in Interim Financial Statements”, and
      changes the requirements for the accounting for and reporting of a change in
      accounting principle. This Statement applies to all voluntary changes in
      accounting principle. It also applies to changes required by an accounting
      pronouncement in the unusual instance that the pronouncement does not include
      specific transition provisions. The adoption of SFAS No. 154 is not expected
      to
      have a material impact on our financial position and results of
      operations.






**Certain
      Business Risks**




*The
      Company is subject to various risks that may materially harm its business,
      financial condition and results of operations. You should carefully consider
      the
      risks and uncertainties described below and the other information in this filing
      before deciding to purchase the Company’s common stock. These are not the only
      risks and uncertainties that the Company faces. If any of these risks or
      uncertainties actually occurs, the Company’s business, financial condition or
      operating results could be materially harmed. In that case, the trading price
      of
      the Company’s common stock could decline and you could lose all or part of your
      investment.*




**Risks
      Related To Our Business**




OurIndependentRegistered Public Accounting Firm Has Stated That There Is Substantial Doubt
      About Our Ability To Continue As A Going Concern




The
      consolidated financial statements have been prepared assuming that the Company
      will continue as a going concern. However, the Company incurred a net loss
      of
      $7,556,949 in Fiscal 2005 and had a net working capital deficiency of $3,578,734
      at June 30, 2005. It also did not meet certain covenants under its credit
      facility with Comerica and promissory note with Jaco and, accordingly, the
      outstanding balance of $3,779,423 under the credit facility ($2,759,423 under
      the revolver and $1,020,000 under the term loan) and the outstanding balance
      of
      $2,750,000 under the note agreement were in default as of June 30, 2005 and
      classified in current liabilities in the consolidated balance sheet.




23


The
      Company entered into a forbearance agreement with Comerica on July 15, 2005,
      effective July 1, 2005 through August 1, 2005, which essentially provides for
      an
      extension of the revolver under the credit facility which expired July 1, 2005,
      and also provided that Comerica would not exercise its right to call for
      acceleration of all amounts due under the term loan and revolver under the
      credit facility, if the Company met certain conditions. Effective August 1,
      2005, the Company and Comerica agreed to extend the maturity date of the
      revolver under the credit facility to September 1, 2005. However, the maturity
      date has not been further extended and the loan balances remain in default.
      The
      Company and Comerica have been negotiating an extension of the forbearance
      agreement from September 1, 2005 through June 30, 2006. If an extension is
      agreed upon, management of the Company intends to attempt to negotiate an
      amendment to the credit facility in order to further extend the facility under
      terms with which the Company can comply with going forward. However, there
      can
      be no assurance that the Company will get an extension of the forbearance
      agreement and/or amendments to the credit facility.




Comerica
      may force immediate repayment of amounts due under the credit facility and
      invoke penalty interest (up to three percentage points or approximately $114,000
      annually) at the lender’s discretion. Since the Company had not been notified
      that it would be charged penalty interest, it was not required to accrue any
      as
      of June 30, 2005.




Unless
      the Company can negotiate an extension of the forbearance agreement and/or
      amendments to the credit facility as discussed above, and it can resolve its
      default under the promissory note with Jaco, and management cannot assure that
      the Company will be able to obtain such an extension, amendment or resolution,
      the Company’s operating results and cash flows will not be adequate to enable it
      to pay the balance due at or subsequent to June 30, 2005 unless it can obtain
      an
      alternate credit facility and/or additional financing. Such matters raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The consolidated financial statements do not include any adjustments related
      to
      the recoverability and classification of assets or the amount and classification
      of liabilities that might result from the outcome of this
      uncertainty.




There
      can
      be no assurances that the Company will be able to extend the forbearance
      agreement under the credit facility, amend the credit facility, obtain a waiver
      from Jaco of the promissory note, or obtain any additional funds under the
      SPA,
      and the costs of a forbearance agreement, a new credit facility or obtaining
      any
      other capital may be higher than its current costs.




On
      November 10, 2005 Sagamore Holdings entered into a Securities Purchase Agreement
      (the “SPA”) with CSI Business Finance, Inc. (“CSI Finance”), a new investor,
      which provides for the sale of up to $1,250,000 of Secured Convertible
      Debentures that will be convertible into common shares of Sagamore Holdings.
      The
      SPA will expire on October 31, 2006. In addition to the SPA, Sagamore Holdings
      and CSI Finance entered into ancillary agreements covering CSI’s registration
      rights for the underlying common stock, and security for any amount loaned.
      All
      assets of Sagamore Holdings will be pledged under this agreement. At the date
      of
      the agreement, and at January 22, 2006, the only assets owned by Sagamore
      Holdings were its shares of Nexus, its wholly owned operating subsidiary and,
      accordingly, the assets of Nexus will comprise the primary source for any amount
      loaned.




On
      March
      10, 2006, CSI Finance assigned its interest in the Secured Convertible
      Debentures to the Series A preferred stockholder. As of March 10, 2006, CSI
      Finance had acquired $743,285 of such debentures pursuant to the
      SPA.




The
      following are the principal terms of the Secured Convertible
      Debentures:




·
            They
                mature on October 31, 2006.




·
            Interest
                is payable monthly at 12% annual
                rate.




·
            Monthly
                principal payments begin on the earlier of (a) one month from the
                date of
                the registration of the underlying common shares is declared effective,
                or
                (b) five months from the date of sale.




·
            Monthly
                payments are equal to the outstanding balance divided by the remaining
                number of months to the maturity
                date.




·
            They
                are convertible into common shares at the option of CSI Finance at
                a
                conversion rate of $ 0.025 per
                share.




24




·
            They
                are redeemable at the option of Sagamore Holdings at face value plus
                a 20%
                premium above the market value of the underlying shares common stock
                if
                the market value is greater than the conversion
                price.




·
            The
                Company must seek the consent of the holder if it wishes to sell
                any
                additional shares of capital stock or grant any additional security
                interests in its assets.




Subsequent
      to the commencement of the SPA, the ancillary agreements and the sale of the
      Secured Convertible Debentures discussed above, the Company has not complied
      with several provisions of these agreements and was thus in default as of April
      11, 2006. The Company has not paid interest, it has not timely filed the
      registration statement for the underlying securities, it is not current in
      its
      filing of its tax returns and it remains in default under the terms of its
      bank
      credit facility. Accordingly, CSI Finance could force the immediate repayment
      of
      the Secured Convertible Debentures.




On
      November 11, 2005, another new investor, Corporate Strategies Inc. (“Corporate
      Strategies”), an affiliate of the first new investor, entered into a stock
      purchase agreement pursuant to which it purchased 70,600,000 shares of Sagamore
      Holdings’ common stock from previous holders. Such shares represented
      approximately 70% of the total outstanding shares of common stock as of the
      date
      of said agreement, which resulted in a change in control of Sagamore Holdings
      and an event of default as defined in the loan agreement with Comerica. Mr.
      Timothy J. Connolly is the Chief Executive Officer of CSI Finance and Corporate
      Strategies. As of January 22, 2006, Sagamore Holdings had sold $655,263 of
      Secured Convertible Debentures to the new investor. However, as of that date,
      the Company was in default under the terms of the Secured Convertible Debentures
      and the Company may not be able to obtain any additional funding under the
      SPA.
      The Company has no other agreements in place other than the SPA providing for
      additional debt or equity financing for the Company.




Notwithstanding
      the effective registration statement and agreement to sell the debentures,
      there
      can be no assurances that the Company will be able to raise any additional
      capital in the private or public equity markets, or under the Securities
      Purchase Agreement. If the Company is unable to amend and renew the credit
      facility, obtain a waiver under the promissory note with Jaco, or if it cannot
      complete all of its obligations to fully realize the potential funds available
      under the Securities Purchase Agreement, the Company plans on attempting to
      replace its credit facility with a loan from a different lender, and attempt
      to
      raise other capital. There are no assurances that it will be able to do so,
      and
      if it does, the cost of such new credit facility or other capital may be higher
      than its current costs. If the Company cannot accomplish the above mentioned
      amendment and renewal or replacement of a credit facility, a waiver on the
      promissory note, and completion of its closing obligations under the Securities
      Purchase Agreement, it would have to examine other strategic alternatives,
      including raising capital in the public or private debt and equity markets,
      or a
      possible sale or liquidation of its business.




**Our
      Company Faces Inventory Obsolescence and Slow Moving Inventory, Which May Have
      A
      Material Adverse Affect On Our Business**




The
      Company purchases raw materials specified in the material requirements to
      manufacture products that customers order. If a customer cancels an order,
      and
      materials cannot be returned to suppliers, nor used on other products, the
      inventory may need to be adjusted downward in the financial statements or
      written off. Prior to its acquisition by the Company, Nexus had never prepared
      financial statements that had been audited. As a result of the preparation
      of
      the financial statements of Nexus and the related audits for the period from
      July 1, 2004 through October 3, 2004 and the years ended June 30, 2004 and
      2003,
      which were done in connection with and at the time of the Company's acquisition
      and the filing of its initial registration statement, Sagamore determined that
      Nexus purchased customized component parts that were included in raw material
      inventory that arose from customer orders that were subsequently replaced or
      cancelled prior to July 1, 2002. These materials could not be returned to
      suppliers, nor used in connection with orders from other customers. As a result,
      Nexus effectively recorded obsolescence charges of approximately $2,000,000
      prior to July 1, 2002.




The
      Company has adopted procedures currently to periodically perform an in depth
      review of its inventory to determine if adjustments are required to its carrying
      value for accounting purposes. The Company recorded an obsolescence and slow
      moving inventory reserve of $913,777 in Fiscal 2005 as the result of reduction
      of sales, cancelled purchase orders and technical obsolescence.




**We
      Have A Limited Operating History Upon Which You Can Evaluate Our
      Business**




Sagamore
      Holdings was formed on August 30, 2004 to acquire substantially all of the
      assets of Nexus. The only activities of Sagamore Holdings during the period
      from
      September 15, 2004 (date of capitalization) to October 3, 2004 consisted of
      arranging the financing for and acquiring Nexus. In addition, management of
      Sagamore Holdings has no history of operating an electronic contract
      manufacturing business. Although the Company has entered into employment
      agreements with three executives, one of whom was responsible for managing
      the
      operations of Nexus prior to its acquisition and is still employed by Nexus,
      we
      cannot assure that we will be able to successfully manage the acquired
      business.




25




**Our
      Credit Facility Contains Covenants That Restrict Our Operations And May Inhibit
      Our Ability To Grow Our Business And Increase Revenues**




Our
      credit facility contains restrictions and covenants that, among other things,
      require us to satisfy financial, asset quality and loan performance tests.
      If we
      fail to satisfy any of these covenants, we would be in default under these
      agreements and our lenders could elect to declare all amounts outstanding under
      the agreements to be immediately due and payable, enforce their interests
      against collateral pledged under these agreements and restrict our ability
      to
      make additional borrowings. These agreements also contain cross-default
      provisions, so that if a default occurs under any one agreement, the lenders
      under our other agreements could also declare a default.




The
      covenants and restrictions in our credit facility may restrict our ability
      to,
      among other things: finance loans, which do not have specified attributes;
      reduce our liquidity below minimum levels; and hold loans for longer than
      established time periods.




These
      restrictions may interfere with our ability to enter into other financing
      arrangements or to engage in other business activities, which may harm our
      business.




**Our
      Business May Suffer If The Networking And Telecommunications Markets Of The
      Electronics Industry Fail To Grow And Evolve.**




Our
      customer base has historically been concentrated in a limited number of markets
      within the electronics industry. Several customers have recently indicated
      the
      possibility of an economic downturn in their industries, including the
      networking and telecommunications market. Developments adverse to these industry
      segments could materially and negatively impact us. These industry segments,
      and
      the electronics industry as a whole, experience:




·
            interest
                competition;




·
            rapid
                technological changes resulting in short product life-cycles and
                consequent product obsolescence;




·
            significant
                fluctuations in product demand;




·
            economic
                cycles, including recessionary periods; and
                consolidation.




If
      these
      events occur, our business may be negatively impacted.




**The
      Company May Have To Pay $500,000 As A Working Capital Adjustment Pursuant to
      The
      Asset Purchase Agreement With The Former Parent of Nexus, Which Could Have
      A
      Material Adverse Effect On Our Business and Operations.**




The
      Asset
      Purchase Agreement entered into on September 20, 2004, whereby the Company
      purchased substantially all of the assets of Nexus, contains a Net Working
      Capital Adjustment (defined as a dollar-for-dollar adjustment to the purchase
      price, up to a maximum of $500,000, to the extent the net working capital as
      of
      the closing date, as determined by a post-closing review, is different from
      $7,331,000 by more than $200,000). On November 19, 2004, the Company received
      a
      Net Working Capital Statement from Jaco Electronics, Inc., the former parent
      of
      Nexus, whereby Jaco stated that it had a claim in the amount of $500,000 as
      an
      adjustment to the purchase price, pursuant to the Asset Purchase Agreement.
      Subsequently, Nexus provided Jaco with its Net Working Capital Statement, which
      revealed that Nexus had a claim against Jaco in the amount of $500,000 as an
      adjustment to the purchase price. The Asset Purchase Agreement contains an
      arbitration provision, whereby all disputes related to the Net Working Capital
      Adjustment must be arbitrated. The parties are currently attempting to settle
      this issue. However, it is likely that arbitration before an agreeable
      accounting firm will occur. There is a chance that the Company may be
      unsuccessful. If the Company is unsuccessful on the merits, this would have
      a
      material adverse effect on our working capital.




26




**We
      Are Dependent On Our Suppliers. If One Or More Of Our Largest Suppliers Chooses
      Not To Sell Products To Us, Our Operating Results Could
      Suffer**




We
      rely
      on our suppliers for products, which generate a significant portion of our
      sales. Substantially all of our inventory has and will be purchased from
      suppliers with which we have entered into non-exclusive distributor agreements,
      which are typically cancelable on short notice. Our future success will depend
      in large part on maintaining relationships with existing suppliers and
      developing relationships with new ones. One of our suppliers is Jaco, with
      whom
      we have entered into a supply agreement, which they may terminate at any time.
      The customer/supplier relationship with Jaco has not been affected to this
      point
      by the dispute over the net working capital adjustment. Prior to the acquisition
      on October 3, 2004, Nexus was a wholly-owned subsidiary of Jaco. Jaco's
      percentage of total material purchases for Nexus, which Nexus was a subsidiary
      of Jaco prior to the acquisition, for Fiscal Year 2003 and 2004 were 4.7% and
      5.8%, respectively. For Fiscal 2005, Jaco’s purchases of materials for Nexus
      were 6.6%. Although the components we purchase from Jaco are typically available
      from other distributors, the termination of the relationship may create the
      possibility of a harmful effect on operations for a particular fiscal period
      due
      to revenue shortfalls from incomplete or late shipments.




