---

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UNITED
      STATESSECURITIES AND EXCHANGE
      COMMISSIONWashington D.C.
      20549FORM
  10-Q


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




For the quarterly period ended: February 28, 2009




OR




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




For the transition period from: _______ to
_______




Commission file number: 333-143931




Geeks On Call Holdings,
      Inc.(Exact Name of Registrant as Specified in
      Its Charter)Delaware
            20-8097265(State or Other Jurisdiction of
      Incorporation or Organization)
            (I.R.S. Employer Identification
      No.)814 Kempsville RoadSuite 106
            23502Norfolk, VA(Address of Principal Executive
      Offices)
            (Zip code)(757) 466-3448(Registrant’s Telephone Number, Including
      Area Code)


(Former Name, Former Address and Former Fiscal
Year, if Changed Since Last Report)




Indicate by check mark whether the registrant: (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. YES [X] NO [  ]




Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):




Large Accelerated Filer [  ]
            Accelerated Filer [  ]Non-Accelerated Filer [  ]
            Smaller reporting company [X](Do not check if a smaller reporting
      company)


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




As of May 15, 2009, 23,583,447 shares of common stock, $0.001
par value per share, of the issuer were outstanding.




---

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Forward Looking
Statements




This quarterly report on Form 10-Q may contain so-called
“forward-looking statements,” all of which are subject to risks and
uncertainties. Forward-looking statements can be identified by the use of words
such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,”
“estimates,” and other words of similar meaning. One can identify them by the
fact that they do not relate strictly to historical or current facts. These
statements are likely to address our growth strategy, financial results, ability
to raise additional capital and product and development programs. One must
carefully consider any such statement and should understand that many factors
could cause actual results to differ from our forward looking statements. These
factors may include inaccurate assumptions and a broad variety of other risks
and uncertainties, including some that are known and some that are not. No
forward looking statement can be guaranteed and actual future results may vary
materially.




Information regarding market and industry statistics contained
in this quarterly report on Form 10-Q is included based on information available
to us that we believe is accurate. It is generally based on industry and other
publications that are not produced for purposes of securities offerings or
economic analysis. We have not reviewed or included data from all sources, and
cannot assure investors of the accuracy or completeness of the data included in
this quarterly report of Form 10-Q. Forecasts and other forward-looking
information obtained from these sources are subject to the same qualifications
and the additional uncertainties accompanying any estimates of future market
size, revenue and market acceptance of products and services. We do not assume
any obligation to update any forward-looking statement. As a result, investors
should not place undue reliance on these forward-looking statements.




The forward-looking statements included in this quarterly
report on Form 10-Q are made only as of the date of this quarterly report on
Form10-Q. We do not intend, and do not assume any obligation to, update these
forward looking statements, except as required by law.




---





GEEKS ON CALL HOLDINGS,
INC.




TABLE OF CONTENTS




PagePART I.
            FINANCIAL INFORMATIONItem 1.
            Financial Statements
            
            F-1Condensed Consolidated Balance Sheets as
      of February 28, 2009 (unaudited) and August 31, 2008
            
            F-1Condensed Consolidated Statements of
      Operations for the Three and Six Months Ended February 28, 2009 and
      February 29, 2008 (unaudited)
            
            F-2Condensed Consolidated Statements of
      Stockholders’ Deficit for the Year Ended August 31, 2008 and Six Months
      Ended February 28, 2009 (unaudited)
            
            F-3Condensed Consolidated Statements of
      Cash Flows for the Six Months Ended February 28, 2009 and February 29,
      2008 (unaudited)
            
            F-5Notes to Condensed Consolidated
      Financial Statements (unaudited)
            
            F-6 to F-28Item 2.
            Management’s Discussion and Analysis of
      Financial Condition and Results of Operations
            
            1Item 4T.
            Controls and
    Procedures
            
            11PART II.
            OTHER INFORMATIONItem 1.
            Legal Proceedings
            
            12Item 1A.
            Risk Factors
            
            12Item 2.
            Unregistered Sales of Equity Securities
      and Use of Proceeds
            
            12Item 3
            Defaults upon Senior
      Securities
            
            13Item 4.
            Submission of Matters to a Vote of
      Security Holders
            
            13Item 5.
            Other Information
            
            13Item 6.
            Exhibits
            
            13


---





PART I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS




GEEKS ON CALL HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS




February 28,2009
            
            August 31,2008(unaudited)ASSETSCurrent assets:Cash
      and cash equivalents
            
            $
            21,640
            
            $
            177,499Accounts receivable, net of allowance for doubtful accounts of
      $147,657 and $23,601, respectively
            
            
            141,824
            
            
            146,707Notes
      receivable, current portion, net of allowance for doubtful accounts of
      $8,884 and $48,320, respectively
            
            
            74,941
            
            
            63,429Lease
      receivable, current portion
            
            
            2,731
            
            
            19,119Financing costs, net of accumulated amortization of
      $183,113
            
            
            283,377
            
            
            —Prepaid expenses and other current assets
            
            
            527,315
            
            
            344,808Total current assets
            
            
            1,051,828
            
            
            751,562Property and equipment, net
            
            
            608,813
            
            
            731,306Other
      assets:Deposits
            
            
            2,034
            
            
            2,034Notes
      receivable, long term portion, net of allowance for doubtful accounts of
      $68,360 and $0, respectively
            
            
            166,187
            
            
            253,754Customer lists, net of accumulated amortization of $35,542 and
      $21,458, respectively
            
            
            69,958
            
            
            84,042Trademarks, net of accumulated amortization of $7,166 and $6,689,
      respectively
            
            
            7,167
            
            
            7,644Total
      other assets
            
            
            245,346
            
            
            347,474Total
      Assets
            
            $
            1,905,987
            
            $
            1,830,342LIABILITIES AND STOCKHOLDERS’ DEFICITCurrent liabilities:Accounts payable and accrued liabilities
            
            $
            2,510,307
            
            $
            2,155,192Line
      of credit
            
            
            467,520
            
            
            200,000Notes
      payable, current portion
            
            
            454,510
            
            
            449,959Notes
      payable, related parties
            
            
            191,000
            
            
            —Obligation under capital lease, current portion
            
            
            26,955
            
            
            69,505Deferred franchise and initial advertising fees
            
            
            78,317
            
            
            70,026Other
      deferred liabilities, current portion
            
            
            7,525
            
            
            7,525Total current liabilities
            
            
            3,736,134
            
            
            2,952,207Long-term liabilities:Note
      payable, long term portion
            
            
            62,295
            
            
            88,129Other
      deferred liabilities
            
            
            66,179
            
            
            71,130Total liabilities
            
            
            3,864,608
            
            
            3,111,466STOCKHOLDERS’ DEFICITPreferred stock, par value $0.001; authorized 10,000,000 shares,
      none issued and outstanding
            
            
            —
            
            
            —Common
      stock, par value of $0.001; authorized 100,000,000 shares; issued and
      outstanding as of February 28, 2009 and August 31, 2008: 23,327,374 and
      14,152,500 shares, respectively
            
            
            23,327
            
            
            14,153Common
      stock subscription
            
            
            —
            
            
            —Additional paid-in capital
            
            
            10,693,186
            
            
            9,109,354Accumulated deficit
            
            
            (12,675,134
            )
            
            (10,404,631
            )Total stockholders’ deficit
            
            
            (1,958,621
            )
            
            (1,281,124
            )Total Liabilities and Stockholders’ Deficit
            
            $
            1,905,987
            
            $
            1,830,342


The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements




F-1




---





GEEKS ON CALL HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(unaudited)




Three months ended
            
            Six months endedFebruary 28,2009
            
            February 29,2008
            
            February 28,2009
            
            February 29,2008REVENUES:Franchise, area developer and initial advertising and marketing
      fees
            
            $
            208,795
            
            $
            141,055
            
            $
            446,930
            
            $
            403,865Royalties and advertising and marketing fees
            
            
            668,961
            
            
            1,259,378
            
            
            1,413,548
            
            
            2,576,579Other
            
            
            9,109
            
            
            10,630
            
            
            21,617
            
            
            35,690Total revenue
            
            
            886,865
            
            
            1,411,063
            
            
            1,882,095
            
            
            3,016,134OPERATING EXPENSES:Selling, general and administrative expenses
            
            
            1,532,619
            
            
            1,688,374
            
            
            3,278,518
            
            
            2,666,395Advertising and marketing expense
            
            
            180,291
            
            
            873,622
            
            
            523,416
            
            
            1,872,321Depreciation and amortization
            
            
            66,842
            
            
            37,150
            
            
            136,200
            
            
            73,536Total operating expenses
            
            
            1,779,752
            
            
            2,599,146
            
            
            3,938,134
            
            
            4,612,252Loss from operations
            
            
            (892,887
            )
            
            (1,188,083
            )
            
            (2,056,039
            )
            
            (1,596,118
            )Other
      income (expense):Other
      income (expense)
            
            
            (6,504
            )
            
            4,275
            
            
            (1,200
            )
            
            4,275Dividends on mandatory redeemable preferred stock
            
            
            —
            
            
            10,862
            
            
            —
            
            
            (6,340
            )Interest income (expense), net
            
            
            (199,270
            )
            
            (364
            )
            
            (213,264
            )
            
            55Net
      loss before provision for income taxes
            
            
            (1,098,661
            )
            
            (1,173,310
            )
            
            (2,270,503
            )
            
            (1,598,128
            )Income
      taxes (benefit)
            
            
            —
            
            
            —
            
            
            —
            
            
            —NET
      LOSS
            
            
            (1,098,661
            )
            
            (1,173,310
            )
            
            (2,270,503
            )
            
            (1,598,128
            )Preferred stock dividend
            
            
            —
            
            
            9,199
            
            
            —
            
            
            68,992NET
      LOSS AVAILABLE TO COMMON STOCKHOLDERS
            
            $
            (1,098,661
            )
            $
            (1,182,509
            )
            $
            (2,270,503
            )
            $
            (1,667,120
            )Loss
      per shares, basic and diluted
            
            $
            (0.06
            )
            $
            (0.16
            )
            $
            (0.13
            )
            $
            (0.28
            )Weighted average number of common shares outstanding, basic and
      diluted
            
            
            19,108,965
            
            
            7,370,627
            
            
            16,820,574
            
            
            6,038,933


The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements




F-2




---





GEEKS ON CALL HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICITYEAR ENDED
AUGUST 31, 2008 AND FOR THE SIX MONTHS ENDED FEBRUARY 28,
2009(unaudited)




Common stock
            
            Preferred stock, Class A
            
            Preferred stock, Class B
            
            Preferred stock, Class CShares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            Amount
            
            Shares
            
            AmountBalance, August 31, 2007
            
            
            4,707,229
            
            $
            4,707
            
            
            —
            
            
            —
            
            
            160,404
            
            $
            2,152,417
            
            
            119,784
            
            $
            741,291Rounding
            
            
            10
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred stock dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            49,696
            
            
            —
            
            
            19,296Common
      stock issued in exchange for conversion of Series B preferred stock and
      accrued dividends on December 14, 2007
            
            
            2,097,756
            
            
            2,098
            
            
            —
            
            
            —
            
            
            (160,404
            )
            
            (2,202,113
            )
            
            —
            
            
            —Common
      stock issued in exchange for conversion of Series C preferred stock and
      accrued dividends on December 14, 2007
            
            
            655,475
            
            
            656
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            (119,784
            )
            
            (760,587
            )Common
      stock issued in exchange for conversion of Series D redeemable preferred
      stock and accrued dividends on December 14, 2007
            
            
            552,225
            
            
            552
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Cancellation of previously issued common stock for services
      rendered
            
            
            (12,695
            )
            
            (13
            )
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Effect
      of reverse merger on December 14, 2007
            
            
            2,150,000
            
            
            2,150
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Sale of common stock
            
            
            3,800,000
            
            
            3,800
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Fair
      value of vested options granted to officers and directors
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in exchange for acquired assets
            
            
            125,000
            
            
            125
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in June 2008 in exchange for services
rendered
            
            
            42,500
            
            
            43
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in August 2008 in exchange for services
    rendered
            
            
            15,000
            
            
            15
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in August 2008 in exchange for reacquired
      franchise
            
            
            20,000
            
            
            20
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Balance, August 31, 2008
            
            
            14,152,500
            
            
            14,153
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in September 2008 in exchange for services
      rendered
            
            
            15,000
            
            
            15
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Sale
      of common stock subscription
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in October 2008 in exchange for services
    rendered
            
            
            21,501
            
            
            21
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in conjunction with certain anti-dilution provisions included
      as part of a private sale of common stock
            
            
            7,292,199
            
            
            7,292
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in settlement with debt
            
            
            63,000
            
            
            63
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Fair
      value of warrants issued in connection with issuance of
    debt
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Fair
      value of warrant issued in exchange for compensation
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Fair
      value of vested options granted to officers, employees and
      consultants
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued for stock subscription
            
            
            1,328,174
            
            
            1,328
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Common
      stock issued in February 2009 in exchange for services
      rendered
            
            
            455,000
            
            
            455
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Net loss
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Balance, February 28, 2009
            
            
            23,327,374
            
            $
            23,327
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —
            
            
            —
            
            $
            —


The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements




F-3




---





GEEKS ON CALL HOLDINGS,
INC.CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ DEFICITYEAR ENDED
AUGUST 31, 2008 AND FOR THE SIX MONTHS ENDED FEBRUARY 28,
2009(unaudited)




Common stock to be issuedAdditionalPaid in
    Capital
            
            Accumulated DeficitShares
            
            Amount
            
            
            
            TotalBalance, August 31, 2007
            
            
            —
            
            $
            —
            
            $
            1,846,446
            
            $
            (5,370,659
            )
            $
            (625,798
            )Rounding
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Preferred stock dividend
            
            
            —
            
            
            —
            
            
            —
            
            
            (68,992
            )
            
            —Common
      stock issued in exchange for conversion of Series B preferred stock and
      accrued dividends on December 14, 2007
            
            
            —
            
            
            —
            
            
            2,200,015
            
            
            —
            
            
            —Common
      stock issued in exchange for conversion of Series C preferred stock and
      accrued dividends on December 14, 2007
            
            
            —
            
            
            —
            
            
            759,931
            
            
            —
            
            
            —Common
      stock issued in exchange for conversion of Series D redeemable preferred
      stock and accrued dividends on December 14, 2007
            
            
            —
            
            
            —
            
            
            620,160
            
            
            —
            
            
            620,712Cancellation of previously issued common stock for services
      rendered
            
            
            —
            
            
            —
            
            
            (23,087
            )
            
            —
            
            
            (23,100
            )Effect
      of reverse merger on December 14, 2007
            
            
            —
            
            
            —
            
            
            (2,150
            )
            
            —
            
            
            —Sale
      of common stock
            
            
            —
            
            
            —
            
            
            3,193,103
            
            
            —
            
            
            3,196,903Fair
      value of vested options granted to officers and directors
            
            
            —
            
            
            —
            
            
            264,990
            
            
            —
            
            
            264,990Common
      stock issued in exchange for acquired assets
            
            
            —
            
            
            —
            
            
            187,375
            
            
            —
            
            
            187,500Common
      stock issued in June 2008 in exchange for services
rendered
            
            
            —
            
            
            —
            
            
            42,456
            
            
            —
            
            
            42,499Common
      stock issued in August 2008 in exchange for services
    rendered
            
            
            —
            
            
            —
            
            
            11,535
            
            
            
            
            
            11,550Common
      stock issued in August 2008 in exchange for reacquired
      franchise
            
            
            —
            
            
            —
            
            
            8,580
            
            
            
            
            
            8,600Net
      loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (4,964,980
            )
            
            (4,964,980
            )Balance, August 31, 2008
            
            
            —
            
            
            —
            
            
            9,109,354
            
            
            (10,404,631
            )
            