**We
      Do Not Have Long-Term Contracts With Our Customers And, As A Result, Our
      Customers May Be Able To Cancel, Reduce Or Delay Their Orders Without Penalty
      Which Would Adversely Affect Our Revenue**




We
      typically do not obtain long-term purchase orders or commitments but instead
      work with our customers to develop nonbinding forecasts of the future volume
      of
      orders. A variety of conditions, both specific to each individual customer
      and
      generally affecting each customer's industry, may cause our customers to cancel,
      reduce or delay orders that were either previously made or anticipated.
      Generally, our customers may cancel, reduce or delay purchase orders and
      commitments without penalty. Significant or numerous cancellations, reductions
      or delays in orders by customers, or any inability by customers to pay for
      our
      products could have a material adverse effect on our operating results. For
      example, in the fiscal year ended June 30, 2002, when Nexus was a subsidiary
      of
      Jaco, the business experienced a 58% reduction in revenue when several key
      customers cancelled, reduced and delayed orders due to the economic downturn
      during that period. When Nexus was a subsidiary of Jaco, sales decreased from
      $7.0 million in the first quarter of 2002 to $4.2 million in the second quarter
      of 2002 to $2.9 million in the third quarter of 2002. The Company did not
      substantially recover from this situation until the Fiscal 2004
      period.




**The
      Products We Manufacture May Have To Conform To RoHS (Restriction For Use Of
      Hazardous Substances) By July of 2006, Which Could Result In Inventory
      Obsolescence And Capital Equipment Investment**




We
      manufacture products that our customers may ship to Europe or Asia. The movement
      to lead-free (Pb) products is driven by environmental concern legislation in
      Europe and Asia. Key European legislation drivers include EC requirements for
      lead elimination, RoHS. These requirements may render some of our inventory
      obsolete, as well as potentially increase the pricing for raw materials
      significantly, which will have an impact on sales and gross profit margin.
      Also,
      the change in soldering technologies may require new soldering equipment and
      processes. The acquisition and implementation of new equipment and processes
      may
      require significant expense or capital investment. Additionally, some electronic
      components may not be available as lead-free in time for conformance to the
      new
      regulations. These regulations could have a negative impact on sales and gross
      profit margins, unless our suppliers and customers, as well as the Company
      are
      able to conform. At this time, we do not know the percentage of products that
      our customers purchase from us which are shipped to Europe or Asia, so we cannot
      precisely estimate the effect of this situation on future revenue, inventory
      obsolescence or capital equipment investment requirements.




**We
      May Be Subject To Financial Risks Associated With New Customers, Which Could
      Result in the Non-Payment**




If
      we
      broaden our customer base, the Company will enter into relationships with new
      customers, who will not have a proven credit history with us. Therefore, there
      is potential for procuring inventory and shipment of product for which there
      is
      risk of non-payment. Collection problems with new customers would affect our
      revenue and profitability.




**We
      Are Dependent On Foreign Manufacturers And Subject To Trade Regulations Which
      Expose Us To Political And Economic Risk**




Foreign
      manufacturers manufacture a significant number of components sold by us. As
      a
      result, our ability to sell certain products at competitive prices, could be
      adversely affected by the following:




27


·
              increase
                  in tariffs or duties;




·
            changes
                in trade treaties;




·
            currency
                fluctuations;




·
            strikes
                or delays in air or sea transportation;
                and




·
            future
                United States legislation with respect to pricing and/or import quotas
                on
                products imported from foreign
                countries.




Our
      ability to be competitive with respect to sales of imported components could
      also be affected by other governmental actions and policy changes relating
      to,
      among other things, anti-dumping and other international antitrust legislation
      and adverse currency fluctuations which could have the effect of making
      components manufactured abroad more expensive. Because we purchase products
      from
      United States subsidiaries or affiliates of foreign manufacturers, our purchases
      are paid for in U.S. dollars, which usually reduces or eliminates the potential
      adverse effects of currency fluctuations. However, such factors could materially
      adversely affect our business in the future.




**Our
      Industry Is Subject To Supply Shortages. Any Delay Or Inability To Obtain
      Components May Have An Adverse Effect On Our Operating
      Results**




For
      the
      most part, electronic components are readily available; but on occasion there
      are market conditions, which cause availability of components to extend beyond
      normal lead times. During these times, there have been shortages of components,
      such as semi-conductor devices, capacitors and resistors that have been subject
      to limited allocation by some of our suppliers. Component shortages could have
      an adverse effect on business due to the potential for an increase in our cost
      of goods from premium charges we may pay to purchase components in short supply.
      There is also the possibility of a harmful effect on operations for a particular
      fiscal period due to revenue shortfalls from incomplete or late shipments.
      Although component shortages have not impacted on our business to date, the
      possibility exists that this situation could also damage customer relationships
      if shortages were to extend to a longer-term period.




**The
      Prices Of Our Components Are Subject To Volatility And Therefore Our Profit
      Margins May Be Negatively Impacted Or Difficult to Predict**




We
      sell a
      significant amount of products that have historically experienced volatile
      pricing. If market pricing for these products decreases significantly, we may
      experience periods when our investment in inventory exceeds the market price
      of
      such products. These market conditions could have a negative impact on sales
      and
      gross profit margins unless and until our suppliers reduce the cost of these
      products. It also may cause us difficulty in accurately predicting our gross
      profit margins.




**We
      Are Dependent On Key Customers And The Loss Of Any Of These Customers Could
      Have
      A Material Adverse Affect On Our Business**




Currently,
      we have three key customers, GSI Lumonics, Frequency Electronics, and S-TEC.
      Sales to these three customers accounted for 70% of our sales. We do not have
      long-term purchase orders or commitments with this customer. This exposes us
      to
      various risks. If this customer were to discontinue doing business with us,
      we
      would have difficulties in replacing the revenues produced by this customer
      and
      our operations would be negatively affected. Another risk is that our business
      reputation would be negatively affected if this customer were to discontinue
      our
      business relationship. In the event that we experience difficulties with this
      customer, we could be forced to curtail or cease our business
      operations.




**Our
      Industry Is Highly Competitive And Competition Could Harm Our Ability To Sell
      Our Products And Services And Thereby Reduce Our Market
      Share**




The
      electronics contract manufacturing industry is highly fragmented and is
      characterized by relatively high levels of volatility, competition and pricing
      and margin pressure. Many large contract manufacturers operate high-volume
      facilities and primarily focus on high-volume product runs. In contrast, we
      focus on low-to-medium volume and service-intensive products. We compete against
      numerous domestic and offshore manufacturers, as well as the in-house
      manufacturing capabilities of our existing and potential customers.




Many
      of
      such competitors have greater name recognition and financial and other resources
      than we do. In addition, regional competitiveness is an issue that Nexus faces,
      as Nexus finds it difficult to compete in the western region of the United
      States. Further, competition is highly concentrated in the northeast region
      of
      the United States, with more than 250 contract manufacturers located in the
      same
      area as Nexus. We may not be able to continue to compete successfully with
      existing or new competitors and failure to do so could have a material adverse
      effect on our operating results.




28




**We
      May Not Be Able To Maintain Our Technological And Manufacturing Process
      Expertise, Which Would Harm Our Business**




The
      markets for our manufacturing services are characterized by rapidly changing
      technology and evolving process development. The continued success of our
      business will depend upon our ability to:




·
            maintain
                and enhance our technological
                capabilities;




·
            develop
                and market manufacturing services which meet changing customer needs;
                and




·
              successfully
                  anticipate or respond to technological changes in manufacturing
                  processes
                  on a cost-effective and timely
                  basis.




We
      cannot
      be certain that we will develop capabilities required by our customers in the
      future. Also, the emergence of new technologies, industry standards or customer
      requirements may render our equipment, inventory or processes obsolete or
      noncompetitive. In addition, we may have to acquire new assembly and testing
      technologies and equipment to remain competitive. The acquisition and
      implementation of new technologies and equipment may require significant expense
      or capital investment. Our failure to anticipate and adapt to our customers'
      changing technological needs and requirements would have an adverse effect
      on
      our business.




**Products
      We Manufacture May Contain Design Or Manufacturing Defects Which Could Result
      In
      Reduced Demand For Our Services And Liability**  **Claims
      Against Us**




We
      manufacture products to our customers' specifications, which are highly complex
      and may at times contain design or manufacturing errors or failures. Design
      defects have not materially affected our financial condition or operations
      in
      the past, however, design defects have been discovered in products we
      manufactured and, despite our quality control and quality assurance efforts,
      defects may occur in the future. Defects in the products we manufacture, whether
      caused by a design, manufacturing or component failure or error, may result
      in
      delayed shipments to customers or reduced or cancelled customer orders. If
      these
      defects occur in large quantities or too frequently, our business reputation
      may
      also be impaired. In addition, these defects may result in liability claims
      against us.




**We
      Depend On The Continued Services Of Our Executive Officers And The Loss Of
      Key
      Personnel Could Affect Our Ability To Successfully Grow Our
      Business.**




We
      are
      highly dependent upon the services of Daniel Shea, the President of Nexus and
      Chief Executive Officer of Sagamore Holdings. The permanent loss for any reason
      of Daniel Shea or one or more of our other key executives, could have a material
      adverse effect upon our operating results. Mr. Shea has entered into an
      employment agreement with Nexus. We may not be able to locate suitable
      replacements for our executives if their services were lost. We do not maintain
      key man life insurance on any of these individuals. Our future success will
      also
      depend, in part, upon our continuing ability to attract and retain highly
      qualified personnel.




**We
      Depend On Third-Party Financing Sources, Which If Unavailable To Us In The
      Future Could Harm Our Business**




Any
      failure to renew or obtain adequate funding under a line of credit or other
      financing arrangements, or any reduction in the size of, or increase in the
      cost
      of, these types of facilities, could harm our business.




During
      volatile times in the capital markets, our access to and other financing may
      be
      severely limited. If we are unable to maintain adequate financing and other
      sources of capital are not available, we would be forced to suspend or curtail
      our operations, which would harm our business.




**Our
      Stockholders May Experience Significant Dilution If Future Equity Offerings
      Are
      Used To Fund Operations Or Acquire Businesses**




29


If
      working capital or future acquisitions are financed through the issuance of
      equity securities, Sagamore Holdings stockholders could experience significant
      dilution. In addition, securities issued in connection with future financing
      activities or potential acquisitions may have rights and preferences senior
      to
      the rights and preferences of the Sagamore Holdings common stock.




**Risks
      Related To Our Capital Structure**




**If
      A Public Market Develops For Our Common Stock, The Series A Convertible
      Preferred Stock May Be Convertible Into A Significantly Higher Number Of Shares
      Of Common Stock Than 6,000,000, Causing Additional Dilution To Existing
      Shareholders**




Based
      on
      the conversion feature contained in the Series A Convertible Preferred Stock,
      if
      a public market develops for the Company's common stock, the market price may
      be
      at a price lower than $1.00. Therefore, the Series A Convertible Preferred
      Stock
      may convert into significantly more than 6,000,000 shares of common stock.
      If
      the conversion price of Sagamore Holdings' common stock is $1.00, the Series
      A
      Convertible Preferred Stock will collectively convert into 6,000,000 shares
      of
      common stock, which will have a significant dilutive impact on your holdings.




**Currently
      No Public Market Exists For Our Common Stock, Which Causes Our Shares To Be
      Illiquid Until A Public Market Is Established**




There
      is
      currently no public market for our common stock and a public market for our
      common stock may not develop. Without a public market, shareholders may have
      difficulty selling their shares of common stock. If a public market does develop
      for our common stock, shareholders may still have difficulty selling their
      shares. The Company may be unsuccessful in obtaining an approval for trading
      on
      the Over-the-Counter Bulletin Board. In addition, even if the Company's common
      stock is approved for trading on the Over-the-Counter Bulletin Board, the
      Over-the-Counter Bulletin Board is characterized by low trading volume, thus
      this may provide a limited liquidity into the market for our shares. As a result
      of the foregoing, our shareholders may be unable to liquidate their shares.
      If A
      Public Market Develops For Our Common Stock, Our Common Stock Will Likely Be
      Deemed To Be "Penny Stock," Which May Make It More Difficult For Investors
      To
      Sell Their Shares Due To Suitability Requirements.




If
      a
      public market develops for our common stock, our common stock may be deemed
      to
      be "penny stock" as that term is defined in Rule 3a51-1 promulgated under the
      Securities Exchange Act of 1934. Penny stocks are stocks:




·
            With
                a price of less than $5.00 per
                share;




·
            That
                are not traded on a "recognized" national
                exchange;




·
            Whose
                prices are not quoted on the Nasdaq automated quotation
                system;




·
            Nasdaq
                stocks that trade below $5.00 per share are deemed a "penny stock"
                for
                purposes of Section 15(b)(6) of the Exchange
                Act;




·
            In
                issuers with net tangible assets less than $2.0 million (if the issuer
                has
                been in continuous operation for at least three years) or $5.0 million
                (if
                in continuous operation for less than three years), or with average
                revenues of less than $6.0 million for the last three
                years.




Broker/dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker/dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. If these requirements are applicable,
      they may reduce the potential market for our common stock by reducing the number
      of potential investors. This may make it more difficult for investors in our
      common stock to sell shares to third parties or to otherwise dispose of them.
      This could cause our stock price to decline.




**ITEM
      7. FINANCIAL STATEMENTS**




Our
      consolidated financial statements appear beginning at page F-1.




30




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




None.




**ITEM
      8A. CONTROLS AND PROCEDURES**




A)
      EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. As of June 30, 2005, the
      Company's management carried out an evaluation, under the supervision of the
      Company's Chief Executive Officer (who is also the Chief Financial Officer)
      of
      the effectiveness of the design and operation of the Company's system of
      disclosure controls and procedures pursuant to the Securities and Exchange
      Act,
      Rule 13a-15(e) and 15d-15(e) under the Exchange Act). Based upon that
      evaluation, the Chief Executive Officer  concluded
      that the Company's disclosure controls and procedures were not effective, as
      of
      the date of his evaluation, for the purposes of recording, processing,
      summarizing and timely reporting of material information required to be
      disclosed in reports filed by the Company under the Securities Exchange Act
      of
      1934.




B)
      CHANGES IN INTERNAL CONTROLS. There were no changes in internal controls over
      financial reporting that occurred during the three months ended June 30, 2005
      that have materially affected, or are reasonably likely to materially effect,
      our internal control over financial reporting.




**MATERIAL
      WEAKNESSES IN DISCLOSURE CONTROLS AND PROCEDURES OR INTERNAL CONTROLS**




Management’s
      Report on Internal Controls over Financial Reporting.