            (1,281,124
            )Common
      stock issued in September 2008 in exchange for services
      rendered
            
            
            —
            
            
            —
            
            
            10,485
            
            
            —
            
            
            10,500Sale
      of common stock subscription
            
            
            1,328,174
            
            
            513,401
            
            
            —
            
            
            —
            
            
            513,401Common
      stock issued in October 2008 in exchange for services
    rendered
            
            
            —
            
            
            —
            
            
            7,289
            
            
            —
            
            
            7,310Common
      stock issued in conjunction with certain anti-dilution provisions included
      as part of a private sale of common stock
            
            
            —
            
            
            —
            
            
            (7,292
            )
            
            —
            
            
            —Common
      stock issued in settlement with debt
            
            
            —
            
            
            —
            
            
            21,358
            
            
            —
            
            
            21,421Fair
      value of warrants issued in connection with issuance of
    debt
            
            
            —
            
            
            —
            
            
            466,490
            
            
            
            
            
            466,490Fair
      value of vested options granted to officers, employees and
      consultants
            
            
            —
            
            
            —
            
            
            477,683
            
            
            —
            
            
            477,683Fair
      value of warrants issued in exchange for compensation
            
            
            —
            
            
            —
            
            
            5,201
            
            
            —
            
            
            5,201Common
      stock issued for stock subscription
            
            
            (1,328,174
            )
            
            (513,401
            )
            
            512,073
            
            
            —
            
            
            —Common
      stock issued in February 2009 in exchange for services
      rendered
            
            
            —
            
            
            —
            
            
            90,545
            
            
            —
            
            
            91,000Net loss
            
            
            —
            
            
            —
            
            
            —
            
            
            (2,270,503
            )
            
            (2,270,503
            )Balance, February 28, 2009
            
            
            —
            
            $
            —
            
            $
            10,693,186
            
            $
            (12,675,134
            )
            $
            (1,958,621
            )


The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements




F-4




---





GEEKS ON CALL HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(unaudited)




Six months endedFebruary 28,2009
            
            February 29,2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net loss
            
            $
            (2,270,503
            )
            $
            (1,598,128
            )Adjustments to reconcile net loss to net cash used in operating
      activities:Depreciation and amortization
            
            
            136,200
            
            
            73,536Loss on disposal of assets
            
            
            854
            
            
            —Bad debt expense
            
            
            167,236
            
            
            64,022Amortization of financing costs
            
            
            183,113
            
            
            —Common stock issued in exchange for services
    rendered
            
            
            108,810
            
            
            —Fair value of warrants issued in exchange for
      compensation
            
            
            5,201
            
            
            —Fair value of vested options granted to officers, directors,
      employees and consultants
            
            
            477,683
            
            
            264,990Changes in operating assets and liabilities:Accounts receivable
            
            
            (133,430
            )
            
            (117,712
            )Prepaid expenses and other current assets
            
            
            (80,938
            )
            
            (203,377
            )Employee advances
            
            
            
            
            
            (65,761
            )Accounts payable and accrued liabilities
            
            
            376,536
            
            
            (15,295
            )Deferred franchise fees
            
            
            8,291
            
            
            (129,843
            )Deferred other liabilities
            
            
            (4,951
            )
            
            465Net cash used in operating activities
            
            
            (1,025,898
            )
            
            (1,727,103
            )CASH
      FLOWS FROM INVESTING ACTIVITIES:Collections of loans to franchisees and others
            
            
            63,520
            
            
            9,799Purchase of property and equipment
            
            
            —
            
            
            (74,774
            )Net cash provided by (used in) investing activities
            
            
            63,520
            
            
            (64,975
            )CASH
      FLOWS FROM FINANCING ACTIVITIES:Redemption of common stock
            
            
            —
            
            
            (23,100
            )Proceeds (repayments) of capital lease obligation
            
            
            (42,550
            )
            
            11,304Proceeds (repayments) of credit line
            
            
            267,520
            
            
            (200,000
            )Proceeds from issuance of notes payable
            
            
            101,847
            
            
            —Proceeds from issuance of notes payable, related
    party
            
            
            191,000
            
            
            —Repayments of notes payable
            
            
            (224,699
            )
            
            (110,000
            )Proceeds from sale of common stock
            
            
            513,401
            
            
            3,196,903Net cash provided by financing activities
            
            
            806,519
            
            
            2,875,107Net
      (decrease) increase in cash and cash equivalents
            
            
            (155,859
            )
            
            1,083,029Cash
      and cash equivalents, beginning of period
            
            
            177,499
            
            
            280,846Cash
      and cash equivalents, end of period
            
            $
            21,640
            
            $
            1,363,875Supplement disclosures of cash flow informationInterest paid
            
            $
            30,355
            
            $
            14,719Income taxes paid
            
            $
            —
            
            $
            —Fair
      value of vested options granted to officers, directors, employees and
      consultants
            
            $
            477,683
            
            $
            264,990Fair
      value of warrants issued in connection with issuance of notes payable,
      related parties
            
            $
            246,778
            
            $
            —Annual
      insurance premium financed
            
            $
            101,569
            
            $
            —Fair
      value of warrants issued in exchange for compensation
            
            $
            5,201
            
            $
            —Common
      stock issued in exchange for debt
            
            $
            21,420
            
            $
            —


The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.




F-5




---





GEEKS ON CALL HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




General




The accompanying unaudited condensed
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information not misleading.




In the opinion of management, the unaudited
condensed consolidated financial statements have been prepared on the same basis
as the annual consolidated financial statements and reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the
consolidated financial position as of February 28, 2009 and the results of
operations and cash flows for the periods ended February 28, 2009 and February
29, 2008. The financial data and other information disclosed in the notes to the
interim financial statements related to these periods are unaudited. The results
for the three and six month periods ended February 28, 2009 is not necessarily
indicative of the results to be expected for any subsequent quarter or the
entire year ending August 31, 2009.




These unaudited condensed consolidated financial
statements should be read in conjunction with our audited consolidated financial
statements and the notes thereto for the year ended August 31, 2008, included in
the Company’s annual report on Form10-K filed with the SEC on December 4, 2008.




The consolidated financial statements as August
31, 2008 have been derived from the audited consolidated financial statements at
that date but do not include all disclosures required by the accounting
principles generally accepted in the United States of America.




Business and Basis of
Presentation




The Company’s operating subsidiary, Geeks On
Call America, Inc., was incorporated under the laws of the State of Virginia on
June 11, 2001 and subsequently reincorporated on December 14, 2007 under the
laws of the State of Delaware. The Company provides rapid-response, on-site
computer solutions to residential customers, small to medium sized businesses
and national accounts accross the United States. On-site solutions are provided
through a network of independent franchisees and a national network of certified
IT professionals conducting business under the trade names “1 800 905 GEEK” and
“Geeks On Call”®.




Geeks On Call Holdings, Inc. was created through
a reverse merger process with Lightview, Inc, which was incorporated under the
laws of the State of Nevada on December 22, 2006 under the name Lightview, Inc,
(“Lightview”) and formerly operated as a development stage company. On January
23, 2008, Lightview merged with and into Geeks On Call Holdings, Inc., a
newly-formed wholly owned subsidiary of Lightview, for the sole purpose of
reincorporating in the State of Delaware and changing the name of the company.
Thereafter, on February 8, 2008, Geeks On Call America, Inc., Geeks On Call
Holdings, Inc. and Geeks On Call Acquisition Corp, a newly-formed wholly-owned
subsidiary of Geeks On Call Holdings, Inc. (“Acquisition Corp.”), entered into a
merger agreement (the “Merger Agreement”). Upon closing of the merger
transaction contemplated under the Merger Agreement (the “Merger”), Acquisition
Corp. merged with and into Geeks On Call America, Inc., and Geeks On Call
America, Inc., as the surviving corporation, became the sole wholly-owned
operating subsidiary. The consolidated financial statements include the accounts
of Geeks On Call Holdings, Inc., the registrant and Geeks On Call America, Inc.,
the sole wholly-owned operating subsidiary (collectively, the “Company”).




While the Company has generated revenues from
its franchise operations, the Company has incurred expenses, and sustained
losses. Consequently, its operations are subject to all risks inherent in the
establishment of a new business enterprise. As of February 28, 2009, the Company
has accumulated losses of $12,675,134.




All significant intercompany balances and
transactions have been eliminated in consolidation.




F-6




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Merger and Corporate
Restructure




On February 8, 2008, the Company consummated a
reverse merger by entering into an Agreement of Merger and Plan of
Reorganization (“Reorganization”) with the stockholders of Geeks On Call
America, Inc. (the “Share Exchange”), pursuant to which the stockholders of
Geeks On Call America, Inc. (“Geeks”) exchanged all of the issued and
outstanding capital stock of Geeks for 8,000,000 shares of common stock of Geeks
On Call Holdings, Inc., representing 79% of Geeks On Call Holdings, Inc.’s (the
“Parent”) outstanding capital stock, after the return to treasury and retirement
of 2,866,667 shares of common stock of the Parent held by certain stockholders
of the Parent made concurrently with the share exchange. Upon consummation of
the Reorganization, Geeks became a sole wholly-owned subsidiary of the Parent
(the “Company”).




The acquisition is accounted for as a “reverse
acquisition”, since the stockholders of Geeks owned a majority of the Parent’s
common stock immediately following the transaction. The combination of the two
companies is recorded as a recapitalization of Geeks pursuant to which Geeks is
treated as the surviving and continuing entity although the Parent is the legal
acquirer. Accordingly, the Company’s historical financial statements are those
of Geeks. The Company did not recognize goodwill or any intangible assets in
connection with this transaction.




All references to common stock, share and per
share amounts have been retroactively restated to reflect the reverse
acquisition as if the transaction had taken place as of the beginning of the
earliest period presented.




The total consideration paid was $-0- and the
significant components of the transaction are as follows:




Geeks On Call Holdings, Inc. (Formerly Lightview,
Inc.)Summary Statement of Financial Position At February 8,
2008




Assets:
            
            $
            -0-Liabilities:
            
            $
            -0-Net liabilities assumed
            
            $
            -0-Total consideration:
            
            $
            -0-


Revenue
Recognition




The Company accounts for revenue under the
guidance provided by SFAS No. 45, “Accounting for Franchise Fee Revenue (as
amended)” and EITF 00-21, “Revenue Arrangements with Multiple
Deliverables”.




Franchise fee revenue is recognized when (i) all
material obligations of the Company to prepare a franchisee for operations have
been substantially completed; and (ii) all material initial services to be
provided by the Company have been performed, with an appropriate provision for
estimated uncollectible amounts. Obligations to prepare the franchisee for
operations are substantially completed upon the completion by the franchisee of
the Company’s training program.




There are no other material conditions or
commitments or obligations that exist related to the determination of
substantial performance or substantial completion of a franchise
agreement.




F-7




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 –
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Area
Development Sales




Area developer sales, where by the Company sells
the rights to develop a territory or market, are nonrefundable fees recognized
as revenue upon signature of an area development agreement and substantial
completion of all of the Company’s obligations associated with the opening of
the first franchise under such agreement have been met. Substantial completion
includes, but is not limited to, conducting market and trade area analysis, a
meeting with the Company’s executive team, and performing potential franchise
background investigation, all of which are completed prior to the Company’s
execution of the area development agreement and receipt of the corresponding
area development fee. As a result, the Company recognizes this fee in full upon
receipt and with the opening of the first franchise under the area development
agreement.




No additional substantive services are required
after the first franchise is opened under the Area Development Agreement.




Advertising and Marketing
and Royalty Fees




Initial advertising and marketing fees are
recognized when the territory is open and the related advertising and marketing
has been performed. Ongoing royalties and advertising and marketing fees are
recognized as the franchised territory generates sales and ongoing advertising
and marketing is performed.




Repossessed Franchises




From time to time the Company may recover
franchise rights through repossession, or if a franchisee fails to open a
previously granted franchise. If, for any reason, the Company refunds the
consideration received, the original sale is canceled, and revenue previously
recognized is accounted for as a reduction in revenue in the period the
franchise is repossessed. If franchise rights are repossessed but no refund is
made (a) the transaction is not regarded as a sale cancellation, (b) no
adjustment is made to any previously recognized revenue, (c) any estimated
uncollectible amounts resulting from unpaid receivables is provided for, and (d)
any consideration retained for which revenue was not previously recognized is
reported as revenue.




Deferred Franchise Fees




The Company may receive all or part of the
initial franchise or advertising fee prior to the execution of the franchise
agreement or the completion of the earnings process. These amounts are
classified as deferred revenue until the fee qualifies to be recognized as
revenue or is refunded.




Use of Estimates




The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.




Cash and cash equivalents




For purposes of the Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with a
maturity date of three months or less to be cash and cash equivalents. The
Company had $21,640 and $177,499 in cash and cash equivalents at February 28,
2009 and August 31, 2008, respectively.




Allowance for doubtful
accounts




The Company periodically reviews its trade and
notes receivables in determining its allowance for doubtful accounts. As of
February 28, 2009 and August 31, 2008 allowance for doubtful accounts balances
for trade receivables was $147,657 and $23,601, respectively. The allowance for
doubtful accounts balances for notes receivable was $77,244 and $48,320 as of
February 28, 2009 and August 31, 2008.




F-8




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 –
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Inventories




Inventories, totaling $-0- and $32,402 (net of
reserve for obsolete and slow moving inventory of $15,339) as of February 28,
2009 and August 31, 2008, respectively, are stated at the lower of cost (first
in, first out) or net realizable value, and consist primarily of products for
sale to franchisees, business forms, marketing and promotional supplies for sale
to the Company’s franchisees. Inventories are included in prepaid expenses and
other current assets in the accompanying unaudited condensed consolidated
balance sheets. The Company has written off $40,402 at February 28, 2009 based
on management’s assessment on the inventory valuation.




Property and
Equipment




Property and equipment are recorded at cost and
depreciated over their estimated useful lives using the straight-line method as
follows:




Office furniture and equipment
            10 yearsComputer equipment
            5 yearsVehicles
            5 yearsSoftware
            3 yearsLeasehold improvements
            lesser of lease terms or 7 years


Expenditures for repairs and maintenance which
do not materially extend the useful lives of property and equipment are charged
to operations. When property or equipment is sold or otherwise disposed of, the
cost and related accumulated depreciation are removed from the respective
accounts with the resulting gain or loss reflected in operations. Management
periodically reviews the carrying value of its property and equipment for
impairment. The property and equipment had not incurred any impairment loss at
February 28, 2009 and August 31, 2008.




Customer lists




The Company acquired the rights to provide
direct services to customers previously under a franchisee contract by issuing a
note payable for the consideration of $154,500.




The Company amortized its intangible asset using
the straight-line method over its estimated period of benefit. The estimated
useful life for the customer lists is three years. The Company periodically, but
at least annually, evaluates the recoverability of intangible assets and takes
into account events or circumstances that warrant revised estimates of useful
lives, or that impairment indicators are present.




For the three and six month periods ended
February 28, 2009, amortization of $5,292 and $14,084 was charged to operations,
respectively.




The Company’s management performed an evaluation
of its intangible assets (customer lists) at August 31, 2008 for purposes of
determining the implied fair value of the assets. The test indicated that the
recorded book value of the customer lists exceeded its fair value, as determined
by calculating a fair value based upon a discounted cash flows of the projected
and assumed fees from the current binding service agreements and other recurring
fees earned from these customer lists and accordingly recorded an impairment
charge of $49,000 to prior year’s results of operations at August 31, 2008. The
customer lists cost basis has been adjusted to reflect the new cost basis of
$105,500 at August 31, 2008. Considerable management judgment is necessary to
estimate the fair value; these estimates of cash flows are significantly
impacted by estimates of revenues, costs, and other factors. Due to
uncertainties in the estimation process, actual results could differ from such
estimates. There was no impairment charged to operations for the three and six
month periods ended February 28, 2009.




Advertising and
Marketing




The Company follows the policy of charging the
costs of advertising and marketing to expense as incurred. The Company charged
to operations of $180,291 and $523,416 as advertising and marketing costs for
the three and six month periods ended February 28, 2009, respectively and
$873,622 and $1,872,321 for the three and six month periods ended February 29,
2008, respectively.




F-9




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Impairment of Long-Lived
Assets




The Company follows Statement of Financial
Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS No. 144”). SFAS No. 144 requires
that long-lived assets and certain identifiable intangibles held and used by the
Company be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Events
relating to recoverability may include significant unfavorable changes in
business conditions, recurring losses, or a forecasted inability to achieve
break-even operating results over an extended period. The Company evaluates the
recoverability of long-lived assets based upon forecasted discounted cash flows.
Should impairment in value be indicated, the carrying value of the long-lived
assets and certain identifiable intangibles will be adjusted, based on estimates
of future discounted cash flows resulting from the use and ultimate disposition
of the asset. SFAS No. 144 also requires assets to be disposed of be reported at
the lower of the carrying amount or the fair value less disposal costs.




As described above, the Company’s management
performed an evaluation of its customer lists for purposes of determining the
implied fair value of the assets. The test indicated that the recorded book
value of the customer lists exceeded its fair value, as determined by discounted
cash flows and accordingly recorded an impairment charge of $49,000 to its
operations at August 31, 2008. There was no impairment charges to operations for
the three and six month periods ended February 28, 2009 and February 29, 2008.




Stock Based Compensation




On December 16, 2004, the FASB issued SFAS No.
123(R) (revised 2004), “Share-Based Payment” which is
a revision of SFAS No. 123, “Accounting for Stock-Based
Compensation”. SFAS No. 123(R) supersedes APB opinion No. 25, “Accounting for Stock Issued to
Employees”, and amends SFAS No. 95, “Statement of Cash Flows”.
Generally, the approach in SFAS No. 123(R) is similar to the approach described
in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values. Pro-forma disclosure is no longer
an alternative. The effective date for our application of SFAS No. 123(R) is
September 1, 2006. Management has elected to apply SFAS No. 123(R) commencing on
that date.




As more fully described in Note 16 below, the
Company granted 65,000 and 2,285,000 stock options during the three month
periods ended February 28, 2009 and February 29, 2008, respectively; and 150,000
and 2,285,000 stock options during the six month periods ended February 28, 2009
and February 29, 2008, respectively, to employees and directors of the Company
under a non-qualified employee stock option plan.




As of February 28, 2009, 2,585,000 employee
stock options were outstanding with 757,000 shares vested and exercisable.




As of February 28, 2009, there were 50,000
shares of non-employee stock options (consultants) outstanding and fully vested
and exercisable.




Segment reporting




The Company adopted Statement of Financial
Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and
Related Information” (“SFAS 131”). SFAS establishes standards for reporting
information regarding operating segments in annual financial statements and
requires selected information for those segments to be presented in interim
financial reports issued to stockholders. SFAS 131 also establishes standards
for related disclosures about products and services and geographic areas.
Operating segments are identified as components of an enterprise about which
separate discrete financial information is available for evaluation by the chief
operating decision maker, or decision making group, in making decisions how to
allocate resources and assess performance. The information disclosed herein,
materially represents all of the financial information related to the Company’s
principal operating segment.




F-10




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Income
taxes




The Company follows SFAS No. 109, “Accounting for Income Taxes”
(SFAS No. 109) for recording the provision for income taxes. Deferred tax assets
and liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability during each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required to
reduce the deferred tax assets to the amount that is more likely than not to be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which the
temporary differences are expected to reverse.




Loss per
share




In accordance with SFAS No. 128, “Earnings per Share”, the
basic loss per share is computed by dividing loss available to common
shareholders by the weighted average number of common shares outstanding.
Diluted loss per share is computed similar to basic loss per share except that
the denominator is increased to include the number of additional common shares
that would have been outstanding as if the potential common shares had been
issued and if the additional common shares were dilutive. Common equivalent
shares are excluded from the computation of the diluted loss per share as their
effect would be anti-dilutive. There were -0- and 2,125,000 common stock
equivalent shares as of February 28, 2009 and February 29, 2008, respectively.




Fair Value of Financial
Instruments




SFAS No. 107, “Disclosures About Fair Value of
Financial Instruments,” requires disclosure of the fair value of certain
financial instruments. The carrying value of cash and cash equivalents, accounts
payable and accrued liabilities, and short-term borrowings, as reflected in the
consolidated balance sheets, approximate fair value because of the short-term
maturity of these instruments. All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been disclosed.




Effective September 1, 2008, we adopted SFAS No.
157, “Fair Value Measurements” (“SFAS No. 157”) and SFAS No. 159, “The Fair
Value Option for Financial Assets and Financial Liabilities - Including an
Amendment of FASB Statement No. 115” (“SFAS No. 159”), which permits entities to
choose to measure many financial instruments and certain other items at fair
value. Neither of these statements had an impact on the Company’s consolidated
financial position, results of operations or cash flows.




Reclassifications




Certain amounts in prior year’s consolidated
financial statements and the related notes have been reclassified to conform to
current period’s presentation. These reclassifications have no effect on
previously reported results of operations.




Recent accounting
pronouncements




In December 2007, the FASB issued SFAS No.
141(R), “Business
Combinations” (“SFAS No. 141(R)”), which establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141R is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company does not expect
the adoption of SFAS No. 141R on September 1, 2009 will have a material effect
on its consolidated financial position, results of operations or cash
flows.




F-11




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Recent accounting
pronouncements (continued)




In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No.
160”), which will change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160 is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company does not expect
the adoption of SFAS No. 160 on September 1, 2009 to have a material effect on
its consolidated financial position, results of operations or cash
flows.




In December 2007, the FASB ratified the
consensus in Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for
Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines collaborative
arrangements and requires collaborators to present the result of activities for
which they act as the principal on a gross basis and report any payments
received from (made to) the other collaborators based on other applicable
authoritative accounting literature, and in the absence of other applicable
authoritative literature, on a reasonable, rational and consistent accounting
policy is to be elected. EITF 07-1 also provides for disclosures regarding the
nature and purpose of the arrangement, the entity’s rights and obligations, the
accounting policy for the arrangement and the income statement classification
and amounts arising from the agreement.




EITF 07-1 will be effective for fiscal years
beginning after December 15, 2008, which will be the Company’s fiscal year 2009,
and will be applied as a change in accounting principle retrospectively for all
collaborative arrangements existing as of the effective date.




The Company does not expect the adoption of EITF
07-1on September 1, 2009 to have a material effect on its consolidated financial
position, results of operations or cash flows.




In June 2008, the FASB ratified the consensus on
Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception in paragraph 11(a) of SFAS
No. 133, for purposes of determining whether the instrument should be classified
as an equity instrument or accounted for as a derivative instrument. The
provisions of EITF Issue No. 07-5 are effective for financial statements issued
for fiscal years beginning after December 15, 2008 and will be applied
retrospectively through a cumulative effect adjustment to retained earnings for
outstanding instruments as of that date. The Company does not expect the
adoption of EITF 07-05 to have a material effect on its consolidated financial
position, results of operations or cash flows.




In March 2008, the FASB” issued SFAS No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is intended to
improve financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. Entities are required to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash flows. It
is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged. The Company does not expect
the adoption of SFAS No. 161 to have a material effect on its consolidated
financial position, results of operations or cash flows.




In April 2008, the FASB issued FSP No. FAS
142-3, “Determination of the
Useful Life of Intangible Assets”. This FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on September 1, 2009,
earlier adoption is prohibited. The guidance in FSP 142-3 for determining the
useful life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS
142-3 to have a material effect on its consolidated financial position, results
of operations or cash flows.




F-12




---





GEEKS ON CALL HOLDINGS, INC.NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATIONFEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)




Recent accounting
pronouncements (continued)




In May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” The Company does not expect the
adoption of SFAS No. 162 to have a material effect on its consolidated financial
position, results of operations or cash flows.




In May 2008, the FASB issued FSP Accounting
Principles Board (“APB”) 14-1 “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008 on a retroactive basis. The
Company is currently evaluating the potential impact, if any, of the adoption of
FSP APB 14-1 on its consolidated financial position, results of operations or
cash flows.




In May 2008, the FASB issued FASB Statement No.
163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies
how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”,
applies to financial guarantee insurance contracts issued by insurance
enterprises. The standard is effective for financial statements issued for
fiscal years beginning after December 15, 2008, including interim periods in
that year. The Company does not expect the adoption of SFAS 163 to have a
material effect on its consolidated financial statements.




In June 2008, the FASB issued FSP Emerging
Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
..” Under the FSP, unvested share-based payment awards that contain rights to
receive non-forfeitable dividends (whether paid or unpaid) are participating
securities, and should be included in the two-class method of computing EPS. The
FSP is effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. The Company does not expect the adoption of FSP EITF
No. 03-6-1 to have a material effect on its consolidated financial position,
results of operations or cash flows.




In October 2008, the FASB issued FSP SFAS No.
157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. It also reaffirms the notion of
fair value as an exit price as of the measurement date. This position was
effective upon issuance, including prior periods for which financial statements
have not been issued. The adoption had no impact on the Company’s consolidated
financial statements.




In December 2008, the FASB issued FSP 132(R)-1,
Employers’ Disclosures about Postretirement Benefit Plan Assets, which is
effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires
disclosures about fair value measurements of plan assets that would be similar
to the disclosures about fair value measurements required by SFAS 157. The
Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its
consolidated financial statements.




In December 2008, the FASB issued FSP SFAS 140-4
and FIN 46(R)-8, Disclosures about Transfers of Financial Assets and Interests
in Variable Interest Entities. The FSP requires extensive additional disclosure
by public entities with continuing involvement in transfers of financial assets
to special-purpose entities and with variable interest entities (VIEs),
including sponsors that have a variable interest in a VIE. This FSP became
effective for the first reporting period ending after December 15, 2008 and did
not have any material impact on the Company’s consolidated financial
statements.




F-13




---





GEEKS ON CALL HOLDINGS, INC.NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATIONFEBRUARY 28,
2009(unaudited)




NOTE 1 -
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)




Recent accounting
pronouncements (continued)




In January 2009, the FASB issued Financial
Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the
Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF
No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition
of Interest Income and Impairment on Purchased Beneficial Interests and
Beneficial Interests that Continue to be Held by a Transferor in Securitized
Financial Assets” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF No.
99-20-1 and it did not have a material impact on the consolidated financial
statements.




Other recent accounting pronouncements issued by
the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did
not, or are not believed by management to, have a material impact on the
Company’s present or future consolidated financial statements.




NOTE 2 -
GOING CONCERN MATTERS




The accompanying unaudited condensed
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying unaudited
condensed consolidated financial statements, the Company incurred a net loss
available to common stockholders of $2,270,503 and $1,667,120 for the six-month
periods ended February 28, 2009 and February 29, 2008, respectively.
Additionally, the Company has negative cash flows from operations of $1,025,898
for the six-month period ended February 28, 2009 and an accumulated deficit of
$12,675,134 as of February 28, 2009. These factors among others raised
substantial doubt about the Company’s ability to continue as a going concern.




The Company’s continued existence is dependent
upon management’s ability to develop profitable operations and resolve its
liquidity problems. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.




The Company is actively pursuing additional
equity or debt financing through discussions with private investors. However,
there can be no assurance that additional financing will be available from
external sources to the Company on satisfactory terms and conditions, if at all.
In the event that the Company is unable to continue as a going concern, the
Company may elect or be required to seek protection from its creditors by filing
a voluntary petition in bankruptcy or may be subject to an involuntary petition
in bankruptcy. To date, management has not considered this alternative, nor does
management view it as a likely occurrence.




NOTE 3 -
NOTES RECEIVABLE




Note receivables are recorded at cost, less
allowance for doubtful accounts, if applicable. Repayment of the notes
receivable is dependent on the performance of the underlying franchisees that
collateralize the notes receivable. An allowance, if applicable, is estimated
based on a comparison of amounts due to the estimated fair value of the
underlying franchisee. As of February 28, 2009 and August 31, 2008 allowance for
doubtful account balances for notes receivables was $77,244 and $48,320,
respectively.




At February 28, 2009 and August 31, 2008, the
notes receivable consist of bridge loans offered to franchisees during the
period which the franchisees are establishing their permanent financing with
third party lenders. The notes receivable bear interest at a rate of 9% per
annum and are recorded at face value. Interest is recognized over the lives of
the notes receivable.




F-14




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 3 –
NOTES RECEIVABLE (Continued)




A summary of the notes receivable are as follows:




February 28,2009
            
            August 31,2008Notes receivable, 9% per annum, secured by
      Franchisee
            
            $
            241,128
            
            $
            317,183Less: Current portion
            
            
            (74,941
            )
            
            (63,429
            )Long term portion
            
            $
            166,187
            
            $
            253,754


NOTE 4 –
LEASE RECEIVABLE




Lease receivable is recorded at cost, less
allowance for doubtful accounts, if applicable. The Company acquired and leased
certain equipment to a franchisee with a monthly installment receipt of $1,924
over one year. The franchisee provides a personal guarantee as collateral. The
lease receivable bears interest at a rate of 9% per annum and is recorded at
face value. Interest is recognized over the life of the lease receivable.




A summary of the lease receivable are as follows:




February 28,2009
            
            August 31,2008Lease receivable, 9% per annum, secured by
      Franchisee
            
            $
            2,731
            
            $
            19,119Less: Current portion
            
            
            (2,731
            )
            
            (19,119
            )Long term portion
            
            $
            —
            
            $
            —


NOTE 5 –
PREPAID EXPENSES AND OTHER CURRENT ASSETS




Prepaid expenses and other current assets consist primarily of
advance payments for advertising and marketing with various forms of media and
saleable promotional supplies or inventories as follows:




February 28,2009
            
            August 31,2008Prepaid expenses and other current
assets
            
            $
            286,097
            
            $
            139,214Prepaid advertising and marketing
            
            
            241,218
            
            
            173,192Promotional supplies and inventories, net of reserve for obsolete
      and slow moving inventory of $15,339 as of August 31, 2008
            
            
            —
            
            
            32,402$
            527,315
            
            $
            344,808


F-15




---





GEEKS ON CALL HOLDINGS, INC.NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATIONFEBRUARY 28,
2009(unaudited)




NOTE 6 –
PROPERTY AND EQUIPMENT




As of February 28, 2009 and August 31, 2008,
property and equipment was comprised of the following:




February 28,2009
            
            August 31,2008Office
      furniture and equipment
            
            $
            359,719
            
            $
            360,573Computer equipment
            
            
            420,155
            
            
            420,155Vehicles
            
            
            77,884
            
            
            77,884Software
            
            
            604,362
            
            
            604,362Leasehold improvements
            
            
            51,267
            
            
            51,2671,513,387
            
            
            1,514,241Less:
      accumulated depreciation
            
            
            (904,574
            )
            
            (782,935
            )$
            608,813
            
            $
            731,306


For the three month periods ended February 28, 2009 and
February 29, 2008, depreciation expense charged to operations was $60,814 and
$36,910, respectively.




For the six month periods ended February 28, 2009 and February
29, 2008, depreciation expense charged to operations was $121,639 and $73,058,
respectively.




NOTE 7 – TRADEMARKS




Trademarks are recorded at cost and are
amortized ratably over 15 years as summarized below:




February 28,2009
            
            August 31,2008Trademarks
            
            $
            14,333
            
            $
            14,333Less
      accumulated amortization
            
            
            (7,166
            )
            
            (6,689
            )$
            7,167
            
            $
            7,644


For the three month periods ended February 28, 2009 and
February 29, 2008, the amortization expense charged to operations was $237 and
$238, respectively.