Management
      of the Company is responsible for establishing and maintaining adequate internal
      control over financial reporting, as defined in Rules 13a-15(e) and 15d-15(e)
      under the Exchange Act of 1934. Internal control over financial reporting is
      designed to provide reasonable assurance to the Company’s Management and Board
      of Directors regarding the preparation of reliable financial statements for
      external purposes in accordance with accounting principles generally accepted
      in
      the United States of America. Due to its inherent limitations, internal control
      over financial reporting, no matter how well designed, may not prevent or detect
      misstatements. Furthermore, projections of any evaluation of effectiveness
      to
      future periods are subject to the risk that controls may become inadequate
      due
      to changing conditions or deterioration in compliance with the policies or
      procedures.




**Material
      Weaknesses Identified**




During
      our preparation of our Form 10-KSB financial statements for the period from
      September 15, 2004 ( date of capitalization) through June 30, 2005, we
      identified certain material weaknesses. As defined by the Public Company
      Accounting Oversight Board Auditing Standard No. 2, a material weakness is
      a
      significant control deficiency or a combination of significant control
      deficiencies that result in there being more than a remote likelihood that
      a
      material misstatement in the annual or interim financial statements will not
      be
      prevented or detected. These deficiencies and issues include:




·
            Accounting
                and Finance Personnel Weaknesses - The Company had insufficient resources
                to perform the accounting and financial reporting functions and such
                resources lacked the appropriate level of accounting knowledge, experience
                and training in the application of accounting principles generally
                accepted in the United States of America.




·
            Financial
                reporting process including footnote disclosure requirements - Our
                independent registered public accounting firm identified that our
                Form
                10-KSB, was missing some of the disclosures required under generally
                accepted accounting principles. These deficiencies impacted the timeliness
                and accuracy of financial reporting. Management prior to the issuance
                of
                the Form 10-KSB corrected the effects of these deficiencies. Our
                disclosure control over financial reporting did not detect these
                matters
                and therefore was not effective at detecting these disclosure deficiencies
                in the financial statements.




·
            Purchase
                Accounting - The Company did not have sufficient personnel with adequate
                knowledge regarding accounting for the acquisition, the purchase
                price
                valuation used to acquired intangible assets and the technical accounting
                and reporting issues related to purchase accounting matters.




31




·
            Goodwill
                and Other Identifiable Intangible Assets. The Company did not have
                sufficient personnel with adequate knowledge regarding its assessment
                of
                the impairment of goodwill and other identifiable intangible
                assets.





·
            Income
                Taxes - The Company did not have sufficient personnel with adequate
                knowledge regarding income taxes specifically the difference between
                the
                income tax basis and financial reporting basis of assets and liabilities.





The
      material weaknesses noted above in financial reporting process and closing
      process resulted in deficiencies in the processes and procedures within our
      accounting and financial reporting function contributed to delays in the
      completion and filing of our June 30, 2005 Form 10-KSB.




The
      effects of the aforementioned weaknesses related to the closing and preparation
      of the financial statements were corrected by management prior to the issuance
      of the Form 10-KSB.




**Remediation
      Plan regarding the Material Weaknesses**




Management
      is actively engaged in remediation efforts to address the material weaknesses
      identified in the Company’s internal control over financial reporting as of June
      30, 2005. These on-going remediation efforts, outlined below, are specifically
      designed to address the material weaknesses identified by Management and to
      improve and strengthen the Company’s overall control environment.




The
      Company has transformed from a small division in a larger public company to
      a
      stand-alone public company. It did not have sufficient internal resources to
      perform the accounting and financial reporting functions, nor did it have the
      expertise in the application of generally accepted accounting principles that
      are necessary as a public company. As a result of these deficiencies, the
      Company’s internally prepared financial statements were missing some of the
      disclosures required under generally accepted accounting principles. These
      deficiencies impacted the timeliness and accuracy of financial reporting. The
      effects of these deficiencies were corrected by management prior to the issuance
      of the June 30, 2005 Form 10-KSB, but this contributed to delays in the
      completion and filing of this Form 10- KSB.




The
      Company did obtain third party contract services periodically to supplement
      its
      internal resources, but even with continuing improvement, it is necessary to
      either obtain appropriate internal resources, or contract supplemental services
      on a regular ongoing basis.




The
      Company continues its efforts to remediate control weaknesses and further
      improve and strengthen its internal control over financial reporting under
      the
      direction of the Chief Executive Officer, who is also the Chief Financial
      Officer.




**ITEM
      9.**  **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**




**Directors
      And Executive Officers**




Our
      directors, executive officers and key employees as of January 16, 2006 are
      as
      follows:




**Name:**
            **Age:**
            **Position:**Daniel
                Shea
            51
            Chief
                Executive Officer, Acting Chief Financial Officer, Director and President
                of Nexus Custom Electronics Corp.




Daniel
      Shea, Chief Executive Officer, Acting Chief Financial Officer, Director and
      President of Nexus Custom Electronics Corp.




Mr.
      Shea
      has been Nexus' President since its inception in 2004. Mr. Shea is a graduate
      of
      the University of Hartford with a B.S. in Engineering. Mr. Shea served as
      President of Nexus Custom Electronics, Inc., since January 2003, prior to its
      acquisitions and was employed by Nexus Custom Electronics, Inc. for 17 years
      prior to becoming its President. Mr. Shea has been the Acting Chief Financial
      Officer of Sagamore Holdings since January 2005. Mr. Shea served as Nexus Custom
      Electronics' Operations Manager from July 1995 to January 2003. Mr. Shea served
      as Engineering Manager of Nexus Custom Electronics from November 1989 to July
      1995. Prior to joining Nexus, Mr. Shea held various engineering positions in
      the
      field of Electronics.




There
      are
      no family relationships among directors, executive officers or persons nominated
      to become directors of executive officers.




32




**Term
      Of Office**




All
      of
      our directors hold office until the next annual meeting of shareholders and
      until their successors have been elected and qualified. Our officers are elected
      by the board of directors at the first board of directors' meeting after each
      annual meeting of shareholders and hold office until their death, until they
      resign or until they have been removed from office.




**Director
      Compensation**




Directors
      received no type of compensation from our Company for serving as such. No
      arrangements are presently in place regarding compensation to directors for
      their services as directors or for committee participation or special
      assignments.




**Committees**




The
      entire Board of Directors of Sagamore Holdings administers our 2004 Stock
      Incentive Plan. Sagamore Holdings' Board of Directors serves as the audit
      committee. The Board of Directors does not have a "financial expert" due to
      the
      lack of capital needed to attract a qualified expert.




**Code
      Of Ethics**




On
      February 3, 2005, the Board of Directors adopted a written Code of Ethics
      designed to deter wrongdoing and promote honest and ethical conduct, full,
      fair
      and accurate disclosure, compliance with laws, prompt internal reporting and
      accountability to adherence to the Code of Ethics.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




Summary
      Compensation Table .
      The
      following summary compensation table shows certain compensation information
      for
      services rendered in all capacities for the fiscal year 2005. Other than as
      set
      forth herein, no executive officer's cash salary and bonus exceeded $100,000
      in
      any of the applicable years. The following information includes the dollar
      value
      of base salaries, bonus awards, the value of restricted shares issued in lieu
      of
      cash compensation and certain other compensation, if any, whether paid or
      deferred:




33




**SUMMARY
      COMPENSATION TABLE**




**Annual
                Compensation**
            **Long-Term
                Compensation****Awards**
            **Payouts****Name**
            **Principal
                Position**
            **Salary**
              **($)**
            **Bonus**
              **($)**
            **Other
                Annual Compensation**
              **($)**
            **Restricted
                Stock Award(s)**
              **(#)**
            **LTIP
                Payouts**
              **($)**
            **All
                Other Compensation**
              **($)**Daniel
                Shea
            Chief
                Executive Officer, Acting Chief Financial Officer, Director and President
                of Nexus
            $137,500*
            $
                --
            $
                --
            --
            $2,500,000
            $
                --Joseph
                W. Donohue, Jr.(1)
            Former
                Chairman of the Board of Sagamore Holdings
            $150,000*
            $
                --
            $
                --
            $
                --
            $
                --
            $
                --Robert
                P. Farrell(2)
            Former
                Chief Executive Officer and Director of Sagamore Holdings
            $150,000*
            $
                --
            $
                --
            $0(3)
            $
                --
            $
                --





(*)  Represents
      yearly salary.




(1)
            Mr.
                Donohue resigned from all positions he held with Sagamore effective
                November 10, 2005.




(2)
            Mr.
                Farrell resigned from all positions he held with Sagamore effective
                November 10, 2005.




(3)
            Each
                of Messrs Donohue and Farrell received 44,125,000 shares of common
                stock
                and 5,000,000 shares of Series B Convertible Preferred Stock. The
                shares
                had a nil value at issuance based on the liquidation preference of
                the
                Series A Convertible Preferred
                Stock.




In
      order
      to attract and retain certain key employees, the Company is considering adopting
      a retirement plan, which will supplement the current 401(k) plan for three
      to
      five senior executives. At this time, it is not certain what the final design
      will be, but the cost and expense once implemented, could be material to the
      financial statements.




**Employment
      Agreement**




Effective
      September 20, 2004, Nexus and Daniel Shea entered into a three year employment
      agreement. This agreement will be automatically extended for one-year periods
      unless terminated by Nexus with 90 days prior written notice before the end
      of
      the initial three-year term or any subsequent one-year term.




Mr.
      Shea's annual base salary is $137,500. Mr. Shea shall receive an annual monetary
      bonus, if any, as determined in the sole discretion of the Board of Directors.
      In addition, effective September 17, 2004 and of June 30, 2005, Sagamore
      Holdings and Mr. Shea entered into a Stock Option Agreement, whereby Mr. Shea
      was granted an option to purchase 5,000,000 shares of common stock of Sagamore
      Holdings at a price of $0.001 per share for a period of five years. Under his
      employment agreement, Daniel Shea is to be issued options equal to 2.5% of
      the
      outstanding common stock for each of the next two years.




In
      connection with the acquisition of Nexus Custom Electronics, Inc., Nexus and
      Joseph W. Donohue, Jr. entered into a three year employment agreement. This
      agreement will be automatically extended for one-year periods unless terminated
      by Sagamore Holdings with 90 days prior written notice before the end of the
      initial three-year term or any subsequent one-year term. Mr. Donohue's annual
      base salary is $150,000, which shall accrue and be payable in the event Sagamore
      Holdings has sufficient working capital. Mr. Donohue shall receive an annual
      monetary bonus, if any, as determined in the sole discretion of the Board of
      Directors. In connection with the November 11, 2005 Corporate Strategies stock
      purchase agreement, the employment agreement was terminated.




In
      connection with the acquisition of Nexus Custom Electronics, Inc., Nexus and
      Robert P. Farrell entered into a three year employment agreement. This agreement
      will be automatically extended for one-year periods unless terminated by
      Sagamore Holdings with 90 days prior written notice before the end of the
      initial three-year term or any subsequent one-year term. Mr. Farrell's annual
      base salary is $150,000, which shall accrue and be payable in the event Sagamore
      Holdings has sufficient working capital. Mr. Farrell shall receive an annual
      monetary bonus, if any, as determined in the sole discretion of the Board of
      Directors. In connection with the November 11, 2005 Corporate Strategies stock
      purchase agreement, the employment agreement was terminated.




34




**Options**




On
      September 17, 2004, Sagamore Holdings adopted a Stock Incentive
      Plan.




The
      total
      number of shares initially authorized to be issued upon exercise of Options
      issued under the Plan is 15,000,000 shares of common stock of Sagamore Holdings.
      The President of Nexus, Daniel Shea, is currently the only optionholder. Daniel
      Shea has a five-year option to purchase up to 5,000,000 shares of common stock,
      at an option price of $0.001, which were granted in two grants of 2,500,000
      each, assuming the options are not terminated in accordance with the provisions
      of the Stock Incentive Plan.




Under
      his
      employment agreement, Daniel Shea is to be issued options equal to 2.5% of
      the
      outstanding common stock for one more year.




Participants
      in the Plan shall be such key employees, consultants, and non-employee directors
      of Sagamore Holdings and its Subsidiaries. If the Committee grants Options
      to
      purchase common stock of Sagamore Holdings and the Plan Participants exercise
      their right to purchase, then the total percentage of common stock ownership
      of
      Sagamore Holdings represented by the previously issued and outstanding shares
      of
      common stock of Sagamore Holdings would be diluted and the market value of
      a
      share of common stock of Sagamore Holdings may fall. If the Participants
      exercise their right to sell those shares, the market value of a share of common
      stock of Sagamore Holdings may fall.




35




**OPTION/SAR
      GRANTS TABLE**


**Name**
              **No.
                  of Securities Underlying Options/SAR’s Granted
                  (2)**
              **%
                  Total Options Granted to Employees in year ended June 30,
                  2005**
                **(%)**
              **Exercise
                  Price**
                **($
                  per Share)**
              **Expiration
                  Date**Daniel
                  Shea
              2,500,000
              100%
              $0.001
              9/17/20092,500,000
              100%
              $0.001
              6/30/2010Chief
                  Executive Officer, Acting Chief Financial Officer and President
                  of
                  Nexus
 **Securities
          Authorized For Issuance under Equity Compensation
          Plan**




The
      following table sets forth the securities that have been authorized under equity
      compensation plans as of June 30, 2005.




Number
                of Securities to Be Issued Upon Exercise of Outstanding Options,
                Warrants
                and Rights
            
            Weighted-Average
                Exercise price of Outstanding Options, Warrants and Rights
            
            Under
                Equity Compensation Plans (Excluding Securities Reflected in Column
                (a))Equity
                compensation plans approved by security holders
            
            5,000,000
            
            $0.001
            
            5,000,000Equity
                compensation plans not approved by security holders
            
            0
            
            $0
            
            0TOTAL
            
            5,000,000
            
            $0.001
            
            5,000,000




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




**Security
      Ownership Of Certain Beneficial Owners And Management**




The
      following table sets forth information regarding the beneficial ownership of
      our
      shares of common stock on January 16, 2006 by (i) each person known by us to
      be
      the beneficial owner of more than 5% of our outstanding shares of common stock,
      (ii) each of our directors, (iii) our executive officers, and (iv) by all of
      our
      directors and executive officers as a group. The business address of each of
      the
      following persons is 402 Prospect Street, Brandon, Vermont 05733, unless
      otherwise indicated. Each person named in the table, has sole voting and
      investment power with respect to all shares shown as beneficially owned by
      such
      person, except as indicated in related footnotes.




36


**Name
                and Address of Beneficial Owner****(1)**
            **Title
                of Class**
            **Number
                of Shares Owned**
            **Percent
                Owned**Cornell
                Capital Partners, LP
            Common
            1,750,000
            1.723%101
                Hudson Street - Suite 3700
            Series
                A Convertible Preferred Stock
            6,000,000
                (2)
            100%Jersey
                City, New Jersey 07302Yorkville
                Advisors Management, LLC
            Common
            2,500,000
            2.46%101
                Hudson Street - Suite 3700Jersey
                City, New Jersey 07302 (3)(4)Mark
                Angelo
            Common
            4,250,000
            4.19%101
                Hudson Street - Suite 3700
            Series
                A Convertible Preferred Stock
            6,000,000
            100%Jersey
                City, New Jersey 07302 (3)Celerity
                Systems, Inc.
            Common
            7,500,000
            7.386%122
                Perimeter Park DriveKnoxville,
                Tennessee 37299Corporate
                Strategies Inc. (7)
            Common
            70,600,000
            69.53%109
                North Post Oak Lane, Suite 422Houston,
                TX 77024Robert
                Farrell (6)
            Common
            4,412,500
            4.34%Former
                Director and OfficerJoseph
                Donohue (6)
            Common
            4,412,500
            4.34%Former
                Director and OfficerDaniel
                Shea (5)
            Common
            5,010,000
            4.7%DIRECTORS
                AND OFFICERS AS A GROUP (1 person)
            
            5,010,000
            4.7%


____________________________________




(1)
            Applicable
                percentage of ownership is based on 101,540,000 shares of common
                stock
                outstanding as of January 16, 2006, together with securities exercisable
                or convertible into shares of common stock within 60 days of January
                16,
                2006, for each stockholder. Beneficial ownership is determined in
                accordance with the rules of the Commission and generally includes
                voting
                of investment power with respect to securities. Shares of common
                stock
                subject to securities exercisable or convertible into shares of common
                stock that are currently exercisable or exercisable within 60 days
                of
                January 16, 2006 are deemed to be beneficially owned by the person
                holding
                such securities for the purpose of computing the percentage ownership
                of
                such person, but are not treated as outstanding for the purpose of
                computing the percentage ownership of any other person. Note that
                affiliated are subject to Rule 144 and Insider trading regulations
                -
                percentage computation is for form purposes
                only.




(2)
            The
                conversion of the 6,000,000 shares of Series A Convertible Preferred
                Stock
                owned by Cornell Capital Partners, LP taking into consideration the
                4.99%
                ownership limitation and the 1,750,000 shares of common stock already
                owned by Cornell Capital Partners, LP would equal
                5,241,049.




(3)
            This
                figure includes the shares of common stock held of record by Cornell
                Capital Partners, LP and Yorkville Advisors Management, LLC, the
                controlling owner of each being Mr.
                Angelo.




(4)
            Yorkville
                Advisors Management, LLC is an entity under common control with Cornell
                Capital Partner and its shares may be aggregated with Cornell Capital
                Partners, LP's shares for purposes of determining beneficial
                ownership.




(5)
            Includes
                5,000,000 shares of common stock underlying options and 10,000 shares
                of
                common stock.




(6)
            On
                November 10, 2005, the Company entered into a Mutual Release and
                Indemnification Agreements with Robert Farrell and Joseph Donohue,
                respectively. Mr. Donohue was the Chairman of the Board of Directors
                of
                the Company and Mr. Farrell was the Chief Executive Officer and a
                Director
                of the Company. Pursuant to the agreements, each of Messrs. Donohue
                and
                Farrell returned 4,412,500 shares of common stock of the
                Company.




(7)
            On
                November 11, 2005, Corporate Strategies Inc. entered into a stock
                purchase
                agreement pursuant to which it purchased seventy million six hundred
                thousand (70,600,000) shares of the Company’s common stock from Robert
                Farrell and Joseph Donohue,
                respectively.




37




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




None
      of
      our officers or directors, nor any proposed nominee for election as a director,
      nor any person who beneficially owns, directly or indirectly, shares carrying
      more than 5% of the voting rights attached to all of our outstanding shares,
      nor
      any promoter, nor any relative or spouse of any of the foregoing persons has
      any
      material interest, direct or indirect, in any transaction since our
      incorporation or in any presently proposed transaction which, in either case,
      has or will materially affect us, except as stated below.




Messrs.
      Donohue and Farrell were former owners in Yorkville Advisors, LLC, the general
      partner of Cornell Capital Partners, LP. While Messers. Donohue and Farrell
      have
      no existing relationship with Cornell Capital Partners, LP, Messers. Donohue
      and
      Farrell have a residual interest with Cornell Capital Partners, LP in a pending
      lawsuit with an unrelated third party. The Company has entered into the
      following transactions with Cornell Capital Partners, LP, which were
      transactions based on terms comparable to terms that the Company could obtain
      from independent third parties.




On
      September 15, 2004, Sagamore Holdings entered into an Investment Agreement
      with
      Cornell Capital Partners, LP. Pursuant to the Investment Agreement, Cornell
      Capital Partners, LP received 6,000,000 shares of Series A Convertible Preferred
      Stock of the Company in exchange for gross proceeds of $6,000,000. Each share
      of
      Series A Convertible Preferred Stock, at the option of the holder, is
      convertible into such number of common stock as determined by dividing (a)
      the
      sum of (i) the amount due to the holder upon liquidation, plus (ii) all accrued
      but unpaid dividends thereon, by (b) the "Conversion Price" then in effect.
      The
      Conversion Price shall be equal to either (a) $1.00 per share (which shall
      be
      adjusted in the event of a subdivision or combination of shares), or (b) 80%
      of
      the average of the lowest closing bid price of the common stock during the
      five
      trading days immediately preceding the date of conversion, assuming a public
      market exists for shares of common stock, whichever is lower.




In
      connection with the acquisition of Nexus Custom Electronics, Inc., Nexus and
      Joseph W. Donohue, Jr. entered into a three year employment
      agreement.




This
      agreement will be automatically extended for one-year periods unless terminated
      by Sagamore Holdings with 90 days prior written notice before the end of the
      initial three-year term or any subsequent one-year term. Mr. Donohue's annual
      base salary is $150,000, which shall accrue and be payable in the event Sagamore
      Holdings has sufficient working capital. Mr. Donohue shall receive an annual
      monetary bonus, if any, as determined in the sole discretion of the Board of
      Directors.




In
      connection with the acquisition of Nexus Custom Electronics, Inc., Nexus and
      Robert P. Farrell entered into a three year employment agreement. This agreement
      will be automatically extended for one-year periods unless terminated by
      Sagamore Holdings with 90 days prior written notice before the end of the
      initial three-year term or any subsequent one-year term. Mr. Farrell's annual
      base salary is $150,000, which shall accrue and be payable in the event Sagamore
      Holdings has sufficient working capital. Mr. Farrell shall receive an annual
      monetary bonus, if any, as determined in the sole discretion of the Board of
      Directors.




Cornell
      Capital Partners, LP has an approximately 40% ownership interest in Celerity
      Systems, Inc. As discussed above, we entered into a business development
      services agreement with Celerity Systems, Inc. and Celerity Systems, Inc. has
      a
      7.386% ownership interest in Sagamore Holdings.




On
      November 10, 2005, the Company entered into a Mutual Release and Indemnification
      Agreements with Robert Farrell and Joseph Donohue, respectively. Mr. Donohue
      was
      the Chairman of the Board of Directors of the Company and Mr. Farrell was the
      Chief Executive Officer and a Director of the Company. Pursuant to the
      agreements, each of Messrs. Donohue and Farrell returned 4,412,500 shares of
      common stock of the Company in exchange for a full release for Mr. Donohue
      and
      Mr. Farrell, respectively, by the Company of any claims, demands, actions,
      damages, lawsuits and obligations directly
      or indirectly related to Messrs. Donohue and Farrell serving as an employee,
      officer, director or promoter of the Company. In addition, each of Mr. Donohue
      and Mr. Farrell released the Company from all claims, demands, actions, damages,
      lawsuits and obligations directly or indirectly related to the Company’s
      obligations under Mr. Donohue’s and Mr. Farrell’s respective employment
      agreements.





In
      connection with the Securities Debenture Agreement, Mr. Tim Connolly is the
      Chief Executive Officer of C.S.I. Business Finance and Corporate Strategies,
      Inc.





38





**Item
      13.**  **Exhibits**




**(a)**  **Exhibits:**


**Exhibit
                  No.**
              **Description**
              
              **Location**3.1
              Articles
                  of Incorporation of Sagamore Holdings, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  20053.2
              Articles
                  of Amendment to the Articles of Incorporation of Sagamore Holdings,
                  Inc.
                  dated September 14, 2004
              
              Incorporated
                  23 by reference to the Company's Form SB-2 filed with the SEC on
                  February
                  14, 20053.3
              Articles
                  of Amendment to the Articles of Incorporation of Sagamore Holdings,
                  Inc.
                  dated September 17, 2004
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  20053.4
              Articles
                  of Incorporation of NECI Acquisition, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  20053.5
              Articles
                  of Amendment of Nexus Custom Electronics Corp.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  20053.6
              Bylaws
                  of Sagamore Holdings, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  20053.7
              Bylaws
                  of Nexus Custom Electronics Corp.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.1
              Credit
                  Agreement dated September 20, 2004 between Nexus Custom Electronics
                  Corp.
                  and Comerica Bank
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.2
              $5,000,000
                  Revolving Credit Note, executed by Nexus Custom Electronics Corp.
                  in favor
                  of Comerica Bank, dated September 20, 2004
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.3
              $1,200,000
                  Term Note, executed by Nexus Custom Form Electronics Corp. in favor
                  of
                  Comerica Bank, dated September 20, 2004
              
              Incorporated
                  by reference to the Company's SB-2 filed with the SEC on February
                  14,
                  200510.4
              Advance
                  Formula Agreement dated September 20, 2004 between Nexus Custom
                  Electronics Corp. and Comerica Bank
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.5
              Continuing
                  Collateral Mortgage dated September 20, between Nexus Custom
                  Electronics Corp. and Comerica Bank
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.6
              Security
                  Agreement dated September 20, 2004 between Nexus Custom Electronics
                  Corp.
                  and Comerica Bank
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.7
              2004
                  Stock Incentive Plan of Sagamore Holdings, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  2005
  39
  10.8
              Sagamore
                  Holdings, Inc. Form of Stock Option Agreement
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.9
              Employment
                  Agreement dated as of September 2004 between Nexus Custom Electronics
                  Corp. and Joseph W. Donohue, Jr.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.10
              Employment
                  Agreement dated as of September 2004 between Nexus Custom Electronics
                  Corp. and Robert P. Farrell
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.11
              Employment
                  Agreement dated as of September 2004 between Nexus Custom Electronics
                  Corp. and Daniel Shea
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.12
              Stock
                  Option Agreement dated as of September 2004 between Sagamore Holdings,
                  Inc. and Daniel Shea
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.13
              Business
                  Development Agreement dated September 20, 2004 between Sagamore
                  Holdings,
                  Inc. and Celerit Systems, Inc
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.14
              Asset
                  Purchase Agreement dated as of September 20, 2004, by and among
                  Nexus
                  Custom Electronics Corp, NECI Acquisition, Inc., Jaco Electronics,
                  Inc.
                  and Sagamore Holdings, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.15
              Promissory
                  Note dated September 20, 2004 and issued to Jaco Electronics, Inc.
                  by NECI
                  Acquisition, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.16
              Supply
                  Agreement among Jaco Electronics, Inc., NECI Acquisition, Inc.
                  and
                  Sagamore Holdings, Inc.
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.17
              Standby
                  Equity Distribution Agreement (as terminated) dated as of September
                  2004
                  between Sagamore Holdings and Cornell Capital Partners, LP
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  200510.18
              Amended
                  and Restated Termination Agreement related to the Standby Equity
                  Distribution Agreement dated as of September 2004 between Sagamore
                  Holdings and Cornell Capital Partners, LP
              
              Incorporated
                  by reference to the Company’s 8K filed with the SEC on November
                  23,2006.14.1
              Code
                  of Ethics
              
              Incorporated
                  by reference to the Company's Form SB-2 filed with the SEC on February
                  14,
                  2005




**(b)**  **Reports
      On Form 8-K: ITEM 14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




**For
                the Years**
              **Ended
                June 30,****2005**
            **2004**Audit
                Fees and Audit Related Fees (1)
            $274,275
            $165,800All
                Other Fees (2)
            $281,200
            -





40




(1)
            Audit
                Fees and Audit Related Fees consist principally of assurance and
                related
                services that are reasonably related to the performance of the audit
                or
                review of the Company’s financial statements.




(2)
            All
                Other Fees include review of the registration statement
                SB-2.




**SIGNATURES**




In
      accordance with the requirements of the Exchange Act, the registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly
      authorized.




Date:May
                ___, 2006
            
            **SAGAMORE
                HOLDINGS, INC.**By:Daniel
                SheaChief
                Executive Officer,Acting
                Chief Financial Officer andActing
                Principal Accounting Officer





41




**Report
      of Independent Registered Public Accounting Firm**





The
      Board
      of Directors and Stockholders


Sagamore
      Holdings, Inc.





We
      have
      audited the accompanying consolidated balance sheet of Sagamore Holdings, Inc.
      and Subsidiary as of June 30, 2005, and the related consolidated statements
      of
      operations, stockholders' deficiency and cash flows for the period from
      September 15, 2004 (date of capitalization) through June 30, 2005. These
      consolidated financial statements are the responsibility of the Company's
      management. Our responsibility is to express an opinion on these financial
      statements based on our audit.





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





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Sagamore Holdings, Inc.
      and
      Subsidiary as of June 30, 2005, and their results of operations and cash flows
      for the period from September 15, 2004 (date of capitalization) through June
      30,
      2005, in conformity with accounting principles generally accepted in the United
      States of America.





The
      consolidated financial statements referred to above have been prepared assuming
      that the Company will continue as a going concern. As described in Note 1,
      the
      Company incurred a net loss in the period from September 15, 2004 (date of
      capitalization) through June 30, 2005 and had a working capital deficiency
      at
      June 30, 2005. It also did not meet certain covenants under its credit facility
      and its promissory note agreement with the former owner of its business and
      the
      related outstanding balances were in default. Unless the Company can negotiate
      an extension of a forbearance agreement for, and **/** or
      amendments to, the credit facility and can resolve its default under the
      promissory note, the Company’s operating results and cash flows will not be
      adequate to enable it to pay the balance due at June 30, 2005 unless it can
      obtain an alternate credit facility and/or additional financing. Such matters
      raise substantial doubt about the Company's ability to continue as a going
      concern. Management's plans in regard to these matters are also described in
      Note 1. The consolidated financial statements referred to above do not include
      any adjustments related to the recoverability and classification of assets
      or
      the amount and classification of liabilities that might result from the outcome
      of this uncertainty.