For the six month periods ended February 28, 2009 and February
29, 2008, the amortization expense charged to operations was $477 and $478,
respectively.




NOTE 8 –
CUSTOMER LISTS




In March 2008, the Company acquired customer
lists for a purchase price of $154,500 payable over three years from the date of
purchase (See Note 12).




The Company has adopted SFAS No. 142, “Goodwill
and Other Intangible Assets”, whereby the Company periodically tests its
intangible assets for impairment. On an annual basis, and when there is reason
to suspect that their values have been diminished or impaired, these assets are
tested for impairment, and write-downs will be included in the results of
operations.




F-16




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 8 –
CUSTOMER LISTS (continued)




Customer lists are recorded at cost and are
amortized ratably over three years as summarized below:




February 28,2009
            
            August 31,2008Customer Lists at cost
            
            $
            105,500
            
            $
            154,500Impairment charge, see below
            
            
            —
            
            
            (49,000
            )Adjusted cost basis
            
            
            105,000
            
            
            105,000Less:Accumulated amortization
            
            
            (35,542
            )
            
            (21,458
            )$
            69,958
            
            $
            84,042


For the three month periods ended February 28,
2009 and February 29, 2008, the amortization expense charged to operations was
$5,791 and $-0-, respectively.




For the six month periods ended February 28,
2009 and February 29, 2008, the amortization expense charged to operations was
$14,084 and $-0-, respectively.




At August 31, 2008, the Company’s management
performed an evaluation of its intangible assets (customer lists) for purposes
of determining the implied fair value of the assets. The test indicated that the
recorded book value of the customer lists exceeded its fair value, as determined
by calculating a fair value based upon a discounted cash flows of the projected
and assumed fees from the current binding service agreements and other recurring
fees earned from these customer lists and accordingly recorded an impairment
charge of $49,000 to prior year’s results of operations at August 31, 2008. The
customer lists cost basis has been adjusted to reflect the new basis of $105,500
at August 31, 2008. Considerable management judgment is necessary to estimate
the fair value; these estimates of cash flows are significantly impacted by
estimates of revenues, costs, and other factors. Due to uncertainties in the
estimation process, actual results could differ from such estimates. There was
no impairment charged to operations for the three and six month periods ended
February 28, 2009 and February 29, 2008.




NOTE 9 –
FINANCING COSTS




From November 2008 through February 28, 2009,
the Company issued an aggregate of 2,738,884 warrants in connection with the
issuance of promissory notes and debt, including related party notes described
in Note 13. The warrants are exercisable for five years at $0.34 per share. The
fair value of the warrants were determined using the Black-Scholes Option
Pricing Model based on the following assumptions: dividend yield: -0-%,
volatility: 150.66% to 215.83%; risk free rate: 1.45% to 2.07%; expected life: 5
years.




The determined fair value of the warrants of
$466,490 is amortized ratably over the six month term of the promissory notes.




February 28,2009
            
            August 31,2008Financing costs
            
            $
            466,490
            
            $
            —Less
      accumulated amortization
            
            
            (183,113
            )
            
            —$
            283,377
            
            $
            —


For the three month periods ended February 28,
2009 and February 29, 2008, the amortization expense charged to operations was
$178,837 and $-0-, respectively.




For the six month periods ended February 28,
2009 and February 29, 2008, the amortization expense charged to operations was
$183,113 and $-0-, respectively.




F-17




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 10 -
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES




As of February 28, 2009 and August 31, 2008,
accounts payable and accrued liabilities are comprised of the following:




February 28,2009
            
            August 31,2008Accounts payable
            
            $
            2,067,092
            
            $
            1,783,905Accrued salaries and expenses
            
            
            371,918
            
            
            365,002Payroll taxes payable
            
            
            71,297
            
            
            6,285$
            2,510,307
            
            $
            2,155,192


NOTE 11 -
LINE OF CREDIT




In July 2008, the Company established a $400,000
revolving bank line of credit with a financial institution. Subsequently the
bank line was increased to $475,000 in December 2008. This facility is secured
by certain assets of the Company and is personally guaranteed by the Company’s
Chief Executive Officer.




Amounts advanced pursuant to the line of credit
are payable on demand at the discretion of the lender and will accrue interest
at the rate of 5.5% per annum. Monthly payments of accrued interest, payable in
cash, are calculated on the amount of credit outstanding beginning on August 7,
2008.




As of February 28, 2009 and August 31, 2008, the
Company has outstanding balances of $467,520 and $200,000, respectively on the
existing bank line of credit.




NOTE 12 -
NOTES PAYABLE




As of February 28, 2009 and August 31, 2008,
notes payable is comprised of the following:




February 28,2009
            
            August 31,2008Note
      payable, 4.5% per annum with monthly payment of $4,596, due April 2011;
      unsecured
            
            $
            113,389
            
            $
            138,088Note
      payable, prime plus 2% per annum, due September 8, 2008;
      unsecured.
            
            
            —
            
            
            200,000Note
      payable, prime plus 7% per annum, due June 30, 2009;
      unsecured.
            
            
            200,000
            
            
            —Note
      payable, prime plus 2% per annum, due September 18, 2008;
      unsecured
            
            
            —
            
            
            200,000Note
      payable, prime plus 4% per annum, due June 29, 2009;
    unsecured
            
            
            16,000
            
            
            —Note
      payable, prime plus 4% per annum, due July 3, 2009;
    unsecured
            
            
            20,000
            
            
            —Note
      payable, prime plus 4% per annum, due July 30, 2009;
    unsecured
            
            
            30,000
            
            
            —Note
      payable, approximately 35% imputed interest, open payment terms,
      secured
            
            
            35,847
            
            
            —Note
      payable, 5.5% per annum with monthly payments of $11,546, due December 25,
      2009, unsecured
            
            
            101,569
            
            
            —Less:
      current portion
            
            
            (454,510
            )
            
            (449,959
            )Long
      term portion
            
            $
            62,295
            
            $
            88,129


In March 2008, the Company issued an unsecured
note payable of $154,500, due in thirty-six monthly payments, to acquire the
rights and obligations to directly service customers previously serviced under
certain binding service agreements of a former franchisee. (see Note 8 above)




In June 2008, the Company entered into Short
Term Promissory Notes with two private investment sources in the amount of
$200,000 each for the total principle sum of $400,000, each bearing interest at
the prime rate plus two percent, as reported by the Wall Street Journal. The
Notes are payable on demand after ninety days from the date of the Notes.




F-18




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 12 -
NOTES PAYABLE (continued)




In October 2008, the Company paid the Short Term
Promissory Note originally due September 8, 2008. Additionally, on October 1,
2008 the Company issued a new Short Term Promissory Note to replace the Note
originally due September 18, 2008. The Short Term Promissory Note bears interest
at 7% per annum and was due on December 30, 2008. This short term promissory
note has been extended with the same terms and conditions and is now due on June
30, 2009.




As described in Note 9, in connection with the
extension of the above promissory note, the Company issued an aggregate of
1,176,471 warrants to purchase the Company’s common stock for five years from
the date of issuance at an exercise price of $0.34 per share.




In December 2008, the Company issued unsecured
promissory note in the principal amount of $16,000, due June 29, 2009 with an
interest rate of Wall Street Prime plus 4%, unsecured.




As described in Note 9, in connection with the
issuance of the above promissory note, the Company issued an aggregate of 94,118
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share.




In January 2009, the Company issued unsecured
promissory note in the principal amount of $20,000, due July 3, 2009 with an
interest rate of Wall Street Prime plus 4%, unsecured.




As described in Note 9, in connection with the
issuance of the above promissory note, the Company issued an aggregate of
117,647 warrants to purchase the Company’s common stock for five years from the
date of issuance at an exercise price of $0.34 per share.




In January 2009, the Company issued unsecured
promissory note in the principal amount of $30,000, due July 29, 2009 with an
interest rate of Wall Street Prime plus 4%, unsecured.




As described in Note 9, in connection with the
issuance of the above promissory note, the Company issued an aggregate of
176,471 warrants to purchase the Company’s common stock for five years from the
date of issuance at an exercise price of $0.34 per share




In February 2009, the Company borrowed $28,000
secured by future credit card processing. The note has a fixed $9,872.80
financing cost (estimated effective interest rate of 35%) and is payable at a
rate of 18% of future credit card processing. The prepaid financing costs are
amortized to interest expense over the term of the loan.




As described in Note 9, in connection with the
issuance of the above described loan, the Company issued an aggregate of 35,000
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share




In January 2009, the Company entered into a
financing agreement for the purpose of financing the Company’s annual insurance
premium. The agreement has an interest rate of 5.5% per annum, due in monthly
installments of $11,546; unsecured.




For the three and six month periods ended
February 28, 2009; interest expense of $3,663 and $-0- was charged to
operations, respectively.




NOTE 13 -
NOTES PAYABLE – RELATED PARTY




As of February 28, 2009 and August 31, 2008,
notes payable, related party is comprised of the following:




February 28,2009
            
            August 31,2008Note
      payable, prime plus 4% per annum, due May 26, 2009,
    unsecured
            
            $
            127,000
            
            $
            —Note
      payable, prime plus 4% per annum, due June 5, 2009;
    unsecured.
            
            
            25,000
            
            
            —Note
      payable, prime plus 4% per annum, due July 22, 2009;
      unsecured.
            
            
            29,000
            
            
            —Note
      payable, prime plus 4% per annum, due August 20, 2009;
      unsecured
            
            
            10,000
            
            
            —Less:
      current portion
            
            
            (191,000
            )
            
            —Long
      term portion
            
            $
            —
            
            $
            —


F-19




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 13 -
NOTES PAYABLE – RELATED PARTY (continued)




In November 2008, the Company issued unsecured promissory
notes in the aggregate principal amount of $130,000 to related parties, (two of
the Company’s officers), due May 26, 2009 with an interest rate of Wall Street
Prime plus 4%, unsecured. On January 6, 2009, $3,000 was paid towards the
related party notes.




As described in Note 9, in connection with the issuance of the
above related party promissory notes, the Company issued an aggregate of 764,706
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share.




In December 2008, the Company issued an
unsecured promissory note in the principal amount of $25,000 to a related party
(Company’s officer), due June 5, 2009 with an interest rate of Wall Street Prime
plus 4%, unsecured.




As described in Note 9, in connection with the
issuance of the above related party promissory note, the Company issued 147,059
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share.




In January 2009, the Company issued an unsecured
promissory note in the principal amount of $29,000 to a related party (Company’s
officer), due July 22, 2009 with an interest rate of Wall Street Prime plus 4%,
unsecured.




As described in Note 9, in connection with the
issuance of the above related party promissory note, the Company issued 170,588
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share.




In February 2009, the Company issued an
unsecured promissory note in the principal amount of $10,000 to a related party
(Company’s officer), due August 20, 2009 with an interest rate of Wall Street
Prime plus 4%, unsecured.




As described in Note 9, in connection with the
issuance of the above related party promissory note, the Company issued 58,824
warrants to purchase the Company’s common stock for five years from the date of
issuance at an exercise price of $0.34 per share.




For the three and six month period ended
February 28, 2009, interest expense of $3,161 and $3,277 was charged to
operations, respectively.




For the three and six month period ended
February 29, 2008, interest expense of $-0- was charged to operations.




NOTE 14 –
COMMITMENTS AND CONTINGENCIES




Litigation




The Company is subject to other legal
proceedings and claims, which arise in the ordinary course of its business.
Although occasional adverse decisions or settlements may occur, the Company
believes that the final disposition of such matters should not have a material
adverse effect on its financial position, results of operations or liquidity. In
December 2008, the Company was served with individual lawsuits from ten
franchisees. As of February 28, 2009, 6 of the suits had been settled by the
Company. None of the settlements resulted in any payment by the Company. The
Company intends to vigorously defend the remaining claims asserted against it.
Management believes the ultimate outcome of this matter will not have a material
adverse effect on the Company’s consolidated financial position, results of
operations or liquidity.




NOTE 15 -
STOCKHOLDERS’ EQUITY




Preferred stock




As of November 30, 2007, the Company was
authorized four classes of preferred stock: Class A has 200,000 authorized
shares; Class B has 167,130 authorized shares; Class C has 128,870 authorized
shares and Class D has 179,860 authorized shares. All classes have no par value.




On December 14, 2007, the Company amended and
restated its certificate of incorporation which authorized two classes of stock
“Common Stock” and “Preferred Stock”, respectively. The total number of shares
the Company is authorized to issue as common stock and preferred stock with par
value per share is five million seven hundred thousand (5,700,000) shares. Five
million (5,000,000) shares shall be $0.001 par value Common Stock and seven
hundred (700,000) shares shall be $0.001 par value Preferred stock. The
Preferred Stock may be issued from time to time in one or more classes.




F-20




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 15 -
STOCKHOLDERS’ EQUITY (continued)




As a result of the reverse Reorganization on
February 8, 2008 as described in Note 1 above, the Company is authorized to
issue 10,000,000 shares of $0.001 par value preferred stock and 100,000,000
shares of $0.001 par value common stock.




As of February 28, 2009 and August 31, 2008,
there were no issued and outstanding shares of preferred stock.




Common stock




The Company is authorized to issue 100,000,000
shares of its common stock with a par value of $.001. As of February 28, 2009
and August 31, 2008, there were 23,327,374 and 14,152,500 shares of common stock
issued and outstanding.




In connection with the Reorganization as
described on February 8, 2008; the Company split its outstanding shares of
common stock at a ratio of 1:2.115868. All references in the consolidated
financial statements and notes to consolidated financial statements, numbers of
shares and share amounts have been retroactively restated to reflect the split.




On December 14, 2007, the Company issued a total
of 2,097,756 shares of its common stock in exchange for 160,404 shares of Class
B Preferred stock and accrued and unpaid dividends.




On December 14, 2007, the Company issued a total
of 655,475 shares of its common stock is exchange for 119,784 shares of Class C
Preferred stock and accrued and unpaid dividends.




On December 14, 2007, the Company issued a total
of 552,225 shares of its common stock in exchange for 103,417 shares of Class D
Preferred stock and accrued and unpaid dividends.




On February 8, 2008, the Company accepted
subscriptions for 300 units, consisting of an aggregate of 3,000,000 shares of
the Company’s common stock and five-year warrants to purchase an aggregate of
1,500,000 shares of the Company’s common stock at an exercise price of $1.50 per
share. The shares and warrants were sold in connection with the Company’s
private placement conducted pursuant to the terms of a Confidential Private
Placement Memorandum, dated October 22, 2007, as supplemented by Supplement No.
1 dated December 21, 2007, Supplement No. 2 dated January 16, 2008 and
Supplement No. 3 dated January 31, 2008. The gross proceeds from the closing of
the Private Placement amounted to $3,000,000 (net proceeds of $2,591,400). The
Company issued 150,000 shares of its unregistered common stock and five-year
warrants to purchase an aggregate of 240,000 shares of the Company’s common
stock at an exercise price of $1.50 per share to the placement agent as partial
offering costs. These securities issued to the placement agent were fair valued
at $150,000. In addition, the Company has incurred additional offering costs of
$408,600, which were deducted against the gross proceeds of $3,000,000. The
Company has charged the total offering costs of $558,600 to the additional
paid-in capital account in connection with this Private Placement.




On February 21, 2008, the Company accepted
subscriptions for 65 units, consisting of an aggregate of 650,000 shares of the
Company’s common stock and five-year warrants purchasing an aggregate of 325,000
shares of the Company’s common stock at an exercise price of $1.50 per share.
The shares and warrants were sold in connection with the Company’s private
placement conducted pursuant to the terms of a Confidential Private Placement
Memorandum, dated October 22, 2007, as supplemented by Supplement No. 1 dated
December 21, 2007, Supplement No. 2 dated January 16, 2008 and Supplement No. 3
dated January 31, 2008. The gross proceeds from the second closing of the
Private Placement amounted to $650,000 (net proceeds of $605,503).