/s/
      J.H.
      Cohn LLP





Roseland,
      New Jersey


January
      22, 2006





F-1





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      BALANCE SHEET**


**JUNE
      30, 2005**





ASSETSCurrent
                assets:Cash
            
            $
            159,463Accounts
                receivable, net of allowance for doubtful accounts of
                $65,063
            
            
            2,170,022Inventories,
                net of allowance for obsolescence of $743,000
            
            
            4,075,899Prepaid
                expenses and other current assets
            
            
            157,464Total
                current assets
            
            
            6,562,848Property
                and equipment, net
            
            
            1,827,511Identifiable
                intangible assets, net
            
            
            1,207,174Total
            
            $
            9,597,533LIABILITIES
                AND STOCKHOLDERS' DEFICIENCYCurrent
                liabilities:Revolving
                credit facility borrowings
            
            $
            2,759,423Term
                loan
            
            
            1,020,000Note
                payable to former parent of subsidiary
            
            
            2,750,000Accounts
                payable
            
            
            3,082,098Accrued
                expenses and other current liabilities
            
            
            530,061Total
                current liabilities
            
            
            10,141,582Accrued
                cumulative dividends on Series A preferred shares
            
            
            237,000Total
                liabilities
            
            
            10,378,582Commitments
                and contingenciesStockholder's
                deficiency:Preferred
                stock, 100,000,000 shares authorized:Series
                A redeemable convertible preferred stock, $.001 par value; 6,000,000
                shares issued and outstanding (liquidation preference
                $6,000,000)
            
            
            6,000Series
                B convertible preferred stock, no par value; 10,000,000 shares issued
                and
                outstanding
            
            
            0Common
                stock, $.001 par value; 2,000,000,000 shares authorized; 101,540,000
                shares issued and outstanding
            
            
            101,540Additional
                paid-in capital
            
            
            6,668,360Accumulated
                deficit
            
            
            (7,556,949
            )Total
                stockholders' deficiency
            
            
            (781,049
            )Total
            
            $
            9,597,533





See
      Notes
      to Consolidated Financial Statements.





F-2





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF OPERATIONS**


**PERIOD
      FROM SEPTEMBER 15, 2004 (DATE OF CAPITALIZATION) THROUGH JUNE 30,
      2005**





Net
                sales
            
            $
            17,061,294Cost
                of sales
            
            
            18,191,132Gross
                loss
            
            
            (1,129,838
            )Operating
                expenses:General
                and administrative
            
            
            3,323,525Selling
            
            
            496,218Impairment
                of property and equipment
            
            
            116,000Impairment
                of identifiable intangibles
            
            
            393,053Impairment
                of goodwill
            
            
            1,773,538Total
            
            
            6,102,334Loss
                from operations
            
            
            (7,232,172
            )Interest
                expense
            
            
            324,777Net
                loss
            
            
            (7,556,949
            )Cumulative
                preferred stock dividends on Series A preferred shares
            
            
            237,000Net
                loss applicable to common shares
            
            $
            (7,793,949
            )Loss
                per common share - basic and diluted
            
            $
            (0.07
            )Weighted
                average common shares (including Series B preferred shares)
                outstanding
            
            
            109,320,099





See
      Notes
      to Consolidated Financial Statements.





F-3


**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF STOCKHOLDERS’ DEFICIENCY**


**PERIOD
      FROM SEPTEMBER 15, 2004 (DATE OF CAPITALIZATION) THROUGH JUNE 30,
      2005**





Convertible
              Preferred StockSeries
                A
            
            Series
                B
            
            Common
              StockShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Additional
                Paid-In Capital
            
            Accumulated
                Deficit
            
            TotalSeries
                A shares issued at $1 per share, net of expenses
            6,000,000
            
            $6,000
            
            
            
            
            
            
            
            
            
            $5,244,000
            
            
            
            $5,250,000Series
                B shares issued to officers and founders for services
            
            
            
            
            10,000,000
            
            $0
            
            
            
            
            
            750,000
            
            
            
            750,000Common
                shares issued:To
                officers and founders for services
            
            
            
            
            
            
            
            
            88,250,000
            
            $88,250
            
            794,250
            
            
            
            882,500To
                finder in connection with the sale of the Series A shares
            
            
            
            
            
            
            
            
            2,500,000
            
            2,500
            
            (2,500)Forconsulting
                services
            
            
            
            
            
            
            
            
            7,500,000
            
            7,500
            
            67,500
            
            
            
            75,000In
                connection with standby equity distribution agreement subsequently
                terminated
            
            
            
            
            
            
            
            
            1,750,000
            
            1,750
            
            15,750
            
            
            
            17,500Intrinsic
                value of stock options issued to an employee
            
            
            
            
            
            
            
            
            
            
            
            
            22,500
            
            
            
            22,500Employee
                stock bonus award
            
            
            
            
            
            
            
            
            1,540,000
            
            1,540
            
            13,860
            
            
            
            15,400Cumulative
                dividends on Series A preferred shares
            
            
            
            
            
            
            
            
            
            
            
            
            (237,000)
            
            
            
            (237,000)Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            ($7,556,949)
            
            (7,556,949)Balance,
                June 30, 2005
            6,000,000
            
            $6,000
            
            10,000,000
            
            $0
            
            101,540,000
            
            $101,540
            
            $6,668,360
            
            ($7,556,949)
            
            ($781,049)





See
      Notes
      to Consolidated Financial Statements.





F-4


**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF CASH FLOW**


**PERIOD
      FROM SEPTEMBER 15, 2004 (DATE OF CAPITALIZATION)**


**THROUGH
      JUNE 30, 2005**





Operating
                activities:Net
                loss
            
            $
            (7,556,949
            )Adjustments
                to reconcile net loss to net cash provided by operating
                activities:Depreciation
                and amortization of property and equipment
            
            
            583,688Amortization
                of identifiable intangibles
            
            
            380,572Provision
                for doubtful accounts
            
            
            65,063Charge
                for inventory obsolescence
            
            
            913,777Impairment
                of property and equipment
            
            
            116,000Impairment
                of identifiable intangibles
            
            
            393,053Impairment
                of goodwill
            
            
            1,773,538Series
                B shares issued to officers and founders for services
            
            
            750,000Common
                shares issued to officers and founders for services
            
            
            882,500Intrinsic
                value of stock options issued to an employee
            
            
            22,500Common
                shares issued for consulting services
            
            
            75,000Common
                  shares issued in connection with standby equity distribution agreement
                  subsequently terminated
            
            
            17,500Common
                stock issued to employees for bonus award
            
            
            15,400Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            397,539Inventories
            
            
            1,107,977Prepaid
                expenses and other assets
            
            
            (11,267
            )Accounts
                payable - trade
            
            
            767,569Accrued
                expenses and other current liabilities
            
            
            198,168Net
                cash provided by operating activities
            
            
            891,628Investing
                activities:Purchases
                of property and equipment
            
            
            (182,565
            )Purchase
                of net assets of Nexus Custom Electronics, Inc., net of cash received
                of
                $92,335
            
            
            (5,259,975
            )Net
                cash used in investing activities
            
            
            (5,442,540
            )Financing
                activities:Proceeds
                from sale of Series A shares
            
            
            5,250,000Net
                repayments of credit facility borrowings
            
            
            (116,830
            )Term
                loan principal payments
            
            
            (180,000
            )Repayment
                of capital lease obligation
            
            
            (242,795
            )Net
                cash provided in financing activities
            
            
            4,710,375Net
                increase in cash
            
            
            159,463Cash,
                beginning of period
            
            
            0Cash,
                end of period
            
            $
            159,463







F-5





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**CONSOLIDATED
      STATEMENT OF CASH FLOW**


**PERIOD
      FROM SEPTEMBER 15, 2004 (DATE OF CAPITALIZATION)**


**THROUGH
      JUNE 30, 2005**





(Continued)Supplemental
                disclosure of cash flow information:Interest
                paid
            
            $
            235,439Supplemental
                disclosure of non cash investing and financing activities:Liabilities
                assumed in connection with acquisition
            
            $
            2,966,987Credit
                facility obligations incurred in connection with
                acquisition
            
            $
            4,076,254Note
                payable issued to former parent of subsidiary in connection with
                acquisition
            
            $
            2,750,000Issuance
                of 2,500,000 common shares to finder in sale of preferred
                stock
            
            $
            2,500Accrued
                cumulative dividends on Series A preferred shares
            
            $
            237,000





See
      Notes
      to Consolidated Financial Statements.





F-6




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      1 - Basis of presentation:**




Sagamore
      Holdings, Inc. (“Sagamore Holdings”) was formed and incorporated in the State of
      Florida on August 30, 2004 to acquire substantially all of the net assets and
      the business of Nexus Custom Electronics, Inc. (“Nexus”), a wholly owned
      subsidiary of Jaco Electronics, Inc. (“Jaco”). As used herein, the “Company”
refers to Sagamore Holdings or Sagamore Holdings together with its subsidiary.
      The Company’s fiscal year ends on June 30th. The interim fiscal quarters
      consist of thirteen weeks ending on a Sunday.




On
      September 15, 2004, the Company sold 6,000,000 shares of Series A redeemable
      convertible preferred stock and received proceeds of $5,250,000, after deducting
      expenses (see Note 6). The consolidated financial statements reflect the
      operations of the Company for the period from September 15, 2004 (date of
      capitalization) to June 30, 2005, which is referred to herein as “Fiscal
      2005.”




On
      September 20, 2004, the Company acquired Nexus through its newly formed, wholly
      owned subsidiary, NECI Acquisition, Inc. that subsequently changed its name
      to
      Nexus. Nexus is a contract manufacturing company, which assembles electronic
      components and printed circuit boards. Total consideration paid for the net
      assets was $12,000,000, including $2,750,000 paid through the issuance of a
      7%
      promissory note to Jaco (see Notes 7 and 9). The remainder of the purchase
      price
      was funded by the net proceeds of the preferred stock issuance described above
      and $4,000,000 borrowed through a $6,200,000 bank credit facility with Comerica
      Bank (“Comerica”) that provided the Company with a revolving credit facility and
      a term loan (see Notes 8 and 9).




The
      acquisition was accounted for pursuant to the purchase method of accounting
      as
      if the acquisition was completed on October 3, 2004, the end of the interim
      period closest to the actual date of the acquisition. Accordingly, (i) the
      assets (including the identifiable intangible assets) and the liabilities of
      Nexus were recorded as of that date at their estimated fair values (see Note
      7)
      and (ii) the consolidated statement of operations for Fiscal 2005 includes
      amounts related to the results of operations of Nexus only for the period
      subsequent to October 3, 2004. The Company’s other activities during the period
      from September 15, 2004 (date of capitalization) to October 3, 2004 were limited
      to its formation and obtaining financing for and to consummating the acquisition
      of Nexus. Accordingly, the results of operations reflected in the consolidated
      statement of operations for Fiscal 2005 reflect activities primarily for the
      period from October 4, 2004 to June 30, 2005.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. However, the Company incurred
      a
      net loss of $7,556,949 in Fiscal 2005 and had a net working capital deficiency
      of $3,578,734 at June 30, 2005. It also did not meet certain covenants under
      its
      credit facility with Comerica and promissory note with Jaco and, accordingly,
      the outstanding balance of $3,779,423 under the credit facility ($2,759,423
      under the revolver and $1,020,000 under the term loan) and the outstanding
      balance of $2,750,000 under the note agreement were in default as of June 30,
      2005 and classified in current liabilities in the consolidated balance sheet
      (see Notes 8 and 9).




The
      Company entered into a forbearance agreement with Comerica on July 15, 2005,
      effective July 1, 2005 through August 1, 2005, which essentially provides for
      an
      extension of the revolver under the credit facility which expired July 1, 2005,
      and also provided that Comerica would not exercise its right to call for
      acceleration of all amounts due under the term loan and the revolver under
      the
      credit facility, if the Company met certain conditions. Effective August 1,
      2005, the Company and Comerica agreed to extend the maturity date of the
      revolver under the credit facility to September 1, 2005. However, the maturity
      date has not been further extended and the loan balances remain in default.
      The
      Company and Comerica have been negotiating an extension of the forbearance
      agreement from September 1, 2005 through June 30, 2006. If an extension is
      agreed upon, management of the Company intends to attempt to negotiate an
      amendment to the credit facility in order to further extend the facility under
      terms which the Company can comply with going forward. However, there can be
      no
      assurance that the Company will get an extension of the forbearance agreement
      and/or amendments to the credit facility.




Comerica
      may force immediate repayment of amounts due under the credit facility and
      invoke penalty interest (up to three percentage points or approximately $114,000
      annually) at the lender’s discretion. Since the Company had not been notified
      that it would be charged penalty interest, it was not required to accrue any
      as
      of June 30, 2005.




F-7




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      1 - Basis of presentation (continued):**




Unless
      the Company can negotiate an extension of the forbearance agreement and/or
      amendments to the credit facility as discussed above, and it can resolve its
      default under the promissory note with Jaco, the Company’s operating results and
      cash flows will not be adequate to enable it to pay the balance due at or
      subsequent to June 30, 2005 unless it can obtain an alternate credit facility
      and/or additional financing. Management cannot assure that the Company will
      be
      able to obtain such an extension, amendment or resolution. These matters raise
      substantial doubt about the Company’s ability to continue as a going concern.
      The consolidated financial statements do not include any adjustments related
      to
      the recoverability and classification of assets or the amount and classification
      of liabilities that might result from the outcome of this
      uncertainty.




As
      further explained in Note 13, on November 10, 2005, Sagamore Holdings entered
      into a Securities Purchase Agreement (the “SPA”), which provides for the sale of
      up to $1,250,000 of Secured Convertible Debentures to a new investor subject
      to
      certain conditions. On November 11, 2005, another new investor (an affiliate
      of
      the first new investor) entered into a stock purchase agreement pursuant to
      which it purchased 70,600,000 shares of Sagamore Holdings’ common stock from
      previous holders. Such shares represented approximately 70% of the total
      outstanding shares of common stock as of the date of said agreement. As of
      January 22, 2006, Sagamore Holdings had sold $519,000 of Secured Convertible
      Debentures to the new investor. However, as of that date, the Company was in
      default under the terms of the Secured Convertible Debentures and the Company
      may not be able to obtain any additional funding under the SPA. The Company
      has
      no other agreements in place other than the SPA providing for additional debt
      or
      equity financing for the Company.




There
      can
      be no assurances that the Company will be able to extend the forbearance
      agreement under the credit facility, amend the credit facility, obtain a waiver
      from Jaco of the promissory note, or obtain any additional funds under the
      SPA,
      or that the costs of a forbearance agreement, a new credit facility or obtaining
      any other capital will not be higher than its current costs.




If
      the
      Company cannot complete the above mentioned actions related to the credit
      facility, resolve its default under the promissory note and obtain additional
      proceeds under the SPA, it would have to examine other strategic alternatives,
      including raising capital in the debt or equity markets, or a possible sale
      or
      liquidation of its business.




F-8




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      2 - Summary of significant accounting policies:**




**Use
      of estimates:**




The
      preparation of the financial statements in conformity with accounting principles
      generally accepted in the United States of America requires management to make
      estimates and assumptions in determining the reported amounts of assets and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and reported amounts of revenues and expenses during
      the reporting period. The most significant estimates relate to accounts
      receivable allowances, inventory cost and obsolescence, and impairment of
      goodwill, other intangibles and property and equipment. Actual results could
      differ from those estimates.




**Revenue
      recognition:**




Sales
      are
      recognized when title passes at the time of shipment and collectibility is
      reasonably assured. Provisions for certain rebates, sales incentives, product
      returns and discounts to customers are provided as reductions to sales in the
      same period the related sales are recorded.




**Accounts
      receivable:**




Accounts
      receivable consist of amounts due from customers, net of allowances, and are
      due
      within contractual credit terms. Credit is extended based on an evaluation
      of a
      customer’s financial condition and no collateral is required.




**Financial
      instruments and major customers:**




The
      fair
      value of cash, accounts receivable, accounts payable, notes payable and loans
      payable under the credit facility approximate their carrying amounts due to
      the
      short maturities of these instruments. Financial instruments that will
      potentially subject the Company to significant concentrations of credit risk
      are
      accounts receivable. Concentrations of credit risk with respect to accounts
      receivable are limited as the Company performs on-going credit evaluations
      of
      its customers. In addition, on a periodic basis, the Company evaluates its
      accounts receivable and establishes an allowance for doubtful accounts based
      on
      its history of past write-offs and collections and current credit
      considerations. Management does not believe that significant credit risk existed
      at June 30, 2005.




The
      Company three largest customers accounted for 42% 16% and 12% of its net sales
      in Fiscal 2005. Amounts due from these customers accounted for 48% of total
      accounts receivable as of June 30, 2005.




**Inventories:**




Inventories
      include costs of materials, labor and overhead, and are stated at the lower
      of
      cost or market, with cost being determined using the first-in, first-out method.
      The Company has provided for an allowance for obsolescence based on historical
      experience, on hand quantities, usage and backlog.




**Property
      and equipment:**




Property
      and equipment are recorded at cost. The cost of the property and equipment
      acquired in the acquisition of Nexus was based on the estimated fair values
      at
      the time of the acquisition. Property and equipment are depreciated and
      amortized using the straight-line method over their estimated useful lives,
      except for leasehold improvements, which are amortized over the shorter of
      their
      estimated useful lives or the remaining term of the lease. Maintenance and
      repairs are charged to expense as incurred.




F-9





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      2 - Summary of significant accounting policies
      (continued):**




**Intangible
      assets:**





Identifiable
      intangible assets which were acquired in the acquisition of Nexus were recorded
      at cost, which was based on estimated fair values on the date of acquisition.
      Costs allocated to those intangible assets with definitive lives (customer
      lists, backlog and employment agreement) are being amortized over their
      respective lives ranging from one to seven years. Costs allocated to intangible
      assets, which have indefinite lives (trademarks and ISO certification), are
      not
      subject to amortization.





The
      Company also recorded goodwill in connection with the Nexus acquisition.
      Goodwill represents the excess of cost over the fair value of net assets of
      an
      acquired business, and is not subject to amortization.




Identifiable
      intangible assets and goodwill are amortizable over fifteen years for tax
      purposes.





**Impairment
      of long-lived assets, identifiable intangible assets and goodwill:**





The
      Company follows Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”),
      which requires impairment losses to be recorded on long-lived assets used in
      operations, such as property and equipment and amortizable intangible assets,
      when indicators of impairment are present and the undiscounted cash flows
      estimated to be generated by those assets are less than the asset's carrying
      amount. In the evaluation of the fair value and future benefits of these types
      of long-lived assets, the Company performs an analysis of the anticipated
      undiscounted future net cash flows of the related long-lived assets. If the
      carrying value of the related asset exceeds the undiscounted cash flows, the
      carrying value is reduced to its fair value. Various factors including future
      sales growth and profit margins are included in this analysis.





The
      Company also follows SFAS No. 142, “Accounting for Goodwill and Other Intangible
      Assets” (“SFAS 142”) which requires that goodwill and intangible assets that are
      not subject to amortization be assessed for impairment using fair value
      measurement techniques. Specifically, goodwill impairment is determined using
      a
      two-step process. The first step of the goodwill impairment test is used to
      identify potential impairment by comparing the fair value of the Company with
      its net book value (or carrying amount), including goodwill. If the fair value
      of the reporting unit for which goodwill was recorded exceeds its carrying
      amount, goodwill is not considered impaired and the second step of the
      impairment test is unnecessary. If the carrying amount of the reporting unit
      exceeds its fair value, the second step of the goodwill impairment test is
      performed to measure the amount of impairment loss, if any. The second step
      of
      the goodwill impairment test compares the implied fair value of the Company’s
      goodwill with the carrying amount of that goodwill. If the carrying amount
      of
      the reporting unit's goodwill exceeds the implied fair value of that goodwill,
      an impairment loss is recognized in an amount equal to that excess. The implied
      fair value of goodwill is determined in the same manner as the amount of
      goodwill recognized in a business combination. That is, the fair value of the
      reporting unit is allocated to all of the assets and liabilities of that unit
      (including any unrecognized intangible assets) as if the reporting unit had
      been
      acquired in a business combination and the fair value of the reporting unit
      was
      the purchase price paid to acquire the Company. The impairment test for other
      unamortizable intangible assets consists of a comparison of the fair value
      of
      the intangible asset with its carrying value. If the carrying value of the
      intangible asset exceeds its fair value, an impairment loss is recognized in
      an
      amount equal to that excess.





Determining
      the fair value of the reporting unit under the first step of the goodwill
      impairment test and determining the fair value of individual assets and
      liabilities of the reporting unit (including unrecognized intangible assets)
      under the second step of the goodwill impairment test is judgmental in nature
      and uses estimates and assumptions. Similarly, estimates and assumptions are
      used in determining the fair value of other intangible assets. These estimates
      and assumptions could have a significant impact on whether or not an impairment
      charge is recognized and also the magnitude of any such charge. To assist in
      the
      process of determining goodwill impairment, the Company obtains appraisals
      from
      an independent valuation firm. In addition to the use of an independent
      valuation firms, the Company performs internal valuation analyses and considers
      other market information that is publicly available. Estimates of fair value
      are
      primarily determined using discounted cash flows and market comparisons and
      recent transactions. These approaches use significant estimates and assumptions
      including projected future cash flows (including timing), discount rate
      reflecting the risk inherent in future cash flows, perpetual growth rate,
      determination of appropriate market comparables and the determination of whether
      a premium or discount should be applied to comparables.





F-10




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      2 - Summary of significant accounting policies
      (continued):**




**Impairment
      of long-lived assets, identifiable intangible assets and goodwill (continued):**




Due
      to
      the slowdown in its industry and the loss of certain business to lower cost
      Asian markets, the Company has incurred operating losses and, therefore, it
      recognized impairment losses under SFAS 142 and SFAS 144 of $393,053 related
      to
      identifiable intangible assets, and $1,773,538 related to goodwill which are
      shown separately in the consolidated statement of operations for Fiscal 2005
      (see Note 5).




The
      Company also recorded a $116,000 impairment loss during Fiscal 2005 related
      to
      certain manufacturing equipment at its Woburn, Massachusetts facility (see
      Note
      13).




The
      Company will continue to evaluate the carrying value of all long-lived assets
      during the fourth quarter of each subsequent fiscal year and between annual
      evaluations if events occur or circumstances change that would more likely
      than
      not reduce the fair value of the Company below its carrying amount.




F-11





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**










**Note
      2 - Summary of significant accounting policies
      (continued):**




**Advertising
      costs:**




Advertising
      costs, which totaled $18,717 for Fiscal 2005, are expensed as
      incurred.




**Income
      taxes:**




The
      Company accounts for income taxes pursuant to the asset and liability method
      which requires deferred income tax assets and liabilities to be computed
      annually for temporary differences between the financial statement and tax
      bases
      of assets and liabilities that will result in taxable or deductible amounts
      in
      the future based on enacted tax laws and rates applicable to the periods in
      which the temporary differences are expected to affect taxable income. Valuation
      allowances are established when necessary to reduce deferred tax assets to
      the
      amount expected to be realized. The income tax provision or credit is the tax
      payable or refundable for the period plus or minus the change during the period
      in deferred tax assets and liabilities.




**Basic
      and diluted net income (loss) per common share:**




The
      Company presents “basic” income (loss) per common share and, if applicable,
“diluted” income per common share pursuant to the provisions of Statement of
      Financial Accounting Standards No. 128, “Earnings per Share” (“SFAS 128”). Basic
      income (loss) per common share is calculated by dividing the loss applicable
      to
      common stock (net loss adjusted for dividends required to be accrued on Series
      A
      convertible preferred stock) by the weighted average number of common shares
      outstanding during each period. The calculation of diluted income per common
      share is similar to that of basic income per common share, except that the
      denominator is increased to include the number of additional common shares
      that
      would have been outstanding if all potentially dilutive common shares (such
      as
      those issuable upon the exercise of stock options and the conversion of Series
      A
      convertible preferred stock) were issued during such period and the numerator
      was adjusted to eliminate the preferred dividend.




The
      rights of the Company’s Series B preferred and common stockholders are
      substantially equivalent. The Company has included the 10,000,000 shares of
      Series B convertible preferred stock from the date of their issuance in the
      weighted average number of shares outstanding in the computation of basic loss
      per common share for Fiscal 2005 in accordance with the “two class” method of
      computing earnings (loss) per share set forth in SFAS 128.




For
      Fiscal 2005, the Company’s basic and fully diluted loss per share amounts are
      the same since the Company had a net loss for the period and, accordingly,
      the
      assumed exercise of the 5,000,000 outstanding stock options and the conversion
      of the outstanding Series A convertible preferred stock into 6,000,000 shares
      of
      common stock would have been anti-dilutive.




F-12





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      2 - Summary of significant accounting policies
      (continued):**




**Stock-based
      compensation:**




Statement
      of Financial Accounting Standards No. 123, “Accounting for Stock-Based
      Compensation” (“SFAS 123”), provides for the use of a fair value-based method of
      accounting for employee stock compensation. However, SFAS 123 also allows an
      entity to continue to measure compensation cost for stock options granted to
      employees using the intrinsic value method of accounting prescribed by
      Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to
      Employees” (“APB 25”), which only requires charges to compensation
      expense for the excess, if any, of the fair value of the underlying stock at
      the
      date a stock option is granted (or at an appropriate subsequent measurement
      date) over the amount the employee must pay to acquire the stock. The Company
      has elected to account for employee stock options using the intrinsic value
      method under APB 25. By making that election, it is required by SFAS 123 and
      SFAS 148, “Accounting for Stock-Based Compensation - Transition and Disclosure”
(“SFAS 148”), to provide pro forma disclosures of net income (loss) and income
      (loss) per common share as if a fair value-based method of accounting had been
      applied.




Options
      to purchase 5,000,000 shares were granted to an employee during Fiscal 2005
      under two grants of 2,500,000 options each, and all of the options granted
      were
      outstanding at June 30, 2005. The options granted during Fiscal 2005 vested
      immediately and are exercisable at $.001 per share. The estimated fair value
      of
      the Company’s common stock at the time of the first grant exceeded the total
      exercise price by $22,500 ($.01 per share) at the grant date and, accordingly,
      the Company recorded that intrinsic value in general and administrative expenses
      in Fiscal 2005. The estimated fair value of the Company’s common stock was nil
      at the time of the second grant and no intrinsic value was recorded.




In
      the
      opinion of management, if instead of the intrinsic value method, compensation
      cost for the stock options granted to employees had been determined based on
      the
      fair value of the options at the date of grant under the provisions of SFAS
      123
      using the Black-Scholes option-pricing model based on the volatility assumptions
      of 61% (based on the average volatility of ten public companies in the Company’s
      industry), expected lives of five years, a risk free interest rate of 3.68%
      and
      a dividend yield of 0%, the Company’s pro forma net loss and pro forma basic net
      loss per common share arising from such computations would not have differed
      materially from the corresponding historical amounts presented in the
      consolidated statement of operations.




As
      a
      result of amendments to SFAS 123, the Company will be required to charge the
      fair value of employee stock options to expense over the vesting period
      beginning with the first quarter of its fiscal year ending June 30,
      2007.




In
      accordance with the provisions of SFAS 123, issuances of common stock to
      non-employees as the consideration for goods or services received by the Company
      are accounted for based on the fair value of the equity instruments issued
      (unless the fair value of the consideration received can be more reliably
      measured). Such fair value is measured as of an appropriate date pursuant to
      the
      guidance in the consensus of the Emerging Issues Task Force (“EITF”) for EITF
      Issue No. 96-18 and capitalized or expensed as if the Company had paid cash
      for
      the goods or services.




**Accounting
      for convertible preferred stock:**




The
      Company accounts for the intrinsic value of beneficial conversion rights arising
      form the issuance of convertible preferred stock with conversion rights that
      are
      in-the-money at the commitment date pursuant to the consensus of EITF Issue
      No.
      98-5 and EITF Issue No. 00-27. The intrinsic value of the beneficial conversion
      rights at the commitment date may be recorded as additional paid-in-capital
      and
      cumulative preferred stock dividends as of that date or, if the terms of the
      preferred stock instrument are contingently adjustable, may only be recorded
      if
      a triggering event occurs and the contingency is resolved.




F-13




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      3 - Inventories:**




Inventories
      consist of the following:




Raw
                materials
            
            $
            2,256,032Work
                in process
            
            
            1,205,317Finished
                goods
            
            
            614,550Total
            
            $
            4,075,899





**Note
      4 - Property and equipment:**




Property
      and equipment consist of the following:




Amount
            
            Estimated
                    Useful LivesLand
            
            
            $
            65,000Building
            
            
            
            874,370
            
            20
                yearsEquipment
            
            
            
            1,335,393
            
            2-7
                yearsLeasehold
                improvements
            
            
            136,436Total
                cost
            
            
            
            2,411,199Accumulated
                depreciation and amortization
            
            583,688Total
            
            
            $
            1,827,511




The
      Company’s leasehold improvements were fully amortized at June 30,
      2005.




**Note
      5 - Identifiable intangible assets:**




Identifiable
      intangible assets and changes therein consist of the following:




Oct.
                3, 2004(Date
                of
            
            Amorti-
            
            Impairment
            
            June
                30,Acquisition)
            
            zation
            
            Loss
            
            2005Subject
                to amortization:Customer
                lists
            $
            1,194,241
            
            $
            127,954
            
            $
            229,610
            
            $
            836,677Backlog
            
            310,726
            
            
            233,045
            
            
            77,681
            
            
            0Employment
                agreement
            
            78,291
            
            
            19,573
            
            
            11,626
            
            
            47,092Totals
            
            1,583,258
            
            
            380,572
            
            
            318,917
            
            
            883,769Not
                subject to amortization:ISO
                Certification
            
            139,806
            
            
            
            
            
            29,066
            
            
            110,740Trademark
            
            257,735
            
            
            
            
            
            45,070
            
            
            212,665Totals
            
            397,541
            
            
            
            
            
            74,136
            
            
            323,405Totals
            $
            1,980,799
            
            $
            380,572
            
            $
            393,053
            
            $
            1,207,174




Amortization
      in each of the five years subsequent to June 30, 2005 will be approximately
      $155,000, $155,000, $139,000, $133,000 and $133,000, respectively.