The Company issued five-year warrants to
purchase an aggregate of 52,000 shares of the Company’s common stock at an
exercise price of $1.50 per share to the placement agent in connection with the
Private Placement. The Company has incurred a total offering cost of $44,497
from this second closing of the Private Placement, which has been charged
against the additional paid-in capital account.




F-21




---





GEEKS ON CALL HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION FEBRUARY 28,
2009(unaudited)




NOTE 15 –
STOCKHOLDERS’ EQUITY (continued)




Common stock
(continued)




On April 1, 2008, the Company issued a total of
125,000 shares of its common stock in exchange for the purchase of software. The
Company valued the shares at $1.50 per share for a total of $187,500, which, in
combination with the cash payment of $100,000, represents the fair value of the
asset (aggregate of $287,500), received which did not differ materially from the
value of the stock issued and the cash payment made.




In June 2008, the Company issued a total of
42,500 shares of its common stock in exchange for services rendered. The Company
valued the shares at $1.00 per share for a total of $42,500, which represents
the fair value of the services, received which did not differ materially from
the value of the stock issued.




On August 22, 2008, the Company issued a total
of 15,000 shares of its common stock in exchange for services rendered. The
Company valued the shares at $0.77 per share for a total of $11,550, which
represents the fair value of the services, received which did not differ
materially from the value of the stock issued.




On August 28, 2008, the Company issued an
aggregate of 20,000 shares of its common stock in exchange for reacquiring an
existing franchise territory. The Company valued the shares at $0.43 per share
for a total of $8,600, which represents the fair value of the franchise
territory reacquired that has been charged to the results of operations, which
did not differ materially from the value of the stock issued.




On September 3, 2008, the Company issued an
aggregate of 15,000 shares of its common stock in exchange for services
rendered. The Company valued the shares at $0.70 per share for a total of
$10,500, which represents the fair value of the services, received which did not
differ materially from the value of the stock issued.




On September 30, 2008, in the first traunch of a
private placement offering, the Company sold to accredited investors a total of
24.75 units, consisting of 824,997 shares of its common stock and warrants to
purchase 412,495 shares of its common stock, at an aggregate offering price of
$495,000. Each share of common stock issued was sold as part of a unit that also
includes a warrant to purchase one-half share of common stock exercisable at
$0.75 per share, for a period ending on the fifth anniversary of the issuance of
the warrants. The Company paid the placement agent for the offering of these
units, aggregate placement fees of $49,500. The placement agent also received
warrants to purchase a total of 65,600 shares of the Company’s common stock,
exercisable at $0.75 per share, for a period ending on the fifth anniversary of
the final closing of the offering.




On October 15, 2008, October 16, 2008 and
October 23, 2008, the Company closed on three additional traunches of a private
placement offering (the “October Private Placement”) in which the Company sold
to accredited investors an aggregate of 8 units, consisting of an aggregate of
444,354 shares of common stock and warrants to purchase 222,175 shares of the
Company’s common stock, for aggregate proceeds of $160,000. Each share of common
stock issued was sold as part of a unit that also includes a warrant to purchase
one-half share of common stock exercisable at a price between $0.37 and $0.46
per share, for a period ending on the fifth anniversary of the issuance of the
warrants. The Company paid the placement agent for the offering of these units’
aggregate placement fees of $16,000. The placement agent also received warrants
to purchase a total of 35,546 shares of the Company’s common stock, exercisable
for a period ending on the fifth anniversary of the final closing of the
offering.




On October 20, 2008, the Company issued an
aggregate of 21,501 shares of its common stock in exchange for services
rendered. The Company valued the shares at $0.34 per share for a total of
$7,310, which represents the fair value of the services, received which did not
differ materially from the value of the stock issued.




On October 27, 2008, the Company issued an
aggregate of 970,588 shares of the Company’s common stock pursuant to certain
anti dilution provisions granted to investors in the private placement in
connection with the Reorganization in February 2008.




On November 4, 2008, the Company issued an
aggregate of 63,000 shares of its common stock in exchange for previously
incurred debt. The Company valued the shares at $0.34 per share for a total of
$21,420, which represents the fair value of the incurred debt which did not
differ materially from the value of the stock issued.




F-22




---





GEEKS ON CALL HOLDINGS,
      INC.NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL INFORMATIONFEBRUARY 28,
      2009(unaudited)


NOTE 15 –
STOCKHOLDERS’ EQUITY (continued)




Common stock
(continued)




On November 5, 2008, the Company closed a
private placement offering in which the Company sold to accredited investors one
unit consisting of 58,823 shares of its common stock and warrants to purchase
29,411 shares of its common stock, for aggregate proceeds of $20,000. Each share
of common stock issued was sold as part of a unit that also included a warrant
to purchase one-half share of common stock exercisable at $0.42 per share, for a
period ending on the fifth anniversary of the issuance of the warrants. The
Company paid the placement agent for the offering of this unit aggregate
placement fees of $2,000. The placement agent also received warrants to purchase
a total of 4,705 shares of the Company’s common stock, exercisable at $0.42 per
share, for a period ending on the fifth anniversary of the final closing of the
offering.




In January 2009, the Company issued an aggregate
of 6,321,611 shares of the Company’s common stock pursuant to certain anti
dilution provisions granted to investors in the private placement in connection
with the Reorganization in February 2008.




On February 27, 2009, the Company issued 455,000
shares of its common stock in exchange for services rendered in what management
deems to be a strategic transaction. The Company valued the shares at $0.20 per
share for a total of $91,000, which represents the fair value of the services,
received which did not differ materially from the value of the stock
issued




NOTE 16 –
WARRANTS AND OPTIONS




Warrants




The following table summarizes the warrants
outstanding and exercisable for the shares of the Company’s common stock issued
to officers, investors and placement agents of the Company. These warrants were
issued in lieu of cash compensation for services performed or financing expenses
in connection with the issuance of promissory notes and the sale of the
Company’s common stock. Warrants issued in connection with the private placement
of the Company’s common stock and possess all of the conditions for equity
classification and therefore were classified as equity.




Warrants Outstanding
            
            Warrants ExercisableExercise Price
            
            NumberOutstanding
            
            Weighted AverageRemaining Contractual Life (Years)
            
            Weighted Average Exercise Price
            
            NumberExercisable
            
            Weighted Average Exercise Price$
            0.34
            
            
            5,654,767
            
            
            4.49
            
            $
            0.34
            
            
            5,654,767
            
            $
            0.345,654,767
            
            
            
            
            
            
            
            
            5,654,767


Transactions involving warrants are summarized as
follows:




Number of Shares
            
            WeightedAverage PricePer ShareBalance, August 31, 2007
            
            
            —
            
            $
            —Granted
            
            
            2,117,000
            
            
            0.34
            *Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at August 31, 2008
            
            
            2,117,000
            
            $
            0.34
            *Granted
            
            
            3,537,767
            
            
            0.34
            *Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at February 28, 2009
            
            
            5,654,767
            
            $
            0.34


F-23




---





GEEKS ON CALL HOLDINGS,
      INC.NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL INFORMATIONFEBRUARY 28,
      2009(unaudited)


NOTE 16 -
WARRANTS AND OPTIONS (continued)




Warrants
(continued)




*Pursuant to the private placement agreement,
certain warrants contain certain anti-dilutive provisions. As described in Note
15 above, the Company sold common stock in private placements in September and
October 2008. The warrants issued in conjunction with such private placements
have been reset to an exercise price of $0.34 per share
accordingly.




In November 2008, the Company issued warrants to
purchase an aggregate of 764,706 shares of its common stock in connection with
the issuance of promissory notes to its two officers as described in Note 9
above. The warrants are exercisable for five years at $0.34 per share. The fair
value of the warrants were determined using the Black-Scholes Option Pricing
Model based on the following assumptions: dividend yield: -0-%, volatility:
150.66%; risk free rate: 2.01%; expected life: 5 years.




In December 2008, the Company issued warrants to
purchase an aggregate of 1,417,648 shares of its common stock in connection with
the issuance of promissory notes including related parties as described in
Note 9 above. The warrants are exercisable for five years at $0.34 per
share. The fair value of the warrants were determined using the Black-Scholes
Option Pricing Model based on the following assumptions: dividend yield: -0-%,
volatility: 204.32% to 214.37%; risk free rate: 1.45% to 1.67%; expected life: 5
years.




In January 2009, the Company issued warrants to
purchase an aggregate of 464,706 shares of its common stock in connection with
the issuance of promissory notes including related parties as described in
Note 9 above. The warrants are exercisable for five years at $0.34 per
share. The fair value of the warrants were determined using the Black-Scholes
Option Pricing Model based on the following assumptions: dividend yield: -0-%,
volatility: 213.66% to 215.13%; risk free rate: 1.61% to 1.85%; expected life: 5
years.




In January 2009, the Company issued warrants to
purchase 26,552 shares of its common stock in settlement of services rendered.
The warrants are exercisable for five years at $0.34 per share. The fair value
of the warrants were determined using the Black-Scholes Option Pricing Model
based on the following assumptions: dividend yield: -0-%, volatility: 214.37%;
risk free rate: 1.75%; expected life: 5 years.




In February 2009, the Company issued warrants to
purchase an aggregate of 93,824 shares of its common stock in connection with
the issuance of promissory notes including related parties as described in
Note 9 above. The warrants are exercisable for five years at $0.34 per
share. The fair value of the warrants were determined using the Black-Scholes
Option Pricing Model based on the following assumptions: dividend yield: -0-%,
volatility: 215.13% to 215.83%; risk free rate: 1.81% to 2.07%; expected life: 5
years.




Employee Stock
Options




Effective September 1, 2006, the Company adopted
the fair value recognition provisions of SFAS No. 123(R), “Share-Based Payment”,
using the modified prospective method. Under this method, the provisions of SFAS
No. 123(R) apply to all awards granted or modified after the date of adoption
and all previously granted awards not yet vested as of the date of adoption. The
initial adoption of this standard had no effect on the Company’s consolidated
financial statements as the Company had not granted any awards prior to February
8, 2008.




The following table summarizes the options
outstanding and exercisable for the shares of the Company’s common stock granted
to officers, employees and directors of the Company:




Options Outstanding
            
            Options ExercisableExercise Price
            
            Number Outstanding
            
            Weighted Average Remaining Contractual Life
      (Years)
            
            Weighted Average Exercise
    Price
            
            Number Exercisable
            
            Weighted Average
      ExercisePrice$
            0.11
            
            
            65,000
            
            
            5.79
            
            $
            0.11
            
            
            —$
            1.00
            
            
            2,285,000
            
            
            4.94
            
            $
            1.00
            
            
            757,000
            
            $
            1.00$
            1.05
            
            
            85,000
            
            
            5.55
            
            $
            1.05
            
            
            —$
            1.15
            
            
            150,000
            
            
            5.33
            
            $
            1.15
            
            
            —2,585,000
            
            
            5.00
            
            $
            0.99
            
            
            757,000
            
            $
            1.00


F-24




---





GEEKS ON CALL HOLDINGS,
      INC.NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL INFORMATIONFEBRUARY 28,
      2009(unaudited)


NOTE 16 -
WARRANTS AND OPTIONS (continued)




Employee Stock Options
(continued)




Transactions involving employee stock options are summarized
as follows:




Number ofShares
            
            WeightedAverage PricePer ShareBalance, August 31, 2007
            
            
            —
            
            $
            —Granted
            
            
            2,435,000
            
            
            1.01Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at August 31, 2008
            
            
            2,435,000
            
            $
            1.01Granted
            
            
            150,000
            
            
            0.65Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at February 28, 2009
            
            
            2,585,000
            
            $
            0.99


On February 8, 2008, the Board of Directors
approved the 2008 Equity Incentive Plan (the “Plan”) whereby the Plan is
intended as an incentive, to retain in the employ of and as directors, officers,
consultants, advisors and employees of the Company. The Plan provides for the
grant of incentive stock options and nonqualified stock options (collectively,
“Options,”) Option price and term are determined by the Plan Committee at the
time of grant. The vesting periods of the Options are determined by the Plan
Committee at the time of grant, however, in the absence of any Option vesting
periods designated by the Plan Committee at the time of grant, Options vest and
become exercisable at one-third of the total number of shares subject to the
grant on each of the first, second and third anniversaries of the date of grant.
The terms of the options are not to exceed ten years and in the case of an
incentive stock option granted to an optionee who, at time such incentive option
is granted, owns more than 10% of the total combined voting power of all classes
of stock of the Company, not to exceed five years.




The exercise price of the incentive
stock options shall not be less than 100% of the fair market value or the
prevailing market price of the stock at the time of grant provided, however,
with respect to an optionee who, at the time such incentive stock option is
granted, owns more than 10% of the total combined voting power of all classes of
stock of the Company, the exercise price shall not be less than 110% of the fair
market value per share of Stock on the grant date. The exercise price of the
nonqualified options shall not be less than 100% of the fair market value on the
grant date. The Company has reserved 3,000,000 shares of its common stock under
the Incentive Options plan.




On February 8, 2008, the Company granted options
to purchase an aggregate of 2,275,000 shares of its common stock to officers,
directors and employees at $1.00 per share over the next six years vested as
follows; options to purchase 300,000 shares of common stock vested immediately
and the remaining 1,975,000 options vest as to 20% on each anniversary of the
date of grant. The fair value, determined using the Black Scholes Option Pricing
Model, of the vested portion of the options of $690,015 was recorded as stock
compensation expense for the six month period ended February 28, 2009. The
following assumptions were utilized: Dividend yield: -0-%, volatility: 124.86%;
risk free rate: 2.60%; expected life: 6 years.




On February 29, 2008, the Company granted 10,000
options to an employee to purchase its common stock at $1.00 per share over the
next six years vesting 20% at each anniversary. The fair value, determined using
the Black Scholes Option Pricing Model, of the vested portion of the options of
$4,911 was recorded as stock compensation expense for the six month period ended
February 28, 2009. The following assumptions were utilized: Dividend yield:
-0-%, volatility: 124.86%; risk free rate: 2.50%; expected life: 6
years.




On July 1, 2008, the Company granted 150,000
options to an officer to purchase its common stock at $1.15 per share over the
next six years vesting 20% at each anniversary. The fair value, determined using
the Black Scholes Option Pricing Model, of the vested portion of the options of
$21,430 was recorded as stock compensation expense for the six month period
ended February 28, 2009. The following assumptions were utilized: Dividend
yield: -0-%, volatility: 148.04%; risk free rate: 3.33%; expected life: 6
years.




F-25




---





GEEKS ON CALL HOLDINGS,
      INC.NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL INFORMATIONFEBRUARY 28,
      2009(unaudited)


NOTE 16 -
WARRANTS AND OPTIONS (continued)




Employee Stock Options
(continued)




On September 18, 2008, the Company granted
85,000 options to an employee to purchase its common stock at $1.05 per share
over the next six years vesting 20% at each anniversary. The fair value,
determined using the Black Scholes Option Pricing Model, of the vested portion
of the options of $5,799 was recorded as stock compensation expense for the six
month period ended February 28, 2009. The following assumptions were utilized:
Dividend yield: -0-%, volatility: 144.50%; risk free rate: 2.59%; expected life:
6 years.




On December 15, 2008, the Company granted 65,000
options to an employee to purchase its common stock at $0.11 per share over the
next six years vesting 20% at each anniversary. The fair value, determined using
the Black Scholes Option Pricing Model, of the vested portion of the options of
$294 was recorded as stock compensation expense for the six month period ended
February 28, 2009. The following assumptions were utilized: Dividend yield:
-0-%, volatility: 205.52%; risk free rate: 1.50%; expected life: 6
years.