F-14


**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      6 - Stockholders’ Deficiency:**




**Series
      A redeemable convertible preferred stock:**




On
      September 15, 2004, the Company sold 6,000,000 Series A preferred shares and
      received proceeds of $5,250,000, after deducting expenses of $750,000. In
      addition, the Company issued 2,500,000 shares of its common stock to a third
      party as a commitment fee. The common stock issued for the commitment was valued
      at $2,500.




Each
      Series A preferred share entitles the holder to receive a cumulative 5% dividend
      when declared by the Company’s Board of Directors. As of June 30, 2005, no
      dividends have been declared and undeclared cumulative dividends in arrears,
      which have been accrued, were approximately $237,000.




In
      the
      event of any liquidation, sale or merger of the Company, each Series A preferred
      share would entitle the holder to receive an amount (the “liquidated amount”)
      equal to $1.00 per share plus all declared and undeclared dividends in
      preference to the holders of Series B convertible preferred stock and common
      stock. However, the holder of the Series A preferred shares has no voting
      rights.




Each
      share of Series A preferred stock can be converted into shares of the Company’s
      common stock at the option of the holder as determined by dividing (a) the
      sum
      of (i) the amount due to the Series A holder upon liquidation, plus (ii) all
      accrued but unpaid dividends, by (b) the conversion price, which is equal to
      the
      lesser of (a) $1.00 per share (adjusted in the event of a subdivision or
      combination of shares), or (b) 80% of the average of the lowest closing bid
      price of the common stock during the five trading days immediately preceding
      the
      date of conversion, assuming a public market exists for shares of common
      stock.




In
      accordance with the consensus for EITF Issue No. 98-5 and EITF Issue No. 00-27,
      the intrinsic value of the common shares issuable upon the assumed conversion
      of
      the Series A preferred shares as of the commitment date exceeded the proceeds
      from the issuance of the Series A preferred shares by approximately $1,600,000,
      which represents a contingent beneficial conversion feature that is analogous
      to
      a dividend on the Series A preferred shares and, therefore, would be reflected
      as a decrease in the net income or an increase in the net loss applicable to
      common stockholders if and when a public market exists for the shares of the
      Company’s common stock.




The
      Company has the right to redeem any outstanding shares of the Series A preferred
      stock at an amount equal to 120% of the liquidation amount. In the event that
      the Company exercises a right of redemption, the holder would receive a warrant
      to purchase 50,000 shares of the Company’s common stock for every $100,000 of
      the liquidation amount redeemed.




As
      a
      result of the issuance of the registration rights agreement described below
      that
      contain **s** a
      liquidated damages clause which could cause the Company to issue a number of
      shares of common stock as a result of its failure to register the Series A
      preferred stock on a timely basis that could exceed the number of common shares
      authorized, the Company is required to follow EITF Issue No. 00-19, “Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company’s Own Stock by the Company” in determining whether the Series A
      preferred shares can be included in stockholders’ equity. Since management of
      the Company controls well in excess of 51% of the Company’s voting stock, it can
      control the number of shares authorized and in accordance with the provisions
      of
      EITF Issue No. 00-19, the entire proceeds of the issuance of the Series A
      preferred shares was recorded as equity in the accompanying consolidated balance
      sheet as of June 30, 2005.




The
      shares of common stock issuable by the Company upon conversion of shares of
      the
      Series A preferred shares will not be registered initially under the Securities
      Act of 1933. To provide for the registration of such underlying shares, the
      Company and the holder of the Series A preferred shares entered into a
      registration rights agreement, dated September 15, 2004, requiring the Company
      to prepare and file a registration statement covering the resale of the shares
      of common stock underlying the Series A preferred shares and maintain its
      effectiveness. The registration rights agreement required the Company to use
      its
      best efforts to cause such registration statement to be declared effective
      no
      later than 210 days following September 15, 2004 (the closing of the sale of
      the
      Series A preferred shares).




The
      registration rights agreement also contains a liquidated damages provision
      which
      calls for the holder to receive from the Company a specified amount of shares
      if: (i) The Company fails to file a registration statement covering the
      underlying shares of common stock within 60 days of September 15, 2004, and,
      (ii) the registration statement is not declared effective within 210 days
      following September 15, 2004. In the event that one of the aforementioned
      failures occurs, the registration rights agreement calls for the Company to
      pay
      the holder common stock equal to 2% of the liquidated amount, as defined above,
      of that portion of the Series A preferred shares which has not been converted
      into common stock as of the occurrence of such failure, with such amount to
      be
      paid by the Company to the holder on a monthly basis after the occurrence of
      such failure. The holder is entitled to receive the aforementioned damages
      until
      such time as the registration statement is declared effective. Since the
      registration statement registering the underlying shares of common stock was
      not
      filed within 60 days or declared effective within 210 days from September 15,
      2004, the holder became entitled to receive such damages payable in common
      stock. The aggregate shares computed under this provision totaled 6,000,000
      as
      of June 30, 2005. The value of these shares is immaterial and has not been
      reflected in these financial statements.




F-15
 
 **SAGAMORE
          HOLDINGS, INC. AND SUBSIDIARY**
 **NOTES
          TO CONSOLIDATED FINANCIAL STATEMENTS**


**Series
      B convertible preferred stock:**




On
      September 17, 2004, the Company issued 10,000,000 shares of its Series B
      preferred stock to compensate two officers of the Company. This stock had an
      estimated fair value of $.075 per share, or $750,000, which was charged to
      general and administrative expenses.




Each
      Series B convertible preferred share entitles the holder to receive dividends
      on
      a pro rata basis with the holders of the common stock when declared by the
      Company’s Board of Directors. In addition, the holders of the Series B preferred
      shares have no liquidation preference.




Collectively
      the Series B preferred stock can be converted into shares of the Company’s
      common stock, at the option of the holder, into the lesser of (i) 75,000,000
      shares of common stock; or (ii) 51% of the outstanding shares of common stock
      after giving effect to the conversion of the Series B preferred
      stock.




Each
      common and Series B preferred stockholder votes together as one class. As a
      class, the holders’ of the Series B preferred stock shall, collectively, be
      entitled to cast 51% of the votes on all matters submitted to the stockholders
      of the Company.




These
      shares were subsequently returned to the Company on November 10, 2005 in
      connection with the resignation of the officers who were the holders of these
      shares (see Note 13).




**Common
      stock issued for services:**




On
      September 17, 2004, the Company issued 88,250,000 shares of its common stock
      to
      two officers and founders of the Company. This stock had an estimated fair
      value
      of $.01 per share, or $882,500, which was charged to general and administrative
      expenses.




On
      September 20, 2004, the Company entered into an agreement with a consultant
      to
      provide business development services in future periods. The Company issued
      7,500,000 shares of its common stock as compensation for these services. This
      stock had an estimated fair value of $.01 per share, or $75,000, which was
      charged to general and administrative expenses.




In
      addition, the Company issued 2,500,000 shares of its common stock to a third
      party as a commitment fee relating to the sale of the Series A preferred
      shares.




The
      Company issued 1,750,000 shares of its common stock as consideration for
      services in connection with the Standby Equity Distribution Agreement described
      below. This stock had an estimated fair value of $.01 per share, or $17,500,
      which was charged to general and administrative expenses.




**Stock
      incentive plan:**




On
      September 17, 2004, the Company adopted the 2004 Stock Incentive Plan (the
      “Plan”) which authorizes the Board of Directors to grant incentive stock
      options, non-statutory stock options, stock appreciation rights and rights
      to
      acquire restricted stock to employees, directors and consultants of the Company.
      The Board of Directors had authorized grants of options for the purchase of
      up
      to 15,000,000 shares of the Company’s common stock under the Plan. Under the
      terms of the Plan, the Board of Directors determines for each option granted,
      the exercise price, the vesting period and the length of the
      option.




Options
      to purchase 5,000,000 shares were granted to an employee during Fiscal 2005
      under two grants of 2,500,000 options each, and all of the options granted
      were
      outstanding at June 30, 2005. The options granted during the period vested
      immediately and were exercisable at $.001 per share. The estimated fair value
      of
      the Company’s common stock at the time of the first grant exceeded the
      total exercise price by $22,500 ($.01 per share) at the grant date and,
      accordingly that intrinsic value was charged to general and administrative
      expense in Fiscal 2005.




F-16




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      6 - Stockholders’ deficiency (continued):**




**Standby
      equity distribution agreement:**




On
      September 15, 2004, Sagamore Holdings entered into a Standby Equity Distribution
      Agreement (the “Equity Agreement”) with Cornell Capital Partners, LP (“Cornell”)
      for the sale of Sagamore Holdings’ common stock. The commitment to purchase
      shares of common stock was subject to the effectiveness, and continued
      effectiveness, of a registration statement registering the resale of the common
      stock. The Company issued 1,750,000 shares of its common stock to Cornell as
      consideration for Cornell’s services in connection with the Equity Agreement.
      The common stock issued for the services had a value of $.01 per share, or
      $17,500, which was charged to general and administrative expense as described
      below.




The
      Equity Agreement was terminated on April 26, 2005 and as a result, the
      Company will not obtain any funding under the Equity Agreement.




**Stock
      bonus award:**




On
      February 8, 2005, the Company issued 10,000 shares of its common stock to each
      of 154 employees of Nexus, as of that date, as an incentive bonus under the
      Company’s 2004 Stock Incentive Plan, under Rule 701 of the Securities Act. These
      shares had an estimated fair value of $.01 per share, or $15,400, which was
      charged to general and administrative expenses in Fiscal 2005.





F-17




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      7 - Acquisition of Nexus:**




On
      September 20, 2004, the Company, through its subsidiary, NECI, purchased
      substantially all of the net assets of Nexus. However, the acquisition has
      been
      accounted for as a purchase as if it was completed on October 3, 2004, the
      end
      of the interim period closest to the actual date of the acquisition. The initial
      purchase price paid by the Company was $12,000,000 as described
      below:




1.
            Nexus
                obtained a $6,200,000 credit facility with Comerica, which is
                collateralized by all of its assets. The credit facility includes
                a
                $1,200,000 term loan and a $5,000,000 revolver. Nexus borrowed a
                total of
                $4,319,049 under the credit facility through October 3, 2004, of
                which
                $1,200,000 was advanced under the term loan and $3,119,049 was advanced
                under the revolver. The Company used $4,000,000 borrowed under the
                credit
                facility to pay a part of the purchase price for Nexus, and the remaining
                $319,049 was used to pay transaction costs and repay an existing
                capital
                lease obligation of Nexus.




2.
            $2,750,000
                was paid through a five-year promissory note issued by the Company
                to Jaco
                (see Note 9).




3.
            $5,250,000
                was paid in cash from proceeds received by the Company from the issuance
                of 6,000,000 shares of Series A redeemable convertible preferred
                stock.




The
      aggregate consideration to be paid by the Company is subject to further
      adjustments as explained below:




1.
            A
                target net working capital, adjusted either up or down on a
                dollar-for-dollar basis up to $500,000 if the net working capital
                of Nexus
                as of September 20, 2004 was more or less than $7,331,000. On November
                19,
                2004, Nexus received a statement from Jaco claiming that there should
                be
                an adjustment to increase the purchase price by $500,000 and Nexus
                informed Jaco that it believes there should be an adjustment to decrease
                the purchase price by $500,000. This dispute is being negotiated.
                However,
                it is likely that arbitration before an agreeable accounting firm
                will
                occur. There is a chance that the Company may be unsuccessful. If
                the
                Company is unsuccessful on the merits, this would have a material
                adverse
                effect on our working capital.




2.
            An
                earn-out provision calculated at 5% of the net sales of Nexus in
                excess of
                $20,000,000 for each of the succeeding six years from the date of
                acquisition limited to total payments of
                $1,000,000.




The
      acquisition of Nexus has been accounted for by the Company under the purchase
      method of accounting in accordance with Statement of Financial Accounting
      Standards No. 141, “Business Combinations.” Under the purchase method, assets
      acquired and liabilities assumed are recorded at their estimated fair values.
      Goodwill is recorded to the extent the purchase price, including certain
      acquisition and closing costs, exceeds the fair value of the net identifiable
      tangible and intangible assets acquired at the date of the
      acquisition.




F-18





**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      7 - Acquisition of Nexus (continued):**




The
      total
      purchase price for the acquisition of Nexus of $12,102,310, which includes
      $102,310 of acquisition costs, was allocated as follows:




Assets
                purchased:Cash
            
            $
            92,335Accounts
                receivable
            
            
            2,632,624Inventories
            
            
            6,097,653Property
                and equipment
            
            
            2,346,149Prepaid
                expenses and other assets
            
            
            146,199Identifiable
                intangible assets:ISO
                9002 Certification
            
            
            139,806Backlog
            
            
            310,726Trademark
            
            
            257,735Customer
                lists
            
            
            1,194,241Employment
                agreement
            
            
            78,291Goodwill
            
            
            1,773,538Total
            
            
            15,069,297Liabilities:Accounts
                payable
            
            
            2,314,529Accrued
                expenses
            
            
            409,663Capital
                lease obligations and loan costs
            
            
            242,795Total
            
            
            2,966,987Net
                purchase price
            
            $
            12,102,310




The
      total
      purchase price will be subject to any adjustments for the target net working
      capital requirement and the earn-out adjustments described above. Based on unaudited
      information for the quarter ended October 2, 2005, the Company determined that
      it is obligated to pay Jaco approximately $105,500 under the earn-out provisions
      of the acquisition agreement. Initially the Company will record the adjustment
      as goodwill in the first quarter of Fiscal 2006. However management expects
      that
      the application of the impairment tests described in Note 2 will require the
      Company to charge that amount to expense in that quarter. Due to the ongoing
      negotiation of the working capital adjustment described above, and other issues
      with Jaco, management is uncertain as to whether this adjustment will ever
      be paid in whole or in part .




In
      connection with the acquisition, the Company became obligated to make aggregate
      annual payments of $437,500 under three-year employment agreements with the
      president and two other officers of Nexus. Employment agreements with the other
      two officers totaling $300,000 annually were subsequently cancelled with no
      financial obligation. The Company also became obligated to issue options equal
      to 2.5% of its outstanding common stock at the end of the first two years of
      the
      employment agreement with the president of Nexus with exercise prices and
      vesting periods to be determined by the Board of Directors on the dates of
      grant.