Non
- Employee Stock Options




The following table summarizes the options
outstanding and exercisable for the shares of the Company’s common stock granted
to non employees of the Company:




Options Outstanding
            
            Options ExercisableExercise Price
            
            Number Outstanding
            
            Weighted Average Remaining
      Contractual Life (Years)
            
            Weighted Average Exercise
      Price
            
            Number Exercisable
            
            Weighted Average Exercise
      Price$
            1.50
            
            
            50,000
            
            
            5.27
            
            $
            1.50
            
            
            50,000
            
            $
            1.50


Transactions involving non employee stock options are
summarized as follows:




Number of Shares
            
            WeightedAverage PricePer
      ShareBalance, August 31, 2007
            
            
            —
            
            $
            —Granted
            
            
            50,000
            
            
            1.50Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at August 31, 2008
            
            
            50,000
            
            $
            1.50Granted
            
            
            —
            
            
            —Exercised
            
            
            —
            
            
            —Canceled / Forfeited / Expired
            
            
            —
            
            
            —Outstanding at February 28, 2009
            
            
            50,000
            
            $
            1.50


On June 9, 2008, the Company granted 50,000
options with a six year term to consultants to purchase its common stock at
$1.50 per share 50% of these options vest 90 days after issuance and 50% of
these options vest 180 days after issuance. The fair value, determined using the
Black Scholes Option Pricing Model, of the vested portion of the options of
$20,473 was recorded as stock compensation expense for the six month period
ended February 28, 2009. The following assumptions were utilized: dividend
yield: -0-%, volatility: 142.75% to 198.37%; risk free rate: 1.67% to 2.96%;
expected life: 6 years.




F-26




---





GEEKS ON CALL HOLDINGS,
      INC.NOTES TO CONDENSED CONSOLIDATED
      FINANCIAL INFORMATIONFEBRUARY 28,
      2009(unaudited)


NOTE 17 -
RELATED PARTY TRANSACTIONS




As of February 28, 2009 and August 31, 2008,
certain employees owed the Company $-0- and $48, respectively, for travel and
other advances. These advances have been included in the accompanying
consolidated balance sheets under the caption, prepaid expenses and other
current assets. Subsequent to November 30, 2008, all advances have been
repaid.




In October 2007, the Company entered into an
exclusive private label/marketing agreement (the “Agreement”) with Telkonet,
Inc. (a major supplier of the Company) for products under the trade name Geek
Link System. Pursuant to the Agreement, the Company was to resale these private
labeled products to customers through the Company’s existing network of
franchisees. In addition, the Company, Telkonet, Inc. and certain stockholders
of the Company entered into an agreement whereby Telkonet, Inc. acquired
2,454,500 shares of the Company’s common stock from these existing stockholders,
which in effect transferred 39.6% ownership in the Company to Telkonet, Inc. by
these stockholders. Telkonet Inc.’s ownership of the Company decreased to 10.52%
as of February 28, 2009.




On February 8, 2008, we entered into a
consulting agreement with Douglas Glenn, a member of our board of directors. The
term of the agreement is two years. Mr. Glenn receives an annual consulting fee
of $50,000, which is payable in monthly installments. In the event we undergo a
change of control, the aggregate balance of consulting fee will become
immediately due and payable.




Mr. Glenn also received, immediately upon
the consummation of the Merger, 150,000 options with a six year term. Twenty
percent of the options will vest on each of the
first five anniversaries of the date of grant. The options have
an exercise price of $1.00 per share.




Mr. Glenn who is a member of our Board of
Directors is an officer of the financial institution that currently holds our
line of credit. We believe that the terms of this credit facility are favorable
to us, or alternatively, are materially consistent with those terms that would
have been obtained by us in an arrangement with an unaffiliated third
party.




During the six month period ended February 28,
2009, the Company issued an aggregate of $191,000 in promissory notes (net of
repayments of $3,000) to related parties, (two of the Company’s officers), due
six months from issuance with maturity dates ranging from May 26, 2009 to August
20, 2009, and an interest rate of Wall Street Prime plus 4%,
unsecured.




As described in Note 9, in connection with the
issuance of the above related parties promissory notes, the Company issued an
aggregate of 1,139,177 warrants to purchase the Company’s common stock for five
years from the date of issuance at an exercise price of $0.34 per
share.




NOTE 18 –
FAIR VALUE MEASUREMENT




The financial assets of the Company measured at
fair value on a recurring basis are cash equivalents. The Company’s cash
equivalents are generally classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices, broker or dealer
quotations, or alternative pricing sources with reasonable levels of price
transparency. The Company’s long-term notes receivable are classified within
Level 3 of the fair value hierarchy because they are valued using unobservable
inputs, due to the fact that observable inputs are not available, or situations
in which there is little, if any, market activity for the asset or liability at
the measurement date. The Company’s long term liabilities and other deferred
liabilities are classified within Level 3 of the fair value hierarchy because
they are valued using inputs which are not actively observable, either directly
or indirectly.




•
            Level 1: Unadjusted quoted prices in
      active markets that are accessible at the measurement date for identical,
      unrestricted assets or liabilities;•
            Level 2: Quoted prices in markets that are
      not active, or inputs which are observable, either directly or indirectly,
      for substantially the full term of the asset or liability;
    or•
            Level 3: Prices or valuation techniques
      that require inputs that are both significant to the fair value
      measurement and are unobservable.


The following table sets forth the Company’s
short-and long-term notes receivable as of February 28, 2009 which are
measured at fair value on a recurring basis by level within the fair value
hierarchy. As required by SFAS No. 157, these are classified based on
the lowest level of input that is significant to the fair value
measurement:




F-27




---





GEEKS ON CALL HOLDINGS, INC.NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATIONFEBRUARY 28,
2009(unaudited)




NOTE 18 –
FAIR VALUE MEASUREMENT (continued)




Level 1
            
            Level 2
            
            Level 3
            
            Assets at
      fairvalueCash
      and cash equivalents
            
            $
            21,640
            
            $
            —
            
            $
            —
            
            $
            21,640Notes
      receivable
            
            
            —
            
            
            —
            
            
            208,178
            
            
            208,178Sub-total
            
            
            21,640
            
            
            —
            
            
            208,178
            
            
            229,818Long-term debt and other deferred liabilities
            
            
            —
            
            
            —
            
            
            128,474
            
            
            128,474Total
            
            $
            21,640
            
            $
            —
            
            $
            336,652
            
            $
            358,292


NOTE 19 –
SUBSEQUENT EVENTS




On March 2, 2009, the Company issued warrants to
purchase an aggregate of 58,824 shares of common stock in connection with the
issuance of a promissory note to an investor. The warrants are exercisable for
five years at $0.34 per share.




On March 10, 2009, the Company entered into an agreement, that
management deems to be strategic, with a third party to negotiate and resolve
its indebtedness with certain creditors. Under the terms of the agreement the
Company has agreed to issue 450,000 shares of the Company's common stock. Also,
per the agreement the third party could receive an additional 1,000,000 shares
of the Company's common stock with the amount of common stock, contingent upon
the negotiated settlement amount of debt reduction in settlement agreements with
the Company's creditors. The Company has yet to execute any settlement
agreements, nor can there be any assurance that the Company will have adequate
financing to pay the negotiated settlement amounts in accordance with such
agreements.




On March 10, 2009, the Company borrowed $7,000 secured by
future credit card processing. The note has a fixed $2,468 financing cost
(estimated effective interest rate of 35%) and is payable at a rate of 18% of
future credit card processing.




F-28




---





Item 2. Management’s Discussion and Analysis of Financial Condition and
Results of Operation




The
following discussion and analysis should be read in conjunction with our
condensed consolidated financial statements and related notes appearing
elsewhere in this quarterly report on Form 10-Q. In addition to historical
information, this discussion and analysis contains forward-looking statements
that involve risks, uncertainties, and assumptions. Our actual results may
differ materially from those anticipated in these forward-looking statements as
a result of certain factors, including but not limited to those set forth under
“Risk Factors” in our annual report on Form 10-K filed with the SEC on December
4, 2008.




Management’s
discussion and analysis of financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates and assumptions,
including, but not limited to, those related to revenue recognition, allowance
for doubtful accounts, income taxes, goodwill and other intangible assets, and
contingencies and litigation. 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 and assumptions.




Company
Overview




Our operating
subsidiary, Geeks On Call America, Inc., was formed in June 2001 and provides
rapid-response, on-site computer solutions to residential customers, small to
medium sized businesses and national accounts across the United States. On-site
solutions are provided through a network of independent franchised service
providers, as well as a national network of certified IT professionals,
conducting business under the trade names “1-800-905-GEEK,” and “Geeks On Call.”
Our on-site support services include troubleshooting, maintaining, upgrading and
networking computers, and service programs, designed to establish a long-term
relationship with the client. Additionally, we provide training and consulting
to our clients at their home or business location. Our mission is to bring
state-of-the-art technology products and computer solutions directly to
customers at their locations and eliminate the inconvenience of traveling to a
traditional retailer or depot service center. Geeks on Call provides IT service
and solutions in all 50 States.




Corporate
History




The Company’s operating subsidiary, Geeks On
Call America, Inc., was incorporated under the laws of the State of Virginia on
June 11, 2001 and subsequently reincorporated on December 14, 2007 under the
laws of the State of Delaware. Between 2001 and 2008 The Company experienced
tremendous growth in its franchise network, granting franchises in more than 30
States, thus creating one of the most highly recognizable brands in the IT
services industry. In 2008 the company began to augment its franchise network
through the establishment of its preferred provider network made up of certified
trained and tested third party IT professionals who meet the same standards as
our franchise technicians. As of April 2009 the Company now provides on-site IT
solutions in all 50 States.




Geeks On Call Holdings, Inc. was created through a reverse
merger process with Lightview, Inc, which was incorporated under the laws of the
State of Nevada on December 22, 2006 under the name Lightview, Inc,
(“Lightview”) and formerly operated as a development stage company. On January
23, 2008, Lightview merged with and into Geeks On Call Holdings, Inc., a
newly-formed wholly owned subsidiary of Lightview, for the sole purpose of
reincorporating in the State of Delaware and changing the name of the company.
Thereafter, on February 8, 2008, Geeks On Call America, Inc., Geeks On Call
Holdings, Inc. and Geeks On Call Acquisition Corp, a newly-formed wholly-owned
subsidiary of Geeks On Call Holdings, Inc. (“Acquisition Corp.”), entered into a
merger agreement (the “Merger Agreement”). Upon closing of the merger
transaction contemplated under the Merger Agreement, Acquisition Corp. merged
with and into Geeks On Call America, Inc., and Geeks On Call America, Inc., as
the surviving corporation, became the sole wholly-owned operating subsidiary.
The consolidated financial statements include the accounts of Geeks On Call
Holdings, Inc., the registrant and Geeks On Call America, Inc., the sole
wholly-owned operating subsidiary (collectively, the “Company”).




1




---





Results of
Operations




Our revenues are derived primarily from royalties and
advertising and marketing fees earned from operating franchises and fees
earned from the sales of franchise territories. Fees from the sale of franchises
are recognized in income in the period that substantially all services and
conditions relating to the sale under our franchise agreement have been
performed, typically the period in which the franchisee has completed and passed
our training class.




Three Months Ended February 28, 2009
compared to Three Months Ended February 29, 2008




Revenue




The following
table summarizes our revenues for the three months ended February 28, 2009 and
February 29, 2008:




Three months
      endedFebruary
      28,2009
            
            February
      29,2008Total Revenue
            
            $
            886,865
            
            $
            1,411,063  For the
three months ended February 28, 2009, revenue decreased by 37%, as compared to
the same period in 2008. This decrease in revenue in the amount of $524,198 was
primarily attributable to a reduction in 16 franchise owners and their 56
respective franchised territories, their corresponding advertising and marketing
and royalty revenues, a reduction in the granting of new franchises, and the
implementation of the Reboot Plan explained below. The Company, in conjunction
with their Franchise Advisory Council, created a program for the franchisees
(the “Reboot Plan”) designed to reduce the regular advertising and marketing
fees paid into the advertising and marketing fund by franchises. The rationale
for the reduction is to focus more of the franchise owner’s resources locally on
local advertising and marketing. The net result of the Reboot Plan is a
reduction in advertising and marketing fees paid by the franchisees to the
Company. In the Reboot Plan, advertising and marketing fees will be scaled back
over a 12 month period. The first reduction took place in September 2008. The
second reduction took place in the first full week of April 2009. The final
reduction is scheduled to take place in the first full week of September 2009.
The net effect of the plan will reflect a reduction in overall advertising and
marketing revenues but will be offset by a proportionate reduction in
advertising and marketing spending.


Operating
Loss




The following
table summarizes our operating loss for the three months ended February 28, 2009
and February 29, 2008:




Three months
      endedFebruary
      28,2009
            
            February
      29,2008Operating income (loss)
            
            $
            (892,887
            )
            $
            (1,188,083
            )


Operating
expenses, which consist of selling, general and administrative expenses,
advertising and marketing and depreciation and amortization totaled $1,779,752
for the three months ended February 28, 2009, as compared to $2,599,146 for the
three months ended February 29, 2008, representing a decrease of approximately
32%. Our operating loss for the three months ended February 28, 2009 was
$892,887 as compared to an operating loss of $1,188,083 for the three months
ended February 29, 2008, representing a decrease in operating loss of
approximately 25%. Our operating loss decreased due to increased selling,
general and administrative expenses as explained below and off set by a
reduction in advertising and marketing expenses


Selling,
General and Administrative Expenses




The following
table summarizes our selling, general and administrative expenses for the three
months ended February 28, 2009 and February 29, 2008:




Three months
      endedFebruary
      28,2009
            
            February
      29,2008Selling, general and administrative
    expenses
            
            $
            1,532,619
            
            $
            1,688,374


For the three
months ended February 28, 2009, selling, general and administrative expenses
were $1,532,619 as compared to $1,688,374 for the three months ended February
29, 2008, a decrease of $155,755, or 9%. The decrease in selling, general and
administrative expenses of $155,755 are mainly attributable to the following
five areas and other direct and/or indirect overhead expenses.




2




---





Professional fees




We
achieved a reduction of approximately $192,000, related to maintaining our
public company administration and compliance including professional fees
associated with the reporting and filing requirements reflected in the February
2008 quarterly report, which included initial costs associated with becoming a
publicly traded company. For the three months ended February 28, 2009, we
incurred approximately $194,000 in legal, accounting and reporting expenses
compared to approximately $386,000 in similar costs during the for the three
months ended February 29, 2008.




Inventory
write-off




We
incurred an expense of approximately $40,000 for the three months ended February
28, 2009 as compared to $-0- for the three months ended February 29, 2008 due to
the write-off of obsolete and slow moving inventory.


Reduction in staffing
overhead




We
achieved an expense reduction of approximately $32,000 for the three months
ended February 28, 2009 over the three months ended February 29, 2008 in
connection with changing our field service technician model to a third party
provider model which eliminated all costs associated with their employment and
allows for greater margins going forward, we further reduced corporate staff to
be in line with current business objectives.




Stock based compensation




We
incurred non cash expenses for the vesting of options previously issued to
officers, directors, employees and consultants of approximately $117,000 and the
issuance of restricted stock for consulting fees of approximately $91,000 for
the three months ended February 28, 2009 as compared to approximately $264,000
for the three months ended February 29, 2008.




Bad
debt




We
incurred a non cash expense of approximately $167,000 for the three months
ended February 28, 2009 as compared to approximately $64,000 for the three
months ended February 29, 2008 due to an increase in the allowance for a loss
provision on accounts and loan receivables resulting from franchise owners who
defaulted on their contractual obligations under their franchise agreements.




Advertising
and Marketing




The following
table summarizes our advertising and marketing expense for the three months
ended February 28, 2009 and February 29, 2008:




Three months
      endedFebruary
      28,2009
            
            February
      29,2008Advertising and marketing expense
            
            $
            180,291
            
            $
            873,622


For the three
months ended February 28, 2009, we attribute $180,291 compared to $873,622 for
the three months ended February 29, 2008 to expenses related to advertising and
marketing and support of the national brand of the Company. The decrease in
advertising and marketing expense was directly related to a reduction in the
number of active operating franchises, and in conjunction with the Franchise
Advisory Council, a program for the Company’s franchisees (the ”Reboot Plan”)
designed to reduce the regular advertising and marketing fees paid into the
advertising and marketing fund by franchises in order to enable them to spend
the savings on advertising and marketing activities in their local markets. In
the Reboot Plan, advertising and marketing fees will be scaled back over a 12
month period. The first reduction took place in September 2008. The second
reduction took place the first full week of April 2009. The final reduction is
scheduled to take place the first full week of September 2009. The net effect of
the Reboot Plan will reflect a reduction in overall marketing and advertising
revenues and a proportionate reduction in our overall advertising and marketing
spending




Depreciation
and Amortization




The following
table summarizes our depreciation and amortization for the three months ended
February 28, 2009 and February 29, 2008:




Three months
      endedFebruary
      28,2009
            
            February
      29,2008Depreciation and amortization
            
            $
            66,842
            
            $
            37,150


Depreciation
and amortization increased by $29,692 for the three months ended February 28,
2009 compared to the three months ended February 29, 2008. The increase is
attributed to the increase in depreciable assets.




3




---





Six Months Ended February 28, 2009
compared to Six Months Ended February 29, 2008




Revenue




The following
table summarizes our revenues for the six months ended February 28, 2009 and
February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Total Revenue
            
            $
            1,882,095
            
            $
            3,016,134


For the six
months ended February 28, 2009, revenue decreased by 38%, as compared to the
same period in 2008. This decrease in revenue in the amount of $1,134,039 was
primarily attributable to a reduction in 16 franchise owners and their 56
respective franchised territories, their corresponding advertising and marketing
and royalty revenues, a reduction in the granting of new franchises, and the
implementation of the Reboot Plan explained below. The Company, in conjunction
with their Franchise Advisory Council, created a program for the franchisees
(the “Reboot Plan”) designed to reduce the regular advertising and marketing
fees paid into the advertising and marketing fund by franchisees. The rationale
for the reduction is to focus more of the franchise owner’s resources locally on
local advertising and marketing. The net result of the Reboot Plan is a
reduction in advertising and markting fees paid by the franchisees to the
Company. In the Reboot Plan, advertising and marketing fees will be scaled back
over a 12 month period. The first reduction took place in September 2008. The
second reduction took place in the first full week of April 2009. The
final reduction is scheduled to take place in the first full week of September
2009. The net effect of the plan will reflect a reduction in overall advertising
and marketing revenues but will be offset by a proportionate reduction in
advertising and marketing spending.




Operating
Loss




The following
table summarizes our operating loss for the six months ended February 28, 2009
and February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Operating income (loss)
            
            $
            (2,056,039
            )
            $
            (1,596,118
            )


Operating expenses, which consist of selling, general and
administrative expenses, advertising and marketing and depreciation and
amortization totaled $3,938,134 for the six months ended February 28, 2009, as
compared to $4,612,252 for the six months ended February 29, 2008, representing
a decrease of approximately 15%. Our operating loss for the six months ended
February 28, 2009 was $2,056,039 as compared to an operating loss of $1,596,118
for the six months ended February 29, 2008, representing an increase in
operating loss of approximately 29%. Our operating loss increased due to
increased selling, general and administrative expenses as explained below and
off set by a reduction in advertising and marketing expense.




Selling,
General and Administrative Expenses




The following
table summarizes our selling, general and administrative expenses for the six
months ended February 28, 2009 and February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Selling, general and administrative
    expenses
            
            $
            3,278,518
            
            $
            2,666,395


For the six
months ended February 28, 2009, selling, general and administrative expenses
were $3,278,518 as compared to $2,666,395 for the six months ended February 29,
2008, an increase of $612,123, or 23%. The increase in selling, general and
administrative expenses of $612,123 are mainly attributable to these five areas
and other direct and/or indirect overhead expenses.




Professional fees




We achieved a
reduction of approximately $175,000, related to maintaining our public company
administration and compliance including professional fees associated with the
reporting and filing requirements reflected in the February 2008 quarterly
report, which included initial costs associated with becoming a publicly traded
company. For the six months ended February 28, 2009, we incurred approximately
$366,000 in legal, accounting and reporting expenses compared to approximately
$541,000 in similar costs for the six months ended February 29, 2008.




4




---





Inventory
write-off




We
incurred an expense of approximately $40,000 for the six months ended February
28, 2009 as compared to $-0- for the six months ended February 29, 2008 due to
the write-off of obsolete and slow moving inventory.




Reduction in staffing
overhead




We
incurred an expense of approximately $309,000 for the six months ended February
28, 2009 in connection with the costs of personnel for our field service
technicians as compared to approximately $30,000 for the six months ended
February 29, 2008. For the six months ended February 28, 2009 we employed
approximately 14 field service technicians as compared to 6 during the previous
year’s comparable period, or an addition of 8 technicians. For the six months
ended February 28, 2009 we modified our field service technician model by moving
to a third party provider model which will eliminate all costs associated with
the employment of our field service technicians and allow for greater margins
going forward, we further reduced corporate staff to be in line with current
business objectives.




Stock based compensation




We
incurred non cash expenses for the vesting of options previously issued to
officers, directors, employees and consultants of approximately $478,000 and the
issuance of restricted stock for consulting fees of approximately $142,000 for
the six months ended February 28, 2009 as compared to approximately $264,000 for
the same period last year.




Bad
debt




We
incurred a non cash expense of approximately $167,000 for the six months ended
February 28, 2009 as compared to approximately $64,000 for the six months ended
February 29, 2008 due to an increase in the allowance for a loss provision on
accounts and loan receivables resulting from franchise owners who defaulted on
their contractual obligations under their franchise agreements.




Advertising
and Marketing




The following
table summarizes our advertising and marketing expense for the six months ended
February 28, 2009 and February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Advertising and Marketing expense
            
            $
            523,416
            
            $
            1,872,321


For the six
months ended February 28, 2009, we attribute $523,416 compared to $1,872,321 for
the six months ended February 29, 2008 to expenses related to advertising and
marketing and support of the national brand of the Company. The decrease in
advertising and marketing expense was directly related to a reduction in the
number of active operating franchises, and in conjunction with the Franchise
Advisory Council, a program for the Company’s franchisees (the Reboot Plan”)
designed to reduce the regular advertising and marketing fees paid into the
advertising and marketing fund by franchises in order to enable them to
spend the savings on advertising and marketing activities in their local
markets. In the Reboot Plan, advertising and marketing fees will be scaled back
over a 12 month period.. The first reduction took place in September 2008. The
second reduction took place the first full week of April 2009. The final
reduction is scheduled to take place in September 2009. The net effect of
the Reboot Plan will reflect a reduction in overall advertising and marketing
spending.




Depreciation
and Amortization




The following
table summarizes our depreciation and amortization for the six months ended
February 28, 2009 and February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Depreciation and amortization
            
            $
            136,200
            
            $
            73,536


Depreciation
and amortization increased by $62,664 for the six months ended February 28, 2009
compared to the six months ended February 29, 2008. The increase is attributed
to the increase in depreciable assets.




5




---





Liquidity and Capital
Resources




Net Cash Used
in Operating Activities




The following
table summarizes our net cash used in operating activities for the six months
ended February 28, 2009 and February 29, 2008:




Six months
      endedFebruary
      28,2009
            
            February
      29,2008Net cash used in operating activities
            
            $
            1,025,898
            
            $
            1,727,103


Cash utilized
in operating activities was $1,025,898 for the six months ended February 28,
2009, as compared to $1,727,103 for the six months ended February 29, 2008. The
decrease was primarily due to the reduction in costs associated with filing
requirements to be a public company, investor relations, and the hiring of
additional staff and consultants as compared to the six months ended February
29, 2008. In addition, the Company issued common stock, warrants, and granted
stock options in exchange for services and compensation for the six months ended
February 28, 2009 as compared to cash payments made for the six months ended
February 29, 2008.




Net Cash
Provided by (Used in) Investing Activities




The following
table summarizes our net cash provided by (used in) investing activities for the
six months ended February 28, 2009 and February 29, 2008:




Six Months
      EndedFebruary
      28,2009
            
            February
      29,2008Net cash provided (used in) investing
      activities
            
            $
            63,520
            
            $
            (64,975
            )


Net cash
provided in investing activities totaled $63,520 for the six months ended
February 28, 2009 as compared to net cash used in investing activities of
$64,975 for the six months ended February 29, 2008. The difference in cash
provided in investing activities was mainly attributable from collections of
loan payments from franchisees and others during the six months ended February
28, 2009.




Net Cash
Provided by Financing Activities




The following
table summarizes our net cash provided by financing activities for the six
months ended February 28, 2009 and February 29, 2008:




Six Months
      EndedFebruary
      28,2009
            
            February
      29,2008Net cash provided by financing
activities
            
            $
            806,519
            
            $
            2,875,107


Net cash
provided by financing activities totaled $806,519 for the six months ended
February 28, 2009, as compared to $2,875,107 for the six months ended February
29, 2008. The reason for the decrease was primarily attributable to the decrease
in proceeds from the sale of common stock in connection with certain private
placements of our common stock of only $513,401 for the six months ended as
compared to $3,196,903 for the six months ended February 29, 2008. In addition,
the Company received proceeds from issuance of new notes payable to investors
and related parties and proceeds from our line of credit which totaled $560,367
during the six months ended February 28, 2009 and off set by repayments of notes
payable and capital lease obligation of $267,249.




The
accompanying financial statements have been prepared assuming that we will
continue as a going concern, which contemplates the realization of assets and
the satisfaction of liabilities in the normal course of business. However, our
ability to continue as a going concern will be dependent upon our ability to
generate sufficient cash flow from operations to meet our obligations on a
timely basis, to obtain additional financing, and ultimately attain
profitability.




Our liquidity
needs consist of our working capital requirements and indebtedness payments.
Historically, we have financed our operations through the sale of equity and
convertible debt as well as borrowings from various credit sources.




6




---





Liquidity and Capital Resources
(continued)




As
of February 28, 2009, we had a working capital deficit of $2,684,306 as compared
to a working capital deficit of $2,200,645 at August 31, 2008. For the six
months ended February 28, 2009, we generated a net cash flow deficit from
operating activities of $1,025,898 consisting primarily of year to date losses
of $2,270,503, adjusted primarily for stock based compensation of $591,694,
increase of operating assets and liabilities, net changes of $165,508, and
depreciation and amortization of $136,200. Cash provided by investing activities
totaled $63,520, consisting of loan payments received from franchisees and
others of $63,520. Cash provided by financing activities for the six months
ended February 28, 2009 totaled $806,519 consisting of $513,401of proceeds from
the sale of common stock subscriptions, proceeds from issuance of notes payable
and line of credit in the amount of $560,367, less repayments of previously
incurred debt of $267,249.




While we have
raised capital to meet our working capital and financing needs in the past, we
have recently reduced our operational overhead to the point where we generate
sufficient monthly recurring revenue to conduct our normal business operations.
We continue to seek additional financing in order to fund the expansion and
infrastructure of our operations on a National level and to eliminate existing
short term financial indebtedness. Exploitation of potential revenue sources
will be financed primarily through available working capital, the sale of
securities and convertible debt, exercise of outstanding warrants, issuance of
notes payable and other debt or a combination thereof, depending upon the
transaction size, market conditions and other factors.




However, if
during that period or thereafter, we are not successful in generating sufficient
working capital from operations or in raising sufficient capital resources, on
terms acceptable to us, this could have a material adverse effect on our
business, results of operations liquidity and financial condition. No assurance
can be given that any source of additional cash will be available to us. If no
source of additional cash is available to us, we may have to significantly
reduce the scope of our operations or possibly seek court protection from
creditors or cease business operations altogether.




Off-Balance
Sheet Arrangements




Since our inception we have not engaged in any off-balance
sheet arrangements, including the use or structured finance, special purpose
entities or variable interest entities.




Critical
Accounting Policies and Estimates




The SEC has issued Financial Reporting Release No. 60, “Cautionary Advice Regarding
Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting
companies provide additional disclosure and commentary on their most critical
accounting policies. In FRR 60, the SEC has defined the most critical accounting
policies as the ones that are most important to the portrayal of a company’s
financial condition and operating results, and require management to make its
most difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Based on this definition,
our most critical accounting policies include: (a) use of estimates in the
preparation of financial statements; (b) stock-based compensation arrangements;
(c) revenue recognition; and (d) long-lived assets. The methods, estimates and
judgments we use in applying these most critical accounting policies have a
significant impact on the results we report in our consolidated financial
statements.




Use of
Estimates in the Preparation of Consolidated Financial
Statements




The preparation of the consolidated financial statements
included in this annual report requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses, and
related disclosure of contingent assets and liabilities. On an on-going basis,
we evaluate these estimates, including those related to revenue recognition and
concentration of credit risk. We base our estimates on historical experience and
on various other assumptions that is 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.




Stock-Based
Compensation Arrangements




We intend to issue shares of common stock to various
individuals and entities for management, legal, consulting and marketing
services. These issuances will be valued at the fair market value of the service
provided and the number of shares issued is determined, based upon the open
market closing price of common stock as of the date of each respective
transaction. These transactions will be reflected as a component of selling,
general and administrative expenses in the accompanying statement of
operations.




7




---





Revenue
Recognition




The Company accounts for revenue under the
guidance provided by SFAS No. 45, “Accounting for Franchise Fee Revenue (as
amended)” and EITF 00-21, “Revenue Arrangements with Multiple Deliverables”.




Franchise fee revenue is recognized when (i) all material
obligations of the Company to prepare the franchisee for operations have been
substantially completed; and (ii) all material initial services to be provided
by the Company have been performed, with an appropriate provision for estimated
uncollectible amounts. Obligations to prepare the franchisee for operations are
substantially completed upon the completion by the franchisee of the Company’s
training program.




There are no other material conditions or commitments or
obligations that exist related to the determination of substantial performance
or substantial completion of the franchise agreement.




Area
Development Sales




Area developer sales, wherein the Company sells the rights to
develop a territory or market, are nonrefundable fees recognized as revenue upon
signature of the Area Development Agreement and substantial completion of all of
the Company’s obligations associated with the opening of the first franchise
under the agreement have been met. Substantial completion includes, but is not
limited to, conducting market and trade area analysis, a meeting with the
Company’s Executive Team, and performing potential franchise background
investigation, all of which are completed prior to our execution of the Area
Development Agreement and receipt of the corresponding area development fee. As
a result, the Company recognizes this fee in full upon receipt and with the
opening of the first franchise under the Area Development Agreement.




No additional substantive services required after the first
franchise is opened under the Area Development Agreement.




Advertising and Marketing
and Royalty Fees




Initial advertising and marketing fees are recognized when the
territory is open and the related advertising and marketing has been performed.
Ongoing royalties and advertising and marketing fees are recognized currently as
the franchised territory generates sales and ongoing advertising and marketing
is performed.




Repossessed Franchises




From time to time the Company may recover franchise rights
through repossession if a franchisee decides not to open a franchise. If, for
any reason, the Company refunds the consideration received, the original sale is
canceled, and revenue previously recognized is accounted for as a reduction in
revenue in the period the franchise is repossessed. If franchise rights are
repossessed but no refund is made (a) the transaction is not regarded as a sale
cancellation, (b) no adjustment is made to any previously recognized revenue,
(c) any estimated uncollectible amounts resulting from unpaid receivables is
provided for, and (d) any consideration retained for which revenue was not
previously recognized is reported as revenue.