F-19




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      7 - Acquisition of Nexus (continued):**




The
      following unaudited pro forma financial information presents the consolidated
      results of operations, as if the acquisition had occurred on July 1, 2004,
      after giving effect to certain adjustments. The pro forma information excludes
      the non-recurring losses related to goodwill and identifiable intangible asset
      impairment charges recorded by the Company for Fiscal 2005, and does not
      necessarily reflect the results of operations that would have occurred had
      the
      entities been a single company during this period.




Twelve
                Months Ended June 30, 2005(Unaudited)Net
                sales
            
            $
            23,098,534Net
                loss
            
            $
            (5,636,206
            )Weighted
                average number of common shares outstanding
            
            
            110,873,604Loss
                per common share - basic and diluted
            
            $
            (0.05
            )




**Note
      8 - Credit facility:**




Nexus
      obtained a $6,200,000 credit facility with Comerica, which is collateralized
      by
      all of its assets. The credit facility includes a $1,200,000 term loan and
      a
      $5,000,000 revolver. Nexus borrowed a total of $4,319,049 under the credit
      facility through October 3, 2004. $1,200,000 was advanced under the term loan
      and $3,119,049 was advanced under the revolver. The Company used $4,000,000
      borrowed under the credit facility to pay a part of the purchase price for
      Nexus
      and the remaining $319,049 was used to pay transaction costs and repay an
      existing capital lease obligation of Nexus.




The
      term
      loan is payable in monthly principal payments of $20,000 through November 1,
      2009. Interest at prime plus 1.5% is payable monthly commencing on October
      1,
      2004 (an effective rate of 7.75% at June 30, 2005). The revolver matured on
      July 1, 2005 but was effectively extended until September 1, 2005 under the
      forbearance agreement discussed below. The borrowings under the revolver bear
      interest at prime plus 1%, or alternatively at LIBOR plus 3.75% (an effective
      rate of 7.25% at June 30, 2005). Borrowings under the revolver are limited
      to
      credit available based on eligible accounts receivable and inventory as defined
      in the credit facility. The credit facility contains restrictive covenants
      that,
      among other things, restrict the payment of dividends, additional indebtedness,
      lease financing, capital expenditures and investments. The covenants also
      require Nexus to meet certain financial ratios and maintain minimum levels
      of
      tangible net worth. As of June 30, 2005, the Company did not meet the
      requirements of four covenants: minimum working capital ratio; debt service
      ratio (“EBITDA”, as defined, divided by interest and principal payment
      requirements); leverage ratio (liabilities to tangible net worth ratio) and
      minimum tangible net worth (tangible net worth includes subordinated debt but
      excludes intangible assets), and therefore, was in default.




Due
      to
      the default, the outstanding balance of the term loan totaling $1,020,000 under
      the credit facility, including $780,000 initially scheduled to be paid after
      June 30, 2006, has been classified in current liabilities in the consolidated
      balance sheet as of June 30, 2005.




The
      Company entered into a forbearance agreement with Comerica on July 15, 2005,
      effective July 1, 2005 through August 1, 2005, which essentially provided for
      an
      extension of the revolver under the credit facility which expired on July 1,
      2005, and also provided that the bank would not exercise its right to call
      for
      acceleration of all amounts due under the term loan and the revolver under
      the
      credit facility, if the Company met certain conditions. Effective August 1,
      2005, the Company and Comerica agreed to extend the maturity date of the
      revolver under the credit facility to September 1, 2005. However, the maturity
      date has not been further extended and the loan balance remains in default.
      The
      Company and Comerica have been negotiating an extension of the forbearance
      agreement from September 1, 2005 through June 30, 2006. If an extension is
      agreed upon, management of the Company intends to attempt to negotiate an
      amendment to the credit facility in order to further extend the facility under
      terms which the Company can comply with going forward. However, there can be
      no
      assurance that the Company will get an extension of the forbearance agreement
      and/or amendments to the credit facility.




F-20


**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      8 - Credit facility (continued):**




Comerica
      may force immediate repayment of amounts due under the credit facility and
      invoke penalty interest (up to three percentage points or approximately $114,000
      annually) at the lender’s discretion. Since the Company had not been notified
      that it would be charged penalty interest, it was not required to accrue any
      as
      of June 30, 2005.




**Note
      9 - Note payable to former parent of subsidiary:**




In
      connection with the acquisition of Nexus, consideration totaling $2,750,000
      is
      payable through a five-year promissory note issued to Jaco, the former parent
      of
      Nexus. Interest is payable quarterly from December 1, 2004 until September
      1, 2009 at the lesser of a specified prime rate or 7%. The promissory note
      is
      payable in principal payments on the following dates: $500,000 on September
      1,
      2006, $156,250 per quarter commencing on December 1, 2006 through September
      1, 2008 and $250,000 per quarter commencing on December 1, 2008 through
      September 1, 2009. As of June 30, 2005, the Company was in default under the
      terms of the promissory note because it had not paid interest on the promissory
      note since February 2005. The change in control in November 2005 was also an
      event of default under the promissory note.




As
      of
      January 22, 2006, the Company has not made any more interest payments and it
      had
      not negotiated any waivers related to either of the events of default. As of
      January 22, 2006, the note holder had not given notice that it would declare
      the
      note immediately due and payable, although it has the right to do so. As a
      result of these events of default as of June 30, 2005, the outstanding balance
      of $2,750,000 under the note agreement has been classified as a current
      obligation. Defaults under other loan agreements, on loan amounts exceeding
      $5,000,000 could also result in an event of default under the terms of the
      promissory note agreement.




**Note
      10 - Lease commitments:**




The
      Company leases its manufacturing facilities and certain equipment. Minimum
      future lease payments under non-cancelable operating leases in each of the
      years
      subsequent to June 30, 2005, including the rentals under the renewed lease
      described below, are as follows:




Years
                EndingJune
                30,
            
            
            Amount2006
            
            $
            227,2482007
            
            
            186,4012008
            
            
            190,9582009
            
            
            18,221Total
            
            $
            622,828




Rent
      expense was $195,172 for Fiscal 2005.




The
      Company entered into a new lease for its manufacturing facility in Woburn,
      Massachusetts, on May 31, 2005. The term of the new lease began August 1, 2005
      and is for 36 months. The initial annual rent is $170,362 and the lease provides
      for annual rent increases of approximately 3% each year. Taxes and other
      operating expenses are prorated to the Company according to standard practices,
      based on its portion of the landlord’s overall space in the facility. The
      Company may renew the lease under a three-year option arrangement at August
      1,
      2008 at the prevailing markets rents at the time.




F-21




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      11 - Employment benefit plan:**




The
      Company maintains a 401(k) Plan (the “Plan”) which provides for benefits to
      eligible employees upon their retirement, death, disability or separation from
      the Company. The Plan permits participants to contribute up to a maximum of
      15%
      of their annual compensation, as defined, not to exceed the Federal limit
      ($14,000 in calendar 2005.) The Company makes matching contributions equal
      to
      25% of the contributing participants’ elective deferral up to a maximum of 4% to
      the Plan. These matching contributions amounted to $26,191 in Fiscal
      2005.




**Note
      12 - Income taxes:**




There
      was
      no current or deferred tax expense for Fiscal 2005 because of the Company’s
      operating loss.






The
      components of deferred tax assets as of June 30, 2005 are as
      follows:





CurrentReserve
                for uncollectible accounts receivable
            
            $
            24,724Inventory
                reserve
            
            
            282,340Total
            
            
            307,064Non-currentIntangibles
            
            
            638,361Tax
                loss carry forwards
            
            
            1,926,215Total
            
            
            2,564,576Gross
                deferred tax assets
            
            
            2,871,640Less
                valuation allowance
            
            
            (2,871,640
            )Net
                deferred tax assets
            
            $
            0





The
      reasons for the difference between the actual income tax benefit for Fiscal
      2005
      computed by applying the statutory federal income tax rate to losses before
      income tax benefit are as follows:





Amount
            
            
            PercentIncome
                tax benefit at statutory rate
            
            $
            (2,569,362
            )
            
            (34.0
            %)State
                  income taxes, net of
                  Federal income tax
            
            
            (302,278
            )
            
            (4.0
            %)Change
                in valuation allowance
            
            
            2,871,640
            
            
            38.0
            %Totals
            
            $
            0
            
            
            0.0
            %





A
      valuation allowance is provided when it is more likely than not that some
      portion or all of the deferred tax assets will not be realized. The tax benefit
      assumed using the statutory tax rates has been reduced to an actual benefit
      of
      zero due principally to the aforementioned valuation allowance.




At
      June
      30, 2005, the Company had net operating loss carry forwards of approximately
      $5,068,000  expiring
      at various dates through 2025 for Federal and state income tax purposes.
      However, as there was a subsequent change in control of the ownership of the
      Company, these loss carry forwards will be limited as to their use as required
      under Section 382 of the Internal Revenue Code.




F-22




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Note
      13- Subsequent events:**




**Sale
      of securities, Registration Rights Agreement and change in
      control:**




Sagamore
      Holdings entered into the SPA on November 10, 2005 with CSI Business Finance,
      Inc. (“CSI Finance”), a new investor, which provides for the sale of up to
      $1,250,000 of Secured Convertible Debentures that will be convertible into
      common shares of Sagamore Holdings. The SPA will expire on October 31, 2006.
      The
      Company paid $125,000 for loan origination fees which are being amortized
      through October 31, 2006. In addition to the SPA, Sagamore Holdings and CSI
      Finance entered into ancillary agreements covering CSI’s registration rights for
      the underlying common stock, and the security for any amount loaned. All assets
      of Sagamore Holdings are pledged under this agreement. At the date of the
      agreement, and at January 22, 2006, the only assets owned by Sagamore Holdings
      were its shares of Nexus, its wholly owned operating subsidiary and,
      accordingly, the assets of Nexus are the primary security for any amount loaned.
      However, CSI Finance’s lien on such assets is subordinate to the lien held by
      Comerica.




The
      following are the principal terms of the Secured Convertible
      Debentures:




·
            They
                mature on October 31, 2006.




·
            Interest
                is payable monthly at 12% annual
                rate.




·
            Monthly
                principal payments begin on the earlier of (a) one month from the
                date the
                registration of the underlying common shares is declared effective,
                or (b)
                five months from the date of sale.




·
            Monthly
                payments are equal to the outstanding balance divided by the remaining
                number of months to the maturity
                date.




·
            They
                are convertible into common shares at the option of CSI Finance at
                a
                conversion rate of $ 0.025 per
                share.




·
            They
                are redeemable at the option of Sagamore Holdings at face value plus
                a 20%
                premium above the market value of the underlying shares of common
                stock if
                the market value is greater than the conversion
                price.




·
            The
                Company must seek the consent of the holder if it wishes to sell
                any
                additional shares of capital stock or grant any additional security
                interests in its assets.




The
      shares of common stock issuable by the Company to the investor upon conversion
      of shares of the Secured Convertible Debentures will not be registered initially
      under the Securities Act of 1933. To provide for the registration of such
      underlying shares, the Company and the investor entered into a registration
      rights agreement, dated November 10, 2005, requiring the Company to prepare
      and
      file a registration statement covering the resale of the shares of common stock
      underlying the Secured Convertible Debentures. The registration rights agreement
      required the Company to use its best efforts to cause such registration
      statement to be declared effective no later than 150 days following November
      10,
      2005 (the date of the Registration Rights Agreement).




The
      Registration Rights Agreement also contains a liquidated damages provision
      which
      calls for CSI Finance to receive from the Company a specified amount of cash
      or
      shares if: (i) the Company fails to file a registration statement covering
      the
      underlying shares of common stock within 30 days of November 10, 2005, and,
      (ii)
      the registration statement is not declared effective within 150 days following
      November 10, 2005. In the event that one of the aforementioned failures occurs,
      the Registration Rights Agreement calls for the Company to pay, at the option
      of
      CSI Finance, a cash amount or shares of common stock equal to 2% of the
      liquidated amount, as defined, of that portion of the Secured Convertible
      Debentures which has not been converted into common stock as of the occurrence
      of such failure, with such amount to be paid by the Company to CSI Finance
      on a
      monthly basis after the occurrence of such failure. CSI Finance is entitled
      to
      receive the aforementioned damages until such time as the registration statement
      is declared effective. Since a registration statement registering the underlying
      shares of common stock was not filed within 30 days after the date of the
      registration rights agreement, nor is it likely that the registration rights
      agreement will be declared effective within 150 days from November 10, 2005,
      the
      Company will be required to record charges for the penalty beginning December
      10, 2005.




F-23




**SAGAMORE
      HOLDINGS, INC. AND SUBSIDIARY**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**




**Note
      13- Subsequent events (continued):**




Subsequent
      to the commencement of the SPA, the ancillary agreements and the sale of the
      Secured Convertible Debentures discussed above, the Company has not complied
      with several provisions of these agreements and was thus in default as of
      January 22, 2006. The Company has not paid interest, it has not timely filed
      the
      registration statement for the underlying securities, it is not current in
      its
      filing of its tax returns and it remains in default under the terms of its
      bank
      credit facility. Accordingly, CSI Finance could force the immediate repayment
      of
      the Secured Convertible Debentures.




On
      November 11, 2005, Corporate Strategies Inc. (“Corporate Strategies”) entered
      into a stock purchase agreement pursuant to which it purchased 70,600,000 shares
      of Sagamore Holdings’ common stock from previous holders who were also officers
      of the Company. As a result, Corporate Strategies acquired approximately 70%
      of
      the total shares of Sagamore Holdings’ common stock outstanding as of the date
      of said agreement, which resulted in a change in control of Sagamore Holdings
      and an event of default as defined in the loan agreements with Comerica and
      Jaco
      (see Notes 1, 8 and 9). Mr. Timothy J. Connolly is the Chief Executive Officer
      of CSI Finance and Corporate Strategies.




In
      connection with the acquisition of the control of Sagamore Holdings by Corporate
      Strategies, the previous holders of the common shares simultaneously resigned
      from their positions as executive officers and members of the Board of Directors
      of Sagamore Holdings; agreed to the cancellation of their shares of the Series
      B
      preferred stock; and agreed to the cancellation of their respective employment
      agreements.





As
      of
      January 22, 2006, CSI Finance had acquired $655,237 of such debentures pursuant
      to the SPA.





**Restructuring
      of manufacturing facility:**




In
      November 2005, management decided to downsize the Company’s manufacturing
      facility in Woburn, Massachusetts and operate it as a satellite operation
      instead of a full service facility due to a slowdown in the electronics industry
      and the loss of business because of customers moving the manufacturing of
      certain products to Asian sources. In connection therewith, the Company incurred
      approximately $40,000 in severance costs relating to the termination of 50
      employees. These costs will be recorded in the Company’s consolidated statement
      of operations for the fiscal quarter ending January 1, 2006, the period in
      which
      management made the decision to downsize.




Since
      the
      manufacturing equipment at this facility was underutilized prior to June 30,
      2005, and was subsequently abandoned or segregated for sale, the Company
      recognized an loss of $116,000 on the equipment in Fiscal 2005.




F-24