Deferred Franchise Fees




The Company may receive all or part of the initial franchise
or advertising fee prior to the execution of the franchise agreement of
completion of the earnings process. These amounts are classified as deferred
revenue until the fee qualifies to be recognized as revenue or is refunded.




Long-lived
Assets




Long-lived assets to be held and used are analyzed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. We evaluate at each balance
sheet date whether events and circumstances have occurred that indicate possible
impairment. If there are indications of impairment, we use future undiscounted
cash flows of the related asset or asset grouping over the remaining life in
measuring whether the assets are recoverable. In the event such cash flows are
not expected to be sufficient to recover the recorded asset values, the assets
are written down to their estimated fair value. Long-lived assets to be disposed
of are reported at the lower of carrying amount or fair value of asset less the
cost to sell.




Recent accounting
pronouncements




In December 2007, the FASB issued SFAS No.
141(R), “Business
Combinations” (“SFAS No. 141(R)”), which establishes principles and
requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in an acquiree, including the recognition and
measurement of goodwill acquired in a business combination. SFAS No. 141R is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company does not expect
the adoption of SFAS No. 141R on September 1, 2009 will have a material effect
on its consolidated financial position, results of operations or cash flows.




8




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Recent accounting
pronouncements (continued)




In December 2007, the FASB issued SFAS No. 160,
“Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS No.
160”), which will change the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
component of equity within the consolidated balance sheets. SFAS No. 160 is
effective as of the beginning of the first fiscal year beginning on or after
December 15, 2008. Earlier adoption is prohibited. The Company does not expect
the adoption of SFAS No. 160 on September 1, 2009 to have a material effect on
its consolidated financial position, results of operations or cash flows.




In December 2007, the FASB ratified the
consensus in Emerging Issues Task Force (EITF) Issue No. 07-1, “Accounting for
Collaborative Arrangements” (EITF 07-1). EITF 07-1 defines collaborative
arrangements and requires collaborators to present the result of activities for
which they act as the principal on a gross basis and report any payments
received from (made to) the other collaborators based on other applicable
authoritative accounting literature, and in the absence of other applicable
authoritative literature, on a reasonable, rational and consistent accounting
policy is to be elected. EITF 07-1 also provides for disclosures regarding the
nature and purpose of the arrangement, the entity’s rights and obligations, the
accounting policy for the arrangement and the income statement classification
and amounts arising from the agreement.




EITF 07-1 will be effective for fiscal years
beginning after December 15, 2008, which will be the Company’s fiscal year 2009,
and will be applied as a change in accounting principle retrospectively for all
collaborative arrangements existing as of the effective date.




The Company does not expect the adoption of EITF
07-1on September 1, 2009 to have a material effect on its consolidated financial
position, results of operations or cash flows.




In June 2008, the FASB ratified the consensus on
Emerging Issues Task Force (EITF) Issue 07-5, “Determining whether an Instrument
(or Embedded Feature) is indexed to an Entity’s Own Stock.” This issue addresses
whether an instrument (or an embedded feature) is indexed to an entity’s own
stock, which is the first part of the scope exception in paragraph 11(a) of SFAS
No. 133, for purposes of determining whether the instrument should be classified
as an equity instrument or accounted for as a derivative instrument. The
provisions of EITF Issue No. 07-5 are effective for financial statements issued
for fiscal years beginning after December 15, 2008 and will be applied
retrospectively through a cumulative effect adjustment to retained earnings for
outstanding instruments as of that date. The Company does not expect the
adoption of EITF 07-05 to have a material effect on its consolidated financial
position, results of operations or cash flows.




In March 2008, the FASB” issued SFAS No. 161,
“Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”). SFAS No. 161 is intended to
improve financial standards for derivative instruments and hedging activities by
requiring enhanced disclosures to enable investors to better understand their
effects on an entity’s financial position, financial performance, and cash
flows. Entities are required to provide enhanced disclosures about: (a) how and
why an entity uses derivative instruments; (b) how derivative instruments and
related hedged items are accounted for under SFAS No. 133 and its related
interpretations; and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance and cash flows. It
is effective for financial statements issued for fiscal years beginning after
November 15, 2008, with early adoption encouraged. The Company does not expect
the adoption of SFAS No. 161 to have a material effect on its consolidated
financial position, results of operations or cash flows.




In April 2008, the FASB issued FSP No. FAS
142-3, “Determination of the
Useful Life of Intangible Assets”. This FSP amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SFAS No. 142,
“Goodwill and Other Intangible
Assets”. The Company is required to adopt FSP 142-3 on September 1, 2009,
earlier adoption is prohibited. The guidance in FSP 142-3 for determining the
useful life of a recognized intangible asset shall be applied prospectively to
intangible assets acquired after adoption, and the disclosure requirements shall
be applied prospectively to all intangible assets recognized as of, and
subsequent to, adoption. The Company does not expect the adoption of FSP No. FAS
142-3 to have a material effect on its consolidated financial position, results
of operations or cash flows.




In May 2008, the FASB issued SFAS No. 162,
“The Hierarchy of Generally
Accepted Accounting Principles” (“SFAS No. 162”). SFAS No. 162 identifies
the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental
entities that are presented in conformity with generally accepted accounting
principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” The Company does not expect the
adoption of SFAS No. 162 to have a material effect on its consolidated financial
position, results of operations or cash flows.




9




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Recent accounting
pronouncements (continued)




In May 2008, the FASB issued FSP Accounting
Principles Board (“APB”) 14-1 “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)” (“FSP APB 14-1”). FSP APB 14-1 requires the issuer of
certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity
(conversion option) components of the instrument in a manner that reflects the
issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for
fiscal years beginning after December 15, 2008 on a retroactive basis. The
Company is currently evaluating the potential impact, if any, of the adoption of
FSP APB 14-1 on its consolidated financial position, results of operations or
cash flows.




In May 2008, the FASB issued FASB Statement No.
163, “Accounting for Financial Guarantee Insurance Contracts”, which clarifies
how FASB Statement No. 60, “Accounting and Reporting by Insurance Enterprises”,
applies to financial guarantee insurance contracts issued by insurance
enterprises. The standard is effective for financial statements issued for
fiscal years beginning after December 15, 2008, including interim periods in
that year. The Company does not expect the adoption of SFAS 163 to have a
material effect on its consolidated financial statements.




In June 2008, the FASB issued FSP Emerging
Issues Task Force (EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities
..” Under the FSP, unvested share-based payment awards that contain rights to
receive non-forfeitable dividends (whether paid or unpaid) are participating
securities, and should be included in the two-class method of computing EPS. The
FSP is effective for fiscal years beginning after December 15, 2008, and interim
periods within those years. The Company does not expect the adoption of FSP EITF
No. 03-6-1 to have a material effect on its consolidated financial position,
results of operations or cash flows.




In October 2008, the FASB issued FSP SFAS No.
157-3, “Determining the Fair Value of a Financial Asset When the Market for That
Asset Is Not Active.” This position clarifies the application of SFAS No. 157 in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active. It also reaffirms the notion of
fair value as an exit price as of the measurement date. This position was
effective upon issuance, including prior periods for which financial statements
have not been issued. The adoption had no impact on the Company’s consolidated
financial statements.




In December 2008, the FASB issued FSP 132(R)-1,
Employers’ Disclosures about Postretirement Benefit Plan Assets, which is
effective for fiscal years ending after December 15, 2009. FSP 132(R)-1 requires
disclosures about fair value measurements of plan assets that would be similar
to the disclosures about fair value measurements required by SFAS 157. The
Company is assessing the potential effect of the adoption of FSP 132(R)-1 on its
consolidated financial statements.




In December 2008, the FASB issued FSP SFAS 140-4 and FIN
46(R)-8, Disclosures about Transfers of Financial Assets and Interests in
Variable Interest Entities. The FSP requires extensive additional disclosure by
public entities with continuing involvement in transfers of financial assets to
special-purpose entities and with variable interest entities (VIEs), including
sponsors that have a variable interest in a VIE. This FSP became effective for
the first reporting period ending after December 15, 2008 and did not have any
material impact on the Company’s consolidated financial statements.




In January 2009, the FASB issued Financial
Statement of Position (“FSP”) Issue No. EITF 99-20-1, “Amendments to the
Impairment Guidance of EITF Issue No. 99-20” (“FSP EITF No. 99-20-1”). FSP EITF
No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20, “Recognition
of Interest Income and Impairment on Purchased Beneficial Interests and
Beneficial Interests that Continue to be Held by a Transferor in Securitized
Financial Assets” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred. The Company adopted FSP EITF No.
99-20-1 and it did not have a material impact on the consolidated financial
statements.




Other recent accounting pronouncements issued by
the FASB (including its Emerging Issues Task Force), the AICPA, and the SEC did
not, or are not believed by management to, have a material impact on the
Company’s present or future consolidated financial statements.




Going Concern
Matters




The accompanying unaudited condensed
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. As shown in the accompanying unaudited
condensed consolidated financial statements, the Company incurred a net loss
available to common stockholders of $2,270,503 and $1,667,120 for the six month
period ended February 28, 2009 and February 29, 2008, respectively.
Additionally, the Company has negative cash flows from operations of $1,025,898
for the six month period ended February 28, 2009 and an accumulated deficit of
$12,675,134 as of February 28, 2009. These factors among others raised
substantial doubt about the Company’s ability to continue as a going concern.




10




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Going Concern
Matters (continued)




The Company’s continued existence is dependent
upon management’s ability to develop profitable operations and resolve its
liquidity problems. The accompanying consolidated financial statements do not
include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a going concern.




The Company is actively pursuing additional
equity or debt financing through discussions with private investors. However,
there can be no assurance that any additional financing will be available from
external sources to the Company on satisfactory terms and conditions, if at all.
In the event that the Company is unable to continue as a going concern, the
Company may elect or be required to seek protection from its creditors by filing
a voluntary petition in bankruptcy or may be subject to an involuntary petition
in bankruptcy. To date, management has not considered this alternative, nor does
management view it as a likely occurrence.




Item 4T.
            Controls and Procedures


Evaluation of Disclosure
Controls and Procedures




Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed by us in the reports that we file under the Exchange
Act is accumulated and communicated to our management, including our principal
executive and financial officers, as appropriate to allow timely decisions
regarding required disclosure.




Our
management, under the supervision and with the participation of our Chief
Executive Officer, Mr. Richard T. Cole, our Executive VP and Chief Operating
Officer, Mr. Richard G. Artese and our Vice-President of Finance, Mr. Keith W.
Wesp, carried out an evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures (as defined in Rule 13a-15(e) and
15d-15(e) of the Exchange Act) as of February 28, 2009. Based on our internal
evaluation, our Chief Executive Officer, Chief Operating Officer and
Vice-President of Finance concluded that our disclosure controls and procedures
were effective as of February 28, 2009.




Limitations on Effectiveness
of Controls and Procedures




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




Changes in Internal Control
over Financial Reporting




During our year end reporting management conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the
Exchange Act) as of August 31, 2008. Based upon that evaluation of our internal
control over financial reporting as described below under “Management’s Report
on Internal Control over Financial Reporting,” the Chief Executive Officer,
Chief Operating Officer and Vice-President of Finance concluded that our
disclosure controls and procedures were ineffective as of the year end report
due to insufficient resources within the finance department. As of February 28,
2009 management had rectified the identified problems by recruiting and hiring
additional financial and accounting personnel to prepare and analyze financial
information in a timely manner and to allow review and on-going monitoring and
enhancement of our controls. Subsequent
to February 28, 2009, some of the individuals were laid off due to a work force
reduction and we have yet to access the impact of such layoffs on our disclosure
and procedure controls.




11




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PART II OTHER
INFORMATION




Item 1.
            Legal
      Proceedings


The Company is subject to other legal
proceedings and claims, which arise in the ordinary course of its business.
Although occasional adverse decisions or settlements may occur, the Company
believes that the final disposition of such matters should not have a material
adverse effect on its financial position, results of operations or liquidity. In
December 2008, the Company was served with individual lawsuits from ten
franchisees. As of February 28, 2009, 6 of the suits had been settled by the
Company. None of the settlements resulted in any payment by the Company. On
March 19, 2009 the court entered the dismissal order with prejudice on 5 of the
6 settled lawsuits. The sixth settle lawsuit was dismissed with prejudice on
April 3, 2009. On May 1, 2009, the court dismissed 3 of the remaining 4
outstanding lawsuits with no significant financial impact to the Company. As of
May 15, 2009 the Company continues to work towards resolving the one remaining
lawsuit. The Company intends to vigorously defend the claim asserted against it.
Management believes the ultimate outcome of this matter will not have a material
adverse effect on the Company’ s consolidated financial position, results of operations or liquidity.




On March
12, 2009, the Company filed 3 lawsuits in connection with enforcing guarantees
for payments of past due royalties and advertising and marketing fees from
franchisees that have filed bankruptcy in the amount of approximately
$200,000.




Item 1A.
            Risk
      FactorsNone.Item 2.
            Unregistered Sales of Equity
      Securities and Use of Proceeds


On November
26, 2008, we issued warrants to purchase an aggregate of 764,706 shares of
common stock in connection with the issuance of promissory notes to two of our
officers. The warrants are exercisable for five years at $0.34 per share.




On December
5, 2008, we issued warrants to purchase an aggregate of 147,059 shares of common
stock in connection with the issuance of a promissory note to one of our
officers. The warrants are exercisable for five years at $0.34 per share.




On December
29, 2008, we issued warrants to purchase an aggregate of 94,118 shares of common
stock in connection with the issuance of a promissory note to an investor. The
warrants are exercisable for five years at $0.34 per share.




On December
30, 2008, we issued warrants to purchase an aggregate of 1,176,471 shares of
common stock in connection with the issuance of a promissory note to an
investor. The warrants are exercisable for five years at $0.34 per share.




On January 3,
2009, we issued warrants to purchase an aggregate of 117,647 shares of common
stock in connection with the issuance of a promissory note to an investor. The
warrants are exercisable for five years at $0.34 per share.




On January 9,
2009, we issued warrants to purchase an aggregate of 176,471 shares of common
stock in connection with the issuance of a promissory note to an investor. The
warrants are exercisable for five years at $0.34 per share.




On January
22, 2009, we issued warrants to purchase an aggregate of 170,588 shares of
common stock in connection with the issuance of a promissory note to one of our
officers. The warrants are exercisable for five years at $0.34 per share.




On February
20, 2009, we issued warrants to purchase an aggregate of 58,824 shares of common
stock in connection with the issuance of a promissory note to one of our
officers. The warrants are exercisable for five years at $0.34 per share.




On February
26, 2009, we issued warrants to purchase an aggregate of 35,000 shares of common
stock in connection with the issuance of a promissory note to an investor. The
warrants are exercisable for five years at $0.34 per share.




On March 2,
2009, we issued warrants to purchase an aggregate of 58,824 shares of common
stock in connection with the issuance of a promissory note to an investor. The
warrants are exercisable for five years at $0.34 per share.




12




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Item 3.
            Defaults Upon Senior SecuritiesNoneItem 4.
            Submission of Matters to a Vote
      of Security HoldersNoneItem 5.
            Other
      InformationNoneItem 6.
            Exhibits


ExhibitNo.
            
            Description31.1*
            
            Section 302 Certification by the Principal Executive
      Officer31.2*
            
            Section 302 Certification by the Principal Financial
      Officer32.1*
            
            Section 906 Certification by the Principal Executive
      Officer and the Principal Financial
Officer


---

* Filed herewith




SIGNATURES




Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.




GEEKS ON CALL HOLDINGS, INC.Date:
            May 15, 2009
            By:
            /s/ Richard T. ColeRichard T. ColeChief Executive Officer(Principal Executive Officer)Date:
            May 15, 2009
            By:
            /s/ Keith W. WespKeith WespVice-President of Finance(Principal Financial
Officer)


13




